If Crypto Is The Future, Advisors Must Embrace It Now

It’s fair to say the feeling towards crypto among the general public has dropped over the past year. This may have the side effect of pushing financial advisors away from the category, and digital assets in general, at least until there is more certainty about the markets and the forces driving them.

Looking long-term – as advisors are supposed to – lends itself to a different perspective. Cryptography is still a relatively new technology, and with all new technology there is an adoption curve, and a good way to gauge it is Metcalfe’s Law. Metcalfe’s law states that the impact of a network is the square of the number of nodes in the network. For example, if a network has 10 nodes, its inherent value is 100 (10 x 10).

If you think crypto is still in the early stages of its evolution (and it almost certainly is), it has unparalleled potential to grow exponentially. The analogy isn’t perfect, but one of the toughest times to buy Amazon stock was in the 2000s, when it was virtually flat; of course, it also turned out to be a good time to buy.

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In addition to their untapped potential, crypto and blockchain are now defined by characteristics such as decentralization, security, transparency, efficiency, innovation, and financial inclusion. Many of these facets are attractive to financial advisors when scanning the macroeconomic landscape in search of investment opportunities for their clients. With a tough 2022 behind us – in which almost every asset class has fallen – and the traditional 60/40 portfolio has had its worst year in over a century, it’s important that advisors are open to possibilities of the future landscape to rebuild, protect and develop their client portfolio.

Manage feelings

Emotion can be a tough thing to deal with, and in a way, it’s part of an advisor’s job description. The situation in the United States presents great challenges: the country has one of the highest debt-to-GDP ratios we have encountered, a devaluation of fiat currencies is underway, and demographics are aging with no final idea. A natural question arises: how can we find opportunities to overcome these challenges? It is important to realize that the economy is often slow to reflect economic conditions. We should expect to see disputed earnings, tighter credit and uncertainty around the Fed. An answer is block chain and crypto.

The story continues

There are several reasons why investing in crypto makes sense: diversification, high growth potential, being at the forefront of new technologies, a hedge against inflation and self-preservation, to name a few. -ones. The question is how should advisors allocate a portion of client portfolios to digital assets?

Without taking a single token or third-party risk, the SEC’s intransigence in banning a spot BTC ETF and trying to keep pace with this 24/7 cyclical market, what a regulated option? As the famous value investor Warren Buffet once said, “Be fearful when others are greedy, and greedy when others are fearful.”

Now is one of those times. In preparing for the long term, we must get out of the daily noise. Will this asset class be higher in five, 10, 15 years and beyond? I believe him and I think he is responsible for researching this asset class and allocating a portion of customer wallets to it, just like Amazon did in the early 2000s. Crypto and blockchain are important because they offer a new way to manage and secure financial transactions, increase transparency and accountability, and enable innovation across a variety of industries.

A hedge against uncertainty

Debt has been the backbone of the global economy. As debt rises and credit tightens, this challenges all facets of the markets. This ultimately devalues ​​fiat currencies. While the US dollar remains the world’s reserve currency (for now), there’s no guarantee that will happen in the future. The ultimate story is that all fiat currencies depreciate because of our system.

As advisors, our job is to maintain the purchasing power of our clients. Going forward, 60/40 portfolios and traditional wealth management strategies may not be enough to achieve this. This is why we view a crypto allocation as a responsible move moving forward so as not to miss an exponential opportunity. Crypto as an asset class is directly tied to global liquidity; this valve cannot be closed. As the money supply increases over time, we must be prepared to take advantage of this environment.

In the new world of “working from home”, where does commercial real estate fit in? We just hit a first quarter office vacancy record nearing 13%, which is higher than after the 2008 financial crisis. Commercial real estate loans make up nearly 40% of what’s on the books bank loans. This issue, along with the now very apparent potential for mobile banking, adds strain to the system, compounding the challenges for advisors. Crypto and digital assets expand the set of tools to help manage them.

With a debt-based system and big challenges ahead for Fed Chairman Jerome Powell, now is the time to consider other alternatives. Advisors owe it to their clients to work to navigate the digital asset space so that they are better positioned to weather the looming headwinds. No single solution is perfect, but a combination of these strategies puts the people we work for in a better position to succeed for themselves and their families.