At CoinDesk, we’re big believers in the future of crypto and the potential benefits of crypto investment. But that doesn’t mean we think all financial advisors should necessarily recommend crypto investment.
Decisions to recommend bitcoin should depend on an advisor’s crypto competency and a client’s personal/financial circumstances, as Isaiah Douglass shares today. But the good news is that as crypto continues going mainstream, more resources for learning about it are available – like CoinDesk’s Learn articles, our Crypto Investing Course newsletter and CoinDesk Indices’ Digital Asset Classification Standard (DACS) white papers.
The board’s notice is a fourteen-page report that outlines a series of risks associated with cryptocurrency investment and lays out some standards that financial advisors can adhere to in their decision to provide, or not provide, advice on cryptocurrency investment.
In short, the report elucidates the CFP Board’s “Code and Standards,” which neither prohibits advisors from giving advice on crypto nor inhibits them from not giving any advice on it. It emphasizes that financial advisors must adhere to Fiduciary Duty when giving advice on crypto by fully taking into account the goals, risk tolerances, and personal/financial circumstances of the client. And it underscores the standards of competency necessary in giving crypto-related advice.
However, the CFP Board’s precaution on advice giving should be interpreted to mean that financial advisors uneducated on crypto should not only avoid giving advice in support of cryptocurrency, but also giving advice in opposition to it.
Financial advisors uneducated on crypto can no longer legitimately argue that cryptocurrencies are “Ponzi,” “beanie babies,” or “tulips,” as all of those characterizations are not founded in facts or research.
At the same time, if you as a financial advisor feel it is irresponsible and not logical for your client to invest in crypto, then you should advise them against it. Satisfying Fiduciary Duty depends on acting in a client’s best interest.
It is wholly up to each advisor to give advice or refrain from providing it. But it’s important that, as an advisor, you be honest with clients if crypto is not an area of investment that you are fully educated on. Most advisors’ commentary on crypto should be, “I haven’t done the work to provide any analysis on it.”
For that reason, I recommend that in 2023 you commit yourself to becoming more educated about cryptocurrency as a financial advisor. Fortunately, there are some great resources to do that, including books, podcasts, and bitcoin meetups.
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Decrypting Crypto
How to Benefit From Tax-Loss Harvesting in Crypto
(Pixabay)
While equities and bonds have had a very difficult year in 2022, cryptocurrencies have also seen significant declines. Bitcoin is down 57% and ether, the native token of Ethereum, is down 59% year to date.
While some investors see these price declines from the positive point of view that it is a buying opportunity for long-term investment strategies, others are looking for more short-term silver linings. That’s where a savvy investor may implement a tax strategy called tax-loss harvesting.
Tax-loss harvesting is a strategy used by investors to lower the amount of tax paid to the U.S. government. To implement a tax-loss harvesting strategy, an investor deliberately sells an investment that has lost value in order to use that loss to offset either capital gains from other assets where they have turned a profit, or in order to offset future gains from either that investment or other profitable trades in the future.
With traditional stock investments, there is something called the wash-sale rule that prevents you from, say, selling Investment A and then rebuying it within 30 days. But the rule doesn’t apply to cryptocurrency.
So let’s say you bought 1 bitcoin when it was at $24,000 but feel confident in its long-term potential and so want to stay invested in it. You can sell that 1 bitcoin at today’s price, which is around $21,000. Then you can immediately re-buy 1 bitcoin at $21,000 and still claim the $3,000 capital loss.
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As the financial health of the exchange grows more uncertain, CEO Changpeng “CZ” Zhao has offered nothing but red flags, says Genevieve Roch-Decter (CFA), the CEO of GRIT Capital.
Bitcoin adoption will need to be driven by the development of real uses rather than speculative interest, the report said.
Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
