Welcome to the year 2024!

You will see the price of bitcoin increase in 2023 if you are following the news. This is due to the U.S. approval for spot bitcoin ETFs. The SEC had given applicants until December 29 to update their application in anticipation of potential approvals early in January.

Are you prepared to answer questions from clients about this asset class? Do you know the difference between direct and ETF ownership?

The Crypto for Advisors Newsletter is dedicated to providing advisors with industry news that will help them navigate this asset class. This issue features a guide for getting started. CoinDesk’s Kim Greenberg worked with Adam Blumberg from Windle Wealth, the co-creator and creator of the Certified Digital Asset Advisor Course, as well as DJ Windle, to help you cut through the noise.

Subscribe to Crypto for Advisors here and receive it every Thursday.

Digital Assets for Advisors

It may be time for you to consider adopting bitcoins and other digital assets into your practice. With the spotlight on bitcoins and other digital currencies, an upcoming U.S. spot Bitcoin ETF approval, and increasing client interest, now is the perfect time. We know there’s a lot to learn, particularly when digital assets form only a small part of the client portfolio. If you’re not familiar with crypto, we’ve got your back. Here are five fundamentals of digital assets:

What Bitcoin is?

The first decentralized cryptocurrency is Bitcoin (BTC), which uses blockchain technology to verify and secure transactions.

Here’s a breakdown:

  • Decentralized means that something is widely distributed, and does not have a single, central location or controlling authority. Technology and infrastructure are not managed by centralized institutions, such as banks or governments.
  • Cryptocurrency is a term used to describe a collection of digital assets in which transactions are verified and secured using encryption, a scientific method of encoding data.
  • A “blockchain” is an open, decentralized digital ledger that records transactions.

The bitcoin protocol is designed to mint 21 million coins. Once that number of coins has been reached, the protocol will cease minting coins. The Bitcoin software uses a method of coin creation known as ” Bitcoin halving” to ensure that the amount of bitcoins distributed as rewards to miners decreases over time. The next bitcoin halving, also known as “halvening”, will occur in April 2024. The creation of bitcoin will then drop from 6,25 bitcoins every 10 minutes down to 3,125. The theory goes that by gradually reducing the number of bitcoins in circulation, its value will be supported.

Let’s now explore Bitcoin’s performance in relation to other asset classes. The table below shows this. Note the following:

  1. The SEC does not classify bitcoin as a security , but rather as a commodity. The rules governing cryptocurrencies are still unclear.
  2. Bitcoin is decentralized and prices can vary between crypto exchanges.
  3. Bitcoin has a volatile history and is relatively new (launched January 2009).

The bitcoin infographic by Deloitte provides additional information on bitcoin.

Understanding the Regulatory Environment

There are significant differences in the global regulatory approach to bitcoin and digital assets, a reflection of diverse perspectives on this innovative tech.

United Arab Emirates (UAE). The UAE has a progressive stance on blockchain and cryptocurrency. The UAE has a clear regulatory structure that encourages the growth and development of crypto-based exchanges and businesses. This positions the UAE as an important hub for digital assets.

European Union (EU), a structured approach has been taken by the EU with its comprehensive regulation named Markets in Crypto-Assets. This framework is designed to protect consumer safety and financial stability in the crypto market. It demonstrates a careful yet organized regulatory approach.

Hong Kong: Hong Kong is also moving towards a more clear and transparent crypto regulation, creating a more secure and transparent environment for digital assets transactions.

United States (U.S. ): The regulatory climate in the U.S. has been characterized by its complex nature and slow progress. The management and trading of digital assets are uncertain without a federally unified regulation. Some people see cryptocurrencies as essential to economic freedom, while others are concerned about the potential misuse of cryptocurrencies due to their anonymity.

The U.S. has been considering whether to approve a bitcoin spot ETF, and it is currently developing guidelines on the use and issuance of stablecoins. The judiciary suggested that comprehensive cryptocurrency regulation should come from Congressional legislation, rather than SEC enforcer actions. This highlights the need for well-defined and clear laws.

The diversity of attitudes towards cryptocurrency regulation is a testament to the world’s dynamic nature. The creation of a cohesive and effective regulatory structure will be crucial for the sustainable integration of digital assets into the global financial systems.

Bitcoin is not the only currency.

