What Kind Of Bitcoiner Are You?
When it comes to bitcoin, there are three camps.
1. Maximalists. These are the true believers. They believe bitcoin is the only cryptocurrency worth caring about and that it leads to freedom from centralization, censorship, currency debasement, and bad governance, while leading toward individual freedom, security, and choice. Maximalists sell their chairs to buy more coins and “stack sats.”
2. Investors. They “get it.” They see bitcoin as a legitimate investment, an opportunity for asymmetrical gain, but they’re not zealots. While understanding the technology behind it, they view it as a way to make money, a macro type investment to improve a portfolio’s risk adjusted return. It’s not about love or religion and they’ll sell it if it’s no longer “working.”
3. Deniers. They refuse to accept the validity of bitcoin. They see it as a Ponzi scheme, a way for criminals to transact business and launder money, and just one hack or software bug away from complete meltdown. They’re conservative investors who like to stick with traditional asset classes.
Few financial advisors are maximalists. Most maximalists have roots in the cypherpunk community, technology industry, or have strong Libertarian beliefs. Some advisors are still deniers, but my guess is most of them could become investors if they adopted an open-minded attitude and spent more time researching what bitcoin is, why it came to be, and how it works, i.e., going down the rabbit hole.
There’s no doubt that more and more advisors are joining the Investors camp. With zero hacks of the Bitcoin network itself (the hacks have been of the exchanges that hold bitcoin or wallets that store bitcoin), the ever-expanding number of miners who ensure the integrity of the network, and the fact that bitcoin hasn’t surrendered its “lead dog” position in the crypto universe, this has led to many more advisors moving into the Investors camp.
“Certain advisors believe that, frankly, this should be in everybody's portfolio,” said Bicknell.
What Should You Do?
We’re past the point where advisors can ignore bitcoin or cryptocurrencies. Clients and prospects are starting to ask about them and if you don’t have an informed response, they’ll move on to another advisor who is conversant.
Here’s what I recommend you do as it relates to cryptocurrencies.
1. Learn. Do your homework and learn about cryptocurrencies. There are three areas you should focus on. First, get context. This three-part series from Robert Breedlove on Money, Bitcoin and Time is a good place to start. Second, understand the technology. The Inventing Bitcoin book explains the Bitcoin system in an easy-to-understand way. You could also checkout the Bitcoin Wiki. Third, understand the investment case for bitcoin. Checkout Fidelity’s report here and Grayscale’s Financial Advisor Toolkit here. You should also read my Going Down the Rabbit Hole article here. And of course, start following crypto Twitter and listen to crypto podcasts. The What Bitcoin Did podcast hosted by Peter McCormack is a great listen.
2. Invest. After you’ve done your initial learning, buy some bitcoin for your personal account. As an owner, you’ll now have an incentive to continue learning, to monitor it, and to understand the process for investing.
3. Advise. After steps 1 and 2, you are now in a position to speak intelligently to clients and prospects about bitcoin and cryptocurrencies. Even if you decide cryptocurrencies are not right for your clients, that’s ok. The key is you’ve done your homework and can now make an informed, not a dismissive, decision about what makes sense.
In Bicknell’s case, his firm is taking a measured approach to rolling out bitcoin to its advisors and clients. “It was really important to us that the training and education piece be the center of it, so regardless of if that advisor uses the SMA or not, the training and education piece is going to lift their knowledge, and therefore, the client experience overall,” he said.
Mariner’s initial rollout stage of the bitcoin SMA consists of only 10 advisors. These 10 go through the training and education that is monitored by a senior investment committee team member and a compliance department official. Ultimately, a company official “gets to sign off on every single client that gets brought up for an account.”
And we’re not talking a large allocation of bitcoin to a client’s portfolio. “Today we think of it in the 1-2% range,” Bicknell said. Yet, a little bit can go a long way. A 2% allocation for a potential 10x or more return could make sense for investors with the right profile. Yes, bitcoin could crash again or even go to zero, but for the right clients, the risk/return tradeoff could be attractive.