Financial Advisors Hate Bitcoin. Their Reasons Will Drive You Crazy
Financial advisors won’t buy bitcoin for their clients. If you think that’s keeping bitcoin’s price from mooning, you need to read this.
Do you have a financial advisor?
If not, you should. They almost always know how to manage your wealth better than you do.
Nowadays it doesn’t even matter how little money you have. Many firms have low fees and no minimums.
But even if you don’t have an advisor, you can understand the important role they play in the financial industry. They give you financial products and valuable advice about how to grow and protect wealth.
They make Wall Street work for you.
And they do not offer bitcoin.
Why not? They’ll put your money in gold, yen, and oil. They’ll buy junk bonds, shitty annuities, and life insurance policies that never recoup their value.
Bitcoin? No, no. No way.
Why do they hate bitcoin?
I talked to a few financial planners and one former financial advisor. Half own bitcoin, half do not. All are ok with bitcoin. None would ever recommend it to their clients.
Some think it’s a matter of ignorance — after all, financial advisors aren’t likely to read articles like Global Prime’s Bitcoin and Ethereum primer.
From my conversations, nothing could be further from the truth (though they’re still mostly not reading crypto primers). They all get the investment case and the general idea, though they don’t necessarily understand the technology or its significance.
Their hang-ups are more substantial than that.
It’s Not Bitcoin, It’s The Laws
In the U.S., all financial advisors have a fiduciary duty. This means they have to manage your money in a way that benefits you. If they don’t, you can sue them.
You can do what you want with your own money. Buy all the bitcoin you want. Cow pies, lawn darts, options, credit default swaps, silver dollars, hammers, whatever you want to buy, no matter how risky or useless, you go for it.
When you give money to financial advisors, they have to follow certain rules. They can’t mess around with crazy stock tips or risky off-shore investment schemes. As fiduciaries, they can only put your money into assets that meet two criteria:
- Match your risk profile (based on your investment goals, risk tolerance, lifestyle, and personal situation).
- Have approval from U.S. regulators.
Bitcoin doesn’t fit (yet).
Surprisingly, many people still associate bitcoin with crime.
In fact, crime is the number one reason 75 percent of all investors say they avoid bitcoin. Most people worry about getting hacked or think somebody will use bitcoin for terrorism or illegal activities.
On top of that (and maybe because of it), most advisors don’t know how bitcoin works. Cryptocurrency isn’t covered in their professional certifications.
As a result, most won’t do it. How could they put their clients’ money into an asset they don’t understand, especially when it’s associated with illegal activities?
Bitcoin Has No Backing
Maximalists, please don’t blow your stack.
We know fiat currency is backed by nothing. We know bitcoin is backed by an infallible computer program.
Most people — including financial advisors — believe fiat currency is backed by rules and laws that require people to use it (because that’s literally what “fiat” means).
Other types of assets have other types of backing:
- Bonds — future money.
- Stocks — a company.
- Real estate — land and improvements.
- Commodities — things people use (e.g., for manufacturing or personal consumption). Or, in some cases, a physical item held in custody on a client’s behalf.
Those assets exist in the real world, even if they’re artificial human constructs. You can feel a bond note, touch a stock certificate, see a property, and hold commodities.
At some point, the financial community may agree that a computer program can back an asset. It’s not quite there yet.
Bitcoin has no central issuer, no government, and no business managing its use.
Bitcoin transactions are pseudonymous, peer-to-peer, and settled instantly. With no paper involved, you can’t track the movement of bitcoins within a marketplace without forensic technology.
Anybody can send and receive bitcoin from their phone. It’s mobile, decentralized, and private.
This is a feature, not a bug, but it also allows a lot of shady dealings that governments can’t regulate. This creates new risks that financial professionals would rather avoid.
Also, only a few countries have legal frameworks for cryptocurrency. As a result, financial advisors worry about running into some problem that puts their clients’ money at risk, with no recourse.
You can complain to the SEC or a settlement company when things go wrong with normal assets. Not so with bitcoin.
Bitcoin Is Too Easy To Lose
You may think it’s easy to secure a personal key (because it is), but you’re not going to get sued for losing it.
Also, you’re not legally responsible for what happens to somebody else’s keys.
For a financial advisor, the moment they put your money into bitcoin, they assume that responsibility. What happens if they lose the key? If they hit a typo on an address? If they send it to the wrong person?
In the real world, they’d call the clearinghouse or broker or whoever they need to, work out a solution, and most likely you will never hear about it.
With bitcoin, that’s not possible. There are no refunds, chargebacks, or locksmiths. Once your bitcoin’s gone, it’s gone forever.
Can you imagine what would you would do if your financial advisor lost your bitcoin?
Advisors Live In Today’s World, Not Tomorrow’s
Over the past few years, regulators have learned more about cryptocurrency. Meanwhile, Wall Street has figured out how to handle cryptocurrency safely. Countries like Switzerland and Japan have created rules for cryptocurrency, and the U.S. has slowly started moving in that direction.
Entrepreneurs and financial professionals are solving all of the problems I mention above.
At some point, the financial community will consider bitcoin a “normal” asset. Last year, Morgan Stanley released a client-only report essentially admitting this will likely happen. A bitcoin ETF will basically seal the deal, but nobody knows how long it will take for U.S. regulators to approve that.
Meanwhile, bitcoin remains a financial sideshow.
Count Your Blessings
You may think this is a bad thing.
After all, financial advisors manage trillions of dollars in private wealth. Surely, if some of that money went into bitcoin, its price would explode.
If you only care about selling your bitcoin for more than you bought it for, this is a good thing.
While almost nobody will open an account with TradeOgre, at least 48 to 67 percent of people say they’ll buy a little bitcoin “once it’s safe” (percentages change depending on what survey you look at).
When people say “safe,” they mean buying it through a financial advisor or a U.S. investment company.
As a result, you still have time to buy some before the masses rush in.
Traditional finance has slowly built the infrastructure necessary to offer bitcoin to the public. Once people have easy access through their financial advisor, bitcoin will play a small part in every aggressive investment portfolio and probably many conservative portfolios. Millions of people will passively “put a few shekels” into a bitcoin ETF, maybe 1–2% of their portfolio, just in case it booms. Advisors will lump bitcoin with other alternative assets commonly found in investment portfolios.
At that point, bitcoin will go up a lot. It’s a tiny asset, not even $200 billion market cap, owned by probably less than 40 million people (total). Global investment portfolios include at least $40 trillion worth of assets held by about 500 million people. The U.S. alone has more than $22 trillion in assets held by registered investment institutions, which does not include personal wealth and foreign accounts.
Or maybe not. Financial advisors can sell bitcoin as easily as they buy it. Nobody can force them to HODL.
Nobody really knows how any of this will play out. Regardless, it will take a while for traditional finance to accept bitcoin as an investment. Their loss!
For now, buy your own bitcoin and ignore the financial advisors. If bitcoin is really as good as we think it is, they’ll come around. If bitcoin is really as bad as they think it is, millions will be spared from financial ruin when bitcoin hits zero.
Either way, the world benefits. Relax and enjoy the ride!
Mark Helfman is the author of Consensusland, a Readers’ Favorite 5-star book about a country that runs on cryptocurrency.
Originally published at https://markhelfman.com on September 27, 2019.