In the latest edition of the Crypto for Advisors newsletter, I invite you to join me in reflecting on the remarkable evolution of the cryptocurrency sector. Additionally, Kim Klemballa from CoinDesk Indices addresses key inquiries from financial advisors regarding pricing and benchmarking in the crypto space in her segment “Ask the Expert.” I appreciate your engagement with our newsletter and the contributions from our talented writers, and I eagerly anticipate where this journey will lead us in the next two years.
Webinar Alert: Discover the digital asset marketplace and explore ways to invest in cryptocurrencies beyond just Bitcoin. Join industry experts Ric Edelman from DACFP, David LaValle from Grayscale Investments, and Andrew Baehr from CoinDesk Indices for a comprehensive Webinar on July 16 from 1-2 p.m. ET. Note that this is a live-only event, and continuing education credits will be available. Make sure to register soon!
Two Years In, and Just Getting Started
Two years ago, I embarked on my journey as the editor for Crypto for Advisors during a critical juncture. It was the middle of 2023, and the cryptocurrency market was experiencing a severe downturn. The downfall of prominent lending platforms and the collapse of FTX had caused significant turmoil in the industry, while the regulatory environment in the U.S. was characterized by an aggressive enforcement approach that left many feeling uncertain. Despite this challenging backdrop, the signs of a transformative shift were undeniably present. Today, we find ourselves on the brink of what Bank of America describes as a “once-in-a-millennium transformation,” focused not on mere speculation but on a fundamental reconfiguration of global financial systems, economic paradigms, and digital ownership propelled by cryptocurrency.
An Ode to Bitcoin: The Genesis
“Bitcoin deserves to be mentioned alongside groundbreaking inventions like the printing press and artificial intelligence.” — Bank of America. Bitcoin emerged in the wake of the 2008 financial crisis, introducing a groundbreaking concept: a decentralized digital currency with a limited supply. It operates independently of any government or central authority. This innovation sparked a movement that saw early enthusiasts tinkering with graphics processing units (GPUs), developers creating wallets, entrepreneurs launching exchanges, and miners seeking affordable energy sources worldwide. This marked the beginning of a technological and economic revolution. Today, we witness major asset managers like BlackRock, Fidelity, and Grayscale launching Bitcoin exchange-traded funds (ETFs), alongside nation-states striving to establish themselves as global crypto leaders, resulting in an unprecedented surge of financial innovation.
The Rise of Ethereum and Smart Contracts
While Bitcoin ignited the initial interest, Ethereum’s introduction of smart contracts significantly expanded the utility of blockchain technology. It enabled programmability and the tokenization of diverse assets, ranging from real estate and carbon credits to fine art and identity verification. Although Bitcoin and Ethereum often dominate discussions, the digital asset landscape encompasses thousands of cryptocurrencies. Beyond investing, blockchain technology is silently revolutionizing sectors like supply chain management, intellectual property rights, and finance. Moreover, over 140 publicly traded companies have announced Bitcoin holdings, and exchanges such as Coinbase and Kraken are set to provide tokenized equity options, while retail platforms like Robinhood are broadening their crypto offerings. The avenues for accessing digital assets are continuously expanding, with an increasing number of direct-to-consumer platforms, ETFs, tokenized funds, and direct ownership options emerging.
The Landscape Has Changed — Are You Adopting?
Initially, only a select group of advisors embraced cryptocurrency, but this trend is gradually changing. There is a growing acknowledgment of the opportunities that digital assets present — to support existing clients, enhance relationships, and attract new business. It has become increasingly common for advisors to report that simply engaging in conversations about Bitcoin has helped them secure new clients. However, challenges remain, including regulatory uncertainties, restrictive firm policies, and the inherent volatility of digital assets, which contribute to apprehension among advisors. Additionally, advisors already face numerous responsibilities, and the need to familiarize themselves with this evolving asset class adds another layer to their workload. Despite these challenges, there is a clear demand from clients for access to digital assets. Recent data from Coinshares indicates that many clients prefer working with advisors who are knowledgeable about digital currencies. Over 80% of survey respondents stated they would be more inclined to collaborate with an advisor offering digital asset guidance, while 78% of non-crypto investors indicated they would seek an advisor’s help if crypto support were available. Interestingly, nearly 90% expressed intentions to increase their cryptocurrency investments by 2025.
A Call to Action
Blockchain serves as a foundational technology, and cryptocurrency is more than just another asset class; its implications go far beyond mere investment. The industry is evolving, regulatory frameworks are developing, and major institutions are actively engaging with blockchain technology. As U.S. Treasury Secretary Scott Bessent recently articulated, “Crypto represents one of the most significant phenomena occurring globally today.” You don’t have to be a cryptocurrency trader or a blockchain expert to engage with this space. However, if you serve as a fiduciary — whether as a guide or planner — it is essential to be informed about these developments for the benefit of your clients. Education will be crucial.
Over the past two years of curating this newsletter, I have witnessed a significant shift in sentiment from skepticism to curiosity, and now to strategic integration. We have only scratched the surface. I am excited to accompany you on your crypto journey, and I welcome your ideas for future topics to be explored.
Ask an Expert
Q. Why is the same digital asset priced differently on each exchange? A. Unlike equities, which are centralized and “plugged into” an exchange for a single price, crypto operates on a decentralized model. Consequently, there is no universal pricing source for digital assets. The prices of cryptocurrencies are influenced by supply and demand but can vary from one exchange to another due to their independent nature.
Q. How can I find reliable pricing data for digital assets? A. Numerous index and data providers offer digital asset pricing. When searching for reliable data, prioritize providers with established credibility in the digital asset space, transparency in their methodologies, and well-defined criteria for capturing pricing. The methodology of an index is crucial; for instance, if an index excludes assets based on certain criteria, it can help filter out unreliable tokens, as seen in the case of FTX’s collapse where its token wouldn’t qualify due to thoughtful construction.
Q. Why do people use Bitcoin to gauge the entire digital asset landscape? A. While Bitcoin currently represents 65% of the total digital asset market, there have been periods when its share was below 40%. Relying solely on one asset as a benchmark for the entire sector is not advisable. Diversification is essential for institutional investors to manage volatility and capitalize on broader opportunities. Effective benchmarking should fulfill multiple purposes — evaluating performance, supporting investment strategies, and establishing industry standards. Indices like CoinDesk 5 (CD5), CoinDesk 20, CoinDesk 80, CoinDesk 100, and CoinDesk Memecoin have been created to accommodate those looking to benchmark and invest in the rapidly changing digital asset landscape.
