How To Discuss Crypto With Clients

Among the myriad reasons clients enjoy working with registered investment advisors are the quest for knowledge and increased educational opportunities. That’s not to say advisors are teachers, but there elements of that profession in working with clients.

As advisors know, some asset classes more than others are conducive to producing elevated client inquiries while stoking more educational opportunities. Bitcoin and the broader cryptocurrency space certainly fit that bill. That’s particularly true at a time when there’s increasing speculation that U.S. regulators may have no choice but to finally approve a spot bitcoin exchange traded fund(s).

With or without a spot bitcoin ETF, crypto is a prime avenue for education and client connection for a simple reason: Many clients are already interested. Plus, some are already investing in the asset class on their own and with bitcoin being just 15 years old, indicating it’s young compared to other assets and that youth breeds questions.

With those factors and more in mind, it’s worth for it advisors to adopt at least a working knowledge of crypto because clients are expecting it.

Of Bitcoin and Blockchains

Digital currencies are often compared to commodities, but the former cannot be held in one’s hands nor do they transact on exchanges. Rather, they’re bought and sold on via the blockchain.

“Every time someone sends or receives a cryptocurrency, that transaction is recorded on a block. Once enough transactions are recorded on a block, it's added to a chain of previous blocks—hence the term ‘blockchain,’” according to VanEck research. “The decentralization of this ledger—meaning it's simultaneously maintained by numerous participants globally—ensures its security. If someone tries to alter transaction data on one block, it would conflict with the information held by others, causing the alteration to be rejected. This feature is what allows cryptocurrencies to operate without a central authority and makes them resistant to fraud.”

Interestingly, blockchain technology is a prime opportunity for client engagement because it’s about much more than crypto. It’s usage case has grown to include old guard industries and it’s not dependent on crypto drive that thesis.

One of the primary reasons companies are examining investments in blockchain, crypto or Web3 is that they realize the traditional financial services system is antiquated. When it comes to innovative technologies, of which blockchain is one, it’s lead, follow or get out of the way. That is it to say there’s value in blockchain because it can help early adopters beat rivals.

As for bitcoin, that’s the largest digital currency by market value and the one clients are most likely familiar with. Here’s a quick primer from VanEck on explaining it to newbies.

“Bitcoin, introduced in 2009, was the first cryptocurrency and remains the most widely recognized. Think of it as the ‘gold standard’ of crypto,” adds the fund issuer. “Many investors view it as a store of value, like gold or silver, but in a digital form. Its decentralized nature – meaning it's not controlled by any government or central bank – has made it especially attractive to a broad audience.”

Going Beyond Bitcoin

As noted above, bitcoin is the largest cryptocurrency, but there more than 9,200 others on the market. Some are legitimate. Many more are not.

When it comes to clients expanding crypto horizons beyond bitcoin, the safe way to go is with the next largest digital asset – ethereum, which spawned smart contracts.

“Let’s think of a traditional contract, like an agreement to buy a car. Usually, you'd involve third parties like banks or lawyers to ensure everyone keeps their promises. Now, imagine a digital contract that automatically does what it's supposed to when certain conditions are met, without needing a middleman. That's a smart contract!,” concludes VanEck. “Ethereum is a platform that allows these smart contracts to operate. It has its own cryptocurrency called Ether, which powers these contracts and ensures they run smoothly.”

Related: Advisors Should Step up Gold Education