Cryptocurrency’s role has changed dramatically within mainstream media, the investing world, and in the minds of financial advisors and investors. Cryptocurrency began as a laughable pricing scheme that would never catch on. But it attracted die-hard fans disillusioned with the current market, the dollar’s decline, and traditional banking power. As cryptocurrencies like Bitcoin gained traction and press, more investors began seeing potential for greater gains.
Yet still, traditional financial institutions resoundingly dismiss crypto.
Reasons for Financial Advisors’ Rejection of Cryptocurrency
Financial advisors have complicated reasons for opposing crypto exchanges. Most advisors prefer to stick to more familiar traditional investments products like stocks, bonds, annuities, and more.
Additionally, advisors lack incentive to offer crypto. In most cases, advisors have to refer a client to another platform to execute the transaction. In other words, even advisors familiar with the cryptocurrency market will be unlikely to recommend it if the platform is elsewhere.
But while banks cautioned financial advisors against crypto and recent short-sale trends, this hasn’t stopping some advisors from privately experimenting with it themselves. Many advisors couldn’t resist the opportunity to play around with currency and a new market; After all, watching money is their job.
Why Some Financial Advisors Moved to Adopt Crypto
Reasons why more financial advisors manage crypto in their clients’ portfolios include hedging against inflation, meeting client demands, and staying competitive in the market.
Both advisors and laymen believe some cryptocurrencies including Bitcoin, Ethereum, and others could serve as a hedge against inflation. Inflation occurs when the supply of money is too high and each individual bill loses value. Crypto is not subject to inflation.
For instance, only a certain amount of Bitcoin can exist (supposedly 21 million), meaning the supply is capped and will one day be exhausted. Many believe the dollar has the potential for unlimited inflation since an infinite amount of bills can be printed. Since cryptocurrency is capped, it would not experience the same decline in value.
It’s important to note that while crypto has the potential for high gains, it also has the potential for high risks. But despite the well-known risk, more and more people invest in crypto each year. CNBC found that 13% of Americans invested in or traded cryptocurrency as of July 2021. It’s becoming a vehicle for investment the same way previous generations use the stock market.
Lastly, KYC, or “know your client,” is critical in the financial services industry. Crypto also presents a unique opportunity for advisors to capture the attention of younger generations of investors. Advisors must embrace the new form of currency to some extent in order to best serve the new generation of investors.
Using Alternative Investment Platforms
While there are crypto-specific platforms such as Coinbase, it’s been difficult for advisors to track cryptocurrencies with traditional methods.
Fintech is changing the game, though, in many ways for both advisors and investors. Alternative investment management platforms such as AltExchange provide individuals and financial advisors the opportunity to track crypto alongside all other alternative investments. (Sign up here to start monitoring cryptocurrency and other alternative investments.)
Overall, it’s imperative for financial advisors to understand, embrace, and offer investment opportunities in cryptocurrency for current clients as well as the future generations of investors.