Learn, Listen, and Lead on Cryptoassets

Journal of Financial Planning: June 2021


Tyrone Ross is the CEO and co-founder of Onramp Invest and the Founder of 401stc, a storytelling consultancy. He is a graduate of Seton Hall University and was also a 2004 Olympic Trials qualifier in track and field in the 400 meters. He was recognized as part of the 2019 InvestmentNews 40 under 40 and was also recognized by Wealth Management as one of the top 10 advisers set to change the industry in 2019. Financial Planning named him as one of 20 people who will change wealth management in 2020, and he was recently named as Investopedia’s top 100 financial advisers.


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I get many calls from financial advisers all over the country ranging from excitement to rage. Many times, these calls come after advisers have conducted a meeting and learned that their client holds a meaningful position in crypto. Another common occurrence is an adviser learning a client has multimillions in a Coinbase account. In the worst cases, the adviser learns a position accrued massive capital gains, but the client was also being remunerated in a particular crypto. For an unsuspecting adviser who may have been hoping to avoid this “speculative mania,” this finding is the rude awakening that crypto is here to stay. Your clients own some, believe it.

In fact, the 2021 Trends in Investing Survey, conducted by the Journal of Financial Planning and FPA, and supported by Onramp Invest, found that 15 percent of advisers surveyed currently use or recommend cryptocurrencies with their clients, which is up from less than 1 percent in the 2020 survey. Twenty-six percent of advisers said they plan to increase their use or recommendation of cryptocurrencies in the next year. Lastly, 49 percent of respondents said their clients have asked about cryptocurrencies in the past six months, up from just 1 percent a year ago.

For the purpose of the piece, we will focus on Bitcoin and bitcoin. It is important to note that Bitcoin (“big B”) is the blockchain network, while bitcoin or BTC (“little b”) is the coin itself. It has the biggest brand, longest track record, and largest group of crypto hippie (sometimes obnoxious) believers. But what is it, really? Digital gold? Money? Store of value? Savings technology? Speculative asset? Yes, all of those things, depending on where your feet are in the world. But let’s bring this back to the investment adviser space for some perspective and clarity.

Widespread technological advancement is altering the investment advisory landscape, and the emergence of the crypto economy since Bitcoin’s creation in 2009 is revolutionizing the way that investors think about deploying capital. As registered investment advisers start examining crypto-assets, they must be well educated and resourced to best serve their clients.

A Quick Overview of Cryptoassets

So, what is cryptocurrency? In simplest terms, cryptocurrency is digital money. It is housed on the blockchain, which is a public digital ledger. The ledger keeps track of every transaction to ever take place on that particular blockchain, and its data is easily accessible to anyone with internet connection. Unlike conventional financial instruments, cryptoassets are decentralized; the traditional financial system requires the use of intermediaries, such as banks, to process payments, while the crypto economy is peer-to-peer and peer-to-pool (e.g., DeFi or decentralized finance).

Open or “permissionless” blockchains—like Bitcoin—are transparent, meaning anyone at any time can download up-to-date transaction data that spans all the way back to the blockchain’s inception. A “coinbase” (yes, this where the now public company gets its name) transaction is the first transaction in a block. It is a unique type of bitcoin transaction that can be created by a miner. Once a transaction is added to the blockchain, it cannot be changed. For this reason, blockchains are viewed as immutable. Altering transaction history is nearly impossible, as hackers would have to “rehash” all blocks that came before it for the transaction history to check out.

Although blockchain technology has many benefits, there is a high level of concern from the investment community around how U.S. regulators perceive cryptoassets. At present, the IRS, SEC, and CFTC have yet to reach a consensus on what cryptoassets should be categorized as and, subsequently, who will be in charge of their oversight. The IRS views bitcoin as property; the SEC views it as a non-security; the CFTC views it as a commodity. My guess is that the entire RIA space would appreciate it if the SEC and CFTC got together to provide clear guidance on how bitcoin will be regulated. The SEC recently put out a risk alert on digital assets in February, claiming that they “present unique risks to investors.” The alert specifically cited five main areas of concern:

(1) Portfolio management. As advisers invest client assets into crypto, there are many questions. How cryptoassets will be classified within a portfolio, ensuring that advisers perform proper due diligence, and methods in which advisers measure and mitigate risk are all grey areas.

(2) Books and records. Like within the rest of an adviser’s practice, regulators must ensure that advisers are keeping adequate records of transactions. Within a highly liquid crypto market that never closes and that has no wash sale rule, this only increases in importance. Advisers also need to ensure they choose a platform that reliably documents transaction history, order executions, and settlements.

(3) Custody. Regulators must be able to monitor unauthorized transactions, suitable custody, and proper storage of client assets. How advisers can provide safekeeping of private keys is a major security concern, as well as the reliability of the software they use to participate in the crypto markets.

(4) Disclosures. Marketing materials and social media posts regarding cryptoassets must be monitored for proper disclosures about risks involved with investing in the asset class. Risks specific to the digital nature of cryptoassets are especially important to express to clients.

(5) Pricing client portfolios. Selecting valuation methodologies becomes increasingly difficult when it comes to cryptoassets. How advisory fees are calculated can be greatly impacted by the adviser’s chosen valuation practice, thus justifying examination by regulators.

Expand Your Knowledge

Without further guidance, the future landscape of cryptoassets from a compliance standpoint remains opaque to the most skeptical of our peers. Advisers strictly adhering to the fiduciary standard may be hesitant to allocate until regulators come to an agreement. However, as fiduciaries, independent advisers should still be conversant on the $2 trillion global market capitalization world of cryptoassets to oblige crypto-curious clients and prospects.

Regardless of whether they end up investing in crypto, they have a responsibility to provide best-in-class service and be amenable to a wide array of investments. In fact, advisers should adjust their business models to better accommodate it. Ideally, they would gain access to the crypto economy through their existing wealth tech stack.

Registered investment advisers depend upon technology to manage their business effectively. Practice management should be viewed in the same manner when it comes to crypto. In the highly niche world of cryptoassets, clients still want advisers to manage their assets from beginning to end. Whether it’s their CRM, portfolio management system, or financial planning software, advisers will need to interface with tools for reporting, rebalancing, planning, account aggregation, and automated tax strategies for cryptoassets.

Unless provided with integrated tools and data within their legacy systems, advisers are limited in the advice they can provide clients interested in learning more. Best-in-class educational resources are lacking and, if available, would encourage adoption and help advisers feel comfortable conversing with clients and prospects who are looking for guidance. So, where should advisers start to get educated on this topic? I’ll suggest one book, podcast, newsletter, and certification that I feel are for any adviser:

  •   Book: Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond by Chris Burniske and Jack Tatar.
  •   Podcast: Coindesk’s On Purpose podcast. Hosted by an adviser (me), providing education on bitcoin and cryptocurrency for the modern adviser.
  •   Newsletter: Coinmetrics, a cryptoasset market data and research provider.
  •   Certification: Certified Digital Asset Advisor (CDAA) designation from Interaxis.

Advisers should not be afraid to have the crypto talk with their clients. In fact, they should welcome it. The best advisers will learn, listen, and lead on cryptoassets. Skeptics who refuse to simply become educated on this emerging space will fall behind to their more open-minded peers. Those who have done their homework will learn that this is not rushing to make allocations for clients, but more about strengthening existing relationships and helping their practice grow in the years to come. 

Investment Planning