Bitcoin is a unique crypto currency, but the entire ecosystem has jumped at the opportunity to use a decentralized system in order to create new blockchains. Over time, bitcoin’s share in the total market capitalization declined and other cryptocurrencies became market players. Bitcoin is currently worth more than all other digital tokens.

global crypto market cap trends will show us that other digital assets have emerged. Some analysts believe the world needs a benchmark for digital assets, which includes bitcoin but not limited to it.

Today, the global cryptocurrency market capital is $1.81 trillion. While cryptocurrencies are the most talked about, there are other digital assets such as stablecoins and central bank digital currency (CBDCs).

4. Classification

How can one classify the ever-growing spectrum of digital assets? Many institutions have tried to classify digital asset, similar to the MSCI GICS framework.

CoinDesk Indices has created a framework called the Digital Asset Classification Standard. DACS is a digital asset taxonomy that provides comprehensive, standardized and reliable industry definitions for digital assets. Other frameworks include the Goldman Sachs MSCI and Coin Metrics Datonomy. The Digital Asset Taxonomy System by Wilshire. A Taxonomy of Digital Assets.

A classification framework can be used to classify and shape digital assets, allowing for portfolio attribution analyses and identifying investment opportunities.

Understanding crypto-slang can be difficult. There is no “centralized vocabulary”, but several companies have produced glossaries that help to understand the terminology. The Grayscale Glossary is a great resource for crypto terms. Also, CoinDesk Glossary and AmiLearn Glossary can be helpful.

5. Implementation: Five Steps to Consider

Financial professionals are increasingly forced to embrace digital assets in today’s world of rapid financial change. This guide will help you integrate cryptocurrencies and digital assets into your financial practice.

Network and Educate yourself:

  • Continue learning: Stay up to date with the latest developments and trends in cryptocurrency and blockchain.
  • Professional Development: To gain comprehensive insight, take specialized courses and certifications such as CDAA or DACFP.
  • Participate in local and online communities, forums, and social media groups that are focused on cryptocurrency.
  • Create professional alliances with experts in tax, legal, and technology related to digital assets.

Market Research and Client Education:

  • Market Insights : Regularly research and analyze the cryptocurrency market.
  • Education Initiatives: Hold workshops or sessions for clients to educate them about digital assets. Topics include market trends, risks and benefits, as well as strategies.

Legalities and Compliance:

  • Compliance with Regulations: Be informed of digital asset regulations, compliance standards and AML/KYC procedures.
  • Legal Documentation: Update your client contracts with digital assets, and amend your Form ADV. Also, ensure that your E&O coverage includes digital asset management and advisory services.

Advice on Investment Options

  • Diverse Investment Options: Help clients explore crypto investment options such as ETFs and trusts. Highlight the benefits and risks.
  • Self-Custody Guide: Give advice on safe storage and key management to direct cryptocurrency owners.

Custodian partnerships:

  • Selecting a custodian: Work with custodians who specialize in digital assets and focus on security and compliance.
  • Client Asset Management: Understanding the transaction processes, fees and liquidity options of custodians is essential for effective asset management.

These steps will allow financial professionals to integrate digital assets effectively into their practices, and offer comprehensive services that combine innovative technologies with compliance and client education.

The conclusion is

The U.S. is lagging several other countries in the ownership of cryptocurrency . Regulations are changing and adoption is increasing due to the global interest. To encourage crypto adoption, institutions, asset owners, and asset managers launch differentiated products, classifications systems, benchmarks that are broad-based, and educational resources. Many tools are available to help with management and understanding. You just need to get started.

Ask an Expert

Digital assets will be a very exciting year. This newsletter aims to help advisors improve their business and knowledge. We encourage you to respond to this email and provide any comments, questions, or topics that you would like addressed in 2024.

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Jamie Dimon stated before Congress that he would shut down crypto if he were in charge. JPMorgan is listed as a major player in BlackRock’s Bitcoin application four days after Dimon’s firm JPMorgan.

Crypto ETF applicants were given <a href="https://cryptonews.com/news/sec-meets-with-seven-bitcoin-etf-applicants-as-29-december-deadline-approaches-reuters.htm#:~:text=The%20December%2029%20Deadline&text=The%20regulators%20emphasized%20that%20any,report%20the%20December%2029%20deadline. The deadline for updating filings is Dec. 29.

Bradley Keoun is the editor.