Bitcoin is back! Maybe it is, maybe it isn't, but it's safe to say the past several days of price action in the king of cryptocurrencies has been interesting.
After spending much of the past several months mired in a slump that roughly cut its value in half, bitcoin rallied last week with the help of “The B Word Conference.” Long story short, ARK Investment Management founder, CEO, and CIO Cathie Wood, “Technoking” of Tesla and chief engineer of SpaceX Elon Musk, and Jack Dorsey, CEO of Twitter and Square headlined that confab. It's almost impossible to get a smarter pro-bitcoin trio together at the same time.
From there, bitcoin rallied over the weekend, extending those gains on Monday amid speculation Amazon (NASDAQ:AMZN) could be close to accepting the digital currency as payment. That commotion was started by a job opening on the company's careers site, but some of the gains were given back when the e-commerce giant said it won't be accepting bitcoin next year.
What comes of this recent spurt remains to be seen, but it is another opportunity for advisors to have the crypto conversation.
How to Have the Crypto Conversation
Regardless of bitcoin price action, or that of any other digital asset, the fact remains clients, broadly speaking, are interested in this asset class and data suggest if they're not getting assistance from an advisors, they're nonetheless engaging in crypto.
WisdomTree points 72% of advisors believe clients are investing in crypto on their own. There's a fair chance the number is actually higher, meaning there's plenty of opportunity for advisors to add value and protection here, but they themselves must be crypto knowledgeable, including being able to clearly articulate familiar bitcoin comparisons. Help is here.
“What makes Bitcoin a useful portfolio asset? The dominating narrative today among users is the analogy of digital gold,” notes WisdomTree. “In a world of deficit spending and money printing (printing of paper is up 30% in the U.S. since the pandemic) investors know there's going to be a fixed amount of Bitcoin in circulation—ultimately capped at 21 million. So far, almost 19 million have been created, and fewer new Bitcoin are mined each year.”
While the “digital gold” comparison is a practical foundation for many advisors, WisdomTree data indicate more than half of advisors polled feel “very uncomfortable” or “uncomfortable” discussing crypto with clients, but fewer than 20% feel “very comfortable” or “comfortable” having those conversations.
Boning Up on Bitcoin
An efficient avenue for advisors to become well-versed in crypto is to start with “backbone” and infrastructure concepts, such as blockchain and mining. These are approachable ideas because equities are involved and a little homework here paves the way for broader crypto knowledge.
“Essentially, Blockchain is the underlying technology that supports a given cryptocurrency, and the type of cryptocurrency is the unit of value being spent. Without going heavily into detail, a blockchain bolts together existing technologies—such as cybersecurity, encryption and cryptography techniques—to create a user-efficient , trustless, decentralized method of transferring value,” adds WisdomTree.
That's just one example. Other areas where advisors can add value include dispelling bitcoin myths, allocation recommendations and helping clients themselves gain some working knowledge of underlying crypto technology. Point is this asset class, despite all its critics, isn't going away. Clients are only getting more interested and advisors need to position to service that trend.
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