In today's issue, DJ Windle of Windle Wealth looks at the risks advisors face when they are unable or unwilling to assist clients seeking exposure to digital assets.
Next, Hong Sun from Core DAO will talk about custody and DeFi on Ask an Expert.
Thank you to L1 Advisors for sponsoring this week's newsletter.
Please enjoy reading.
– Sarah Morton
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Houston has a problem with its advisor.
For years, financial advisors have largely ignored cryptocurrencies, dismissing them as speculative bubbles or outright scams. Meanwhile, the financial landscape has changed dramatically. Major companies such as BlackRock, Visa, Mastercard, and Venmo are integrating blockchain technology and cryptocurrencies into their operations. The cryptocurrency ecosystem is no longer a fringe, but is becoming part of the mainstream economy.
The disconnect between client interests and advisor readiness presents a tough choice for the advisory industry: adapt clients, especially high-net-worth clients, to more advanced competitors or risk losing them. I'm under pressure.
Two crypto scenarios
When clients talk to advisors about cryptocurrencies, they typically encounter one of two scenarios:
1. Dismissal and dismissal
Advisors respond to customer inquiries with the same tired rhetoric: “Cryptocurrency is a scam,” “It’s like tulip bulbs,” and “It’s too risky and has no intrinsic value.” I'll give it a kick. While advisors may feel this attitude is prudent, clients often interpret it as out of touch or condescending.
2. Inexperience and inaction
In some cases, advisors are willing to listen, but may lack the knowledge or tools to take action. They haven't taken enough time to learn about cryptocurrencies, and their compliance department won't allow them to provide guidance. These advisors are unable to help their clients buy or manage crypto assets, leaving a huge gap in their service offerings and clients' portfolios.
Both scenarios lead to the same outcome: a dissatisfied client who feels the advisor is unprepared for the future.
Client notification
Let me illustrate this disconnect with an example from my practice. A client with a net worth of over $10 million consults an advisor about investing $50,000 in cryptocurrencies. The advisor dismissed the idea, calling cryptocurrencies a scam and urging clients to avoid them. The client was not convinced and spent a lot of time researching, but when he consulted an estate planning attorney for other options, the attorney contacted me because he didn't know anyone else who could give him advice regarding cryptocurrencies. I've done it.
We opened an account with our clients, explained the basics of this new asset class, and provided them with the education they needed to make informed decisions. This client transferred all of his assets to us within a few weeks, citing a lack of trust in his previous advisor. What are their parting words? “Why would I entrust my money to an advisor who doesn’t understand my future?”
This story is not unique. I have received countless calls from individuals seeking help because their advisors have been reluctant. I've received calls from advisors themselves asking me to manage their clients' crypto investments, and even advisors seeking help with their personal portfolios. The irony is obvious. Advisors who dismiss cryptocurrencies as irrelevant are finding themselves out of their depth and, in many cases, out of touch with their clients.
The perfect storm for cryptocurrency adoption
We are at a pivotal time for cryptocurrencies. Several factors align to create a favorable environment for adoption.
1. Legitimacy of the system
BlackRock, Fidelity, and other large institutional investors are launching crypto-related funds and digitizing real-world assets like real estate and art, making crypto no longer a fringe asset and a legitimate part of the investment landscape. It shows that it is a part of
2. Regulatory changes
The anticipated replacement of Gary Gensler as SEC chairman signals a possible shift to a more supportive regulatory framework. This could lower barriers for advisors and investors alike.
3. Enhanced integration
Companies like Visa, Mastercard, and Venmo are incorporating blockchain technology into their operations, making cryptocurrencies more accessible and usable on a daily basis.
4. Client requirements
Perhaps most importantly, clients are driving this change. Distrust in governments and a flurry of positive crypto news have brought cryptocurrencies to the forefront, with customers wondering why they have been left out of this asset class and starting to investigate.
This moment represents a once-in-a-generation opportunity for advisors to establish themselves as leaders in a rapidly evolving financial environment and prove to the world that they are not just doing the same old thing as their predecessors. I am.
conclusion
The financial advisory industry is at a crossroads. Cryptocurrency is no longer a speculative fringe asset. It is becoming the basis of the modern economy. Advisors who ignore or ignore it risk alienating clients who are looking for positive guidance.
The question is not whether cryptocurrencies will play a role in the future of finance, but rather that they already do. The real question is whether advisors can adapt to meet the evolving needs of their clients. Companies that embrace this challenge will position themselves as trusted partners in a changing world. Those who don't may be left behind.
– DJ Windle, Founder and Portfolio Manager, WINdle Wealth
ask an expert
Q. How do you see the institutional investor custody model evolving?
While self-custody is consistent with the core ethos of cryptocurrencies, it is not always practical for institutions. Businesses with multiple stakeholders often require storage solutions due to regulatory, compliance, and operational complexity.
Institutional investors prioritize regulatory compliance, technology risk, security, operational efficiency, reputation, trust, and market liquidity. Their approach balances embracing the potential of digital assets while mitigating the associated risks. Familiarity with custodianship in traditional finance also makes this model more attractive to financial institutions.
By supporting both self-custody and third-party custody models, the cryptocurrency industry can attract a wider range of participants. This flexibility allows institutions to accelerate the adoption of cryptocurrencies and approach digital assets in a way that aligns with operational and security requirements while adhering to core principles.
Q. How does the custody model enable the transition to decentralized products?
Management, whether delegated or DIY, is centered around secure ownership. Blockchain technology provides scalable asset management solutions that benefit individuals and organizations. Digital assets like Bitcoin build trust in immutable code and allow users to decide who to trust with their storage.
Self-management is not a strict requirement for decentralized finance (DeFi) adoption. Institutions can work on decentralized applications while hiring administrators to protect their assets. This flexibility allows institutions to consider DeFi products without overhauling their custody models, fostering broader participation and innovation in the decentralized ecosystem.
Q. As Bitcoin, DeFi, and staking gain momentum, what is needed for institutional adoption?
For educational institutions, key adoption drivers include safety, sustainability, and scalability. Institutions need assurance to maintain full control of their assets while avoiding risks such as thrashing and vulnerabilities from external smart contracts. They also want transparency in their revenue sources and prefer sustainable activities within the Bitcoin DeFi ecosystem.
Scalability is critical because institutions need to deploy large amounts of capital efficiently and ensure their systems can handle it. Models that offer flexible options to meet the needs of diverse users are ideal for supporting large institutional engagements.
The same principle applies to Bitcoin DeFi (BTCfi). A clear value proposition, secure smart contracts, and deep liquidity pools are essential for adoption. As these factors mature, financial institutions will likely find BTCfi attractive not only for access to Bitcoin ETFs, but also as a more flexible derivatives product to support sophisticated financial strategies.
– Hong Seung, Core DAO, Institutional Investor
