crypto financial advisor

What Crypto Financial Advisors Need to Know

Whether it’s Bitcoin, Ethereum or Tether (or even Dogecoin), cryptocurrencies are having a moment right now. Recent surveys show that 14 percent of Americans now own at least one cryptocurrency, with an additional 20 percent planning to purchase it over the next year. All of which means interest in digital assets is at an all-time high. Financial advisors who aren’t yet up to speed on how cryptos work — or where they fall in the world of cryptocurrency wealth management — are quickly scrambling to meet these increasing demands.

With news that larger banks are starting to allow for crypto exposure for their high net-worth clients, it’s become clear that what was once considered a fad is now making its way into the mainstream of American financial consciousness.

What Are Cryptocurrencies?

In short, cryptocurrencies are digital assets with transactions that are verified by encrypted codes rather than a single authority. When an investor purchases, say, a single Bitcoin, the transaction comes with a high level of anonymity, a fact that serves as an enticement to buyers and sellers, but one that has drawn the attention of federal regulators, as well. This emerging asset class is certainly gaining momentum in use cases and populations around the globe, with many considering it to be a compelling alternative to the highly-regulated fiat currency used throughout most of the world.

As cryptocurrency piques the interest of investors everywhere, financial advisors are working to understand its overall place in the portfolios of both everyday investors and high net-worth individuals.

How Are Advisors Dealing With Cryptocurrencies Currently?

The core thing a financial advisor will need to take into account with cryptocurrencies is the need to have a view into an investor’s total net worth and assets. Without this full picture, the advice will be less accurate, less precise and, as a result, less personalized.

Once cryptocurrency is part of a portfolio, the eventual goal is to provide a robust experience, much in the way advisors might gather data from more traditional accounts and arrive at an accurate net worth calculation. If an investor is over-weighted or underweighted in a certain category, the advisor can then make recommendations to rebalance the overall portfolio. The right tools will allow investors to share details of their crypto holdings with personal finance apps as well as banks, mortgage brokers and financial services professionals.

To date, traditional advisors have shown some resistance to crypto-based transactions, but as more investors seek this type of support, the status quo is changing. Investors are looking for exposure to these elements through digital asset securities as a diversified part of their overall portfolio.

For small investments, tools such as Coinbase and Gemini may be sufficient. For the bigger players in the space, many are turning to their FSPs for guidance , due to the fact that cryptos are classified as assets by the Securities and Exchange Commission.

The Future of Crypto

As cryptocurrencies gain steam, more FinTechs will be rolling out coverage to fill this gap. The ultimate aim is to add cryptocurrency holdings into standard workflows. As this space opens up, FinTech’s understand the value of having an aggregation partner for adding new assets such as crypto.

Over the next few years, we anticipate a widening gap between tech-savvy investors and those with a more traditional approach. As advisors wade into the waters of crypto, they will need someone to provide the right tools to gain a complete understanding of an investor’s net worth and to serve an ever-increasing demand.

Crypto-enabled wallets and credit cards are likely to see growth, with many traditional players now entering the space. True, there are some pending regulatory concerns that could impact everyone involved, but the exponential growth of cryptos could mean wider acceptance at federal levels as they become more mainstream.

At Yodlee, we’ve been a trusted partner for more than 100,000 advisors for more than 20 years. Whatever your questions or concerns are around cryptocurrencies, know that we will be keeping a close eye on these assets and their evolution. Stay tuned.