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The Role of Financial Advisors and Bitcoin



Many Bitcoiners may have a sour taste in their mouths when they think of financial advisors. Maybe it’s because they repeatedly tell their loved ones that Bitcoin is a ponzi scheme or worthless. Being wrong for years and refusing to admit it all the time makes Bitcoiners hesitate to be highly regarded by advisors. And to be fair, many financial advisors probably don’t have much appreciation for Bitcoiners. Many advisors do not believe in the HODL philosophy: “Do you think all you need to do is buy bitcoin and hold it for ten years and you will become fabulously rich? It can’t be that easy. I went to school and took all these tests to prove that can’t be true!” But maybe it really is that easy for Bitcoiners. The prices of traditional financial assets have turned parabolic over the past 18 months and valuations are rising. Take a look at the broader stock market. Using the valuation metric known as the Shiller P/E ratio, stocks are the most expensive they have ever been, with the exception of the months leading up to the Great Depression in 1929 and during the 2000 dotcom bubble. itself in a comparable boat of high ratings. And don’t even get me started on fixed income. All this and more could lead to the perfect investment case for bitcoin. Bitcoin, with a market cap of approximately $800 billion at the time of writing, is a pool next to lakes and oceans of global assets. The number varies depending on who you ask, but let’s put global assets at $500 trillion (conservative). With bitcoin as the best store of value the world has ever seen, it’s not crazy to think it will continue to gain market share in its addressable market – the dollar price per coin is rising at an impressive clip along the way. So what’s the deal? Why does it seem like so few financial advisors are waking up to Bitcoin and instructing their clients on the actions to take? Today I will discuss what may be holding back financial advisors and a look ahead to the future of the financial advisor role in a hyperbitcoinized world. What’s stopping advisors now? Check The IncentivesFinancial advisors manage an estimated $90 trillion in global assets. The amount of these assets that fall under the umbrella of bitcoin (or even the broader term “crypto”) is peanuts. I’ve heard anecdotally that many clients don’t even bother informing their financial advisor about their digital assets. And why would they? According to the RIA Digital Assets Council, only 8% of financial advisors can adequately explain these assets. To explain this fact, you need to look at the incentives for a financial advisor to adopt Bitcoin in their practice. There aren’t many at the moment. Existing practices are fine without it. Funds tracking precious metals or real estate is a matter for financial advisors. And business is good. The industry has undergone a major shift in recent decades, charging their clients percentage fees based on their assets under management (AUM), instead of charging commissions for each transaction. As long as markets continue to rise, so will consultant salaries. Look back at the stock market performance and you will realize that having a successful financial planning practice has been very lucrative. As the old saying goes, if it ain’t broke, don’t fix it. Think of your own rabbit hole experience. How many tens or even hundreds of hours have you spent consuming Bitcoin material? And you still wouldn’t consider yourself an expert. Now think of a consultant trying to go through this process with an entire client base. Clients of advisors don’t have to be so orange-pissed that they put laser eyes on their Twitter profiles, sure, but they also need to make sure their clients know enough about bitcoin to HODL their stack, as well as refrain from threats to sue. when bitcoin inevitably enters a bear market. This is especially true if the customer wasn’t fully “on board” in the first place. Finally, the bridge for advisors to incorporate bitcoin into their client portfolio is still under construction. There are plenty of blueprints and it seems like I regularly hear about more solutions. However, as it stands, it is difficult to buy real bitcoin UTXOs for a client and get paid for them as an advisor. I am hopeful that this will change soon which is encouraging. Why the demand for financial advisors is so high these days or do you need to hire someone to do it for you. Bitcoin and a healthy money environment can greatly diminish the importance of an expert so that you don’t lose all your buying power before you die. This will force the market for financial advisors to consolidate strongly. Currently, financial advisors don’t have a lot of opportunity costs to compete with. Opportunity costs in this case are the costs of not investing in a ‘diversified portfolio’. Instead of investing, the other choice for millions is to hold their dollars in a bank account free of volatility. Almost everyone knows that these days this is a losing strategy, forcing the masses to invest in risky assets. When those opportunity costs move from depreciating fiat to valuing bitcoin, it will become a much more difficult cost-benefit analysis for advisors to overcome. A population that can simply hold onto their currency without worrying about depreciation has significantly less demand for portfolio construction than those forced to invest their capital in risky assets to outpace inflation. The Bitcoin-Bull Financial Advisor Rent seeking activities used by many advisors will come to an end. Nihilistic index investing – putting assets into a diversified portfolio for no purpose – will become less and less accepted. Buying bonds just because they are historically considered safe investments makes no sense when most have negative real returns. And so on. But there are really great financial advisors out there now that offer value beyond the rate of return shown on their clients’ statements that thrive today and will continue to do so. Not only do these advisors know a thing or two about investments, but they are also well-versed in estate planning, different types of insurance and tax relief. This kind of expertise is beneficial to the overall health of a financial plan. Throwing your investments out of the park doesn’t make much sense if you screw up a taxable event or your assets don’t pass to the desired heir upon death and the courts get involved. The major advisors work with their clients’ tax accountants and attorneys to ensure the plan works on all cylinders. I believe that financial advisors will play a huge role in onboarding the next tens of millions of users in the western world on the Bitcoin network. Consultants are the gatekeepers of most of their clients’ assets. The asymmetric investment opportunity offered by bitcoin could be the ideal asset to complement – ​​possibly even hedge – expensive stocks and fixed income. Customers will start seeking advice on how best to use their bitcoin stack. Advisers are expected to clearly demonstrate their knowledge in several areas: Does it make sense for customers to take out a mortgage with part of their inventory as collateral? Will advisors assist their clients in multisig setups with a third party provider? Should clients participate in peer-to-peer lending protocols to earn extra returns? Which mobile or desktop wallet makes the most sense for them? Some concepts that consultants and the general public should get used to. road are portfolios denominated in satoshis (aka sats), securities trading on top of Bitcoin and/or sidechains, and “cash is trash” turning into “just stack sats,” just to name a few. And those are changes that I for one, am very excited to experience. I am extremely grateful to Andy Flattery for providing feedback on this article. He is one of the great advisors who will survive and prosper. This article should not be construed as a specific recommendation or investment advice. Always consult with your investment professional before making important investment decisions. This is a guest post by Trent Dudenhoeffer. The views expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
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