Today’s edition of the Crypto for Advisors newsletter is crafted by me! Join me as I delve into the remarkable evolution of the cryptocurrency sector. Additionally, Kim Klemballa from CoinDesk Indices provides insights into the queries advisors have regarding the pricing and benchmarking of this asset class in the “Ask the Expert” section. I hope you find our newsletter enjoyable. I appreciate the opportunity to serve as your guide. A special thanks to all the incredible contributors who share their experiences with us weekly. I eagerly anticipate our advancements in the next two years.
Webinar Alert: Uncovering the Digital Asset Market
Join us for an enlightening webinar that explores the digital asset market and alternative ways to engage with the crypto asset class beyond just bitcoin. Ric Edelman from DACFP, David LaValle from Grayscale Investments, and Andrew Baehr from CoinDesk Indices will lead this session on July 16 from 1-2 p.m. ET. This is a live webinar only, and continuing education credits will be available. Don’t miss out; register today.
Reflecting on Two Years: The Journey Begins
Two years ago, I stepped into the role of editor for Crypto for Advisors during a critical period. It was the middle of 2023, and the cryptocurrency sector was experiencing a significant downturn. The downfall of major lending platforms and the collapse of FTX sent ripples through the financial markets. The regulatory environment in the U.S. was challenging, characterized by an enforcement-first approach that left many investors feeling uneasy. However, beneath the surface, it was clear that something monumental was brewing. Fast forward to the present, and we find ourselves on the brink of what Bank of America describes as a “once-in-a-millennium transformation.” This transformation is not about memes or speculative trading; it’s about a profound change in global financial infrastructure, economic frameworks, and the concept of digital ownership, all driven by the crypto revolution.
A Tribute to Bitcoin: The Dawn of a New Era
“Bitcoin deserves to be mentioned alongside the printing press and artificial intelligence,” according to Bank of America. Emerging in the wake of the 2008 financial crisis, Bitcoin introduced a groundbreaking concept: a decentralized digital currency with a capped supply that is free from the control of any government, corporation, or central authority. This innovation sparked a movement, with early enthusiasts experimenting with graphics processing units (GPUs), developers creating wallets, entrepreneurs launching exchanges, and miners seeking affordable energy worldwide. A technological and economic revolution began to unfold. Today, we witness leading asset managers, including BlackRock, Fidelity, and Grayscale, introducing Bitcoin exchange-traded funds (ETFs), while various nations, including the U.S. and UAE, compete to establish themselves as global crypto hubs. This represents an unprecedented acceleration of financial innovation.
The Emergence of Ethereum and Smart Contracts
While Bitcoin ignited interest in digital currencies, it was Ethereum that expanded the possibilities with its smart contract functionality. This innovation provided a platform for utility, programmability, and the tokenization of various assets, including real estate, carbon credits, fine art, identities, equities, and yield-generating protocols. Although Bitcoin and Ethereum dominate discussions in the crypto space, there are tens of thousands of other digital assets available. While investment opportunities often take center stage, the underlying blockchain technology is quietly revolutionizing industries such as supply chains, intellectual property, and finance. Over 140 public companies have disclosed Bitcoin holdings, and exchanges like Coinbase and Kraken are preparing to offer tokenized equities. Retail platforms like Robinhood are also expanding their crypto offerings. Access methods are proliferating, with direct-to-consumer platforms, hundreds of ETFs, tokenized funds, and direct ownership options all on the rise.
Adapting to a New Landscape
Initially, only a small number of advisors embraced cryptocurrency early on, but this trend is gradually shifting. There is a growing acknowledgment of the opportunities that crypto presents — from supporting client needs to nurturing relationships and attracting new business. It is increasingly common for advisors to report that they are securing clients simply by being open to discussions about Bitcoin. However, challenges remain. The lack of regulatory clarity, restrictive firm policies, the volatile nature of digital assets, and the uncertainty surrounding this emerging asset class have caused some hesitance among advisors. Additionally, advisors have many responsibilities, and now learning about a new and continually evolving asset class adds to their workload. Nevertheless, clients are eager to access digital assets. Recent survey data from Coinshares reveals that clients seek guidance from their advisors and expect them to be well-versed in digital assets. Over 80% of respondents indicated that they would be more inclined to work with an advisor who offers digital asset insights, and 78% of non-crypto investors stated they would turn to an advisor if they could receive crypto support. Remarkably, nearly 90% of respondents expressed intentions to increase their crypto investments in 2025.
A Call to Action for Advisors
Blockchain technology serves as a foundational infrastructure, while crypto transcends being merely an asset class; its implications extend far beyond the realm of investing. The industry is evolving, regulatory measures are progressing, and some of the world’s largest institutions are building on blockchain technology. U.S. Treasury Secretary Scott Bessent recently remarked, “Crypto is the most significant phenomenon unfolding in the world today.” You don’t need to be an active crypto trader or a blockchain programmer. However, if you are a fiduciary — a guide or planner — it is essential to grasp the developments occurring in this space. Education is crucial. Over the past two years of curating this newsletter, I have witnessed a shift in sentiment from skepticism to curiosity and now to strategic integration. And we are merely at the beginning of this journey. I am excited to accompany you on your crypto expedition. Please feel free to reach out with suggestions for future topics you would like us to cover.
Ask the Expert
Q. Why do different exchanges price the same digital asset differently?
A. In the world of equities, prices are typically uniform across exchanges due to their centralized nature. In contrast, cryptocurrencies operate on a decentralized model, meaning there isn’t a single source determining the price of a digital asset. Consequently, prices are influenced by supply, demand, and other factors, leading to variations across different exchanges.
Q. How can I access trustworthy pricing data for digital assets?
A. Numerous digital asset index and data providers exist. It’s advisable to choose a provider that (1) is reputable and has a proven track record in the digital asset space, (2) adopts a transparent and systematic approach to pricing, and (3) offers clearly defined criteria for capturing pricing data. The methodology behind the index is critical. For instance, an index that requires trading on multiple eligible exchanges, with carefully crafted eligibility criteria, would have excluded FTT (the token of FTX) during its collapse. Thoughtful index construction can help eliminate unreliable players.
Q. Why is Bitcoin often used as a benchmark for the entire digital asset landscape?
A. Bitcoin currently represents about 65% of the total digital asset market, although there were periods when it accounted for less than 40%. Relying on a single asset as a benchmark for the entire asset class is not ideal. Diversification is essential for institutional investors to manage risks and seize broader opportunities. Effective benchmarking should cater to various stakeholders—facilitating performance assessment, supporting investment strategies, and establishing industry standards. Indices like CoinDesk 5 (CD5), CoinDesk 20, CoinDesk 80, CoinDesk 100, and CoinDesk Memecoin have been created to satisfy the needs of those looking to benchmark, trade, or invest in the dynamic digital asset ecosystem.
