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How to Answer Client Questions on ICOs, Cryptocurrency

The old world and new world of financial products are converging; it’s best to be prepared.

By Stephane De Baets 

Financial advisors and money managers are used to answering questions about individual stocks, indexes, ETFs and plenty of innovative private placements.

However, with Bitcoin leading the way via its dramatic rise and subsequent volatility, cryptocurrency has crept into the mainstream conversations within the financial world. Just this past May, J.P Morgan created and filled the position of Head of Crypto-Assets Strategy, a clear departure from the reluctant position many traditional groups took when digital currency first began to take hold.

As clients ask questions, the onus is now on advisors and their firms to not only answer each question intelligently, but also to begin identifying coin offerings and investment structures that could be advantageous to those they represent. Like the internet boom nearly 20 years ago, the old world and new world of financial products are converging, and it’s best to be prepared. 

Understanding the Future of Currency

One of the most traditionally held beliefs in investing is that it’s best to have your money work for you, generally in the form of a long-term investment, which for many high-net worth individuals means real estate and other appreciating, income-producing assets.

A currency was never meant to be an instrument of wealth storage, but something that’s exchanged between two parties during a transaction, with each side representing a certain assigned value. This evolving viewpoint of what currency is and stands for is ultimately what drove the innovation behind Bitcoin, the popular cryptocurrency that has now increased significantly in value.

However, many cryptocurrencies seem to have a value that’s entirely arbitrary and based on online supply and demand. This is troubling to some, and the cause of many investor questions, which has resulted in more common asset-backed coin offerings, such as real estate.

Evaluate Credible Online Marketplaces for Coin Exchanges

One of the first things financial advisors must be aware of is how to address questions around what the exchange coins are traded on. Unfortunately, there are still very murky waters when it comes to coin exchanges, which has placed more than a few black eyes on the industry. With that said, there are digital marketplaces for Tokenized Asset Offerings that facilitate the opportunity to invest in offerings that are both transparent and properly vetted. To do so, many exchanges are supported by an affiliated, credible broker-dealer that is both SEC- and FINRA-registered. Financial advisors and due diligence officers need to carefully review these platforms and their marketing structures to ensure clients become involved only in offerings for which there is both transparency as well as a long-term vision. 

How Do Crypto Offerings Make Money?

This is a standard first question from clients to their advisors. The answer isn’t overly complex, but it’s worth stating that simply listing an offering and getting a coin to trade is one thing, but sustainability through storing wealth via digital currency should be the primary objective for money managers and their investors.

HNWI are very familiar with alternative investments, especially those involving real estate and other long-term appreciating assets. They know that direct investing can mean lots of paperwork, loans with a bank, etc. Cryptocurrency offerings provide investors with direct access to investment products, which is unsurprising given the global business trend of disintermediation, or the reduction in the use of intermediaries between two parties. For this reason, educating clients on the value add of cryptocurrency may very well include reference to smaller up-front fees, which are well-known for impacting long-term return.

Further, asset-backed offerings should be positioned for exactly what they are: exposure to an investment class not unlike many others you and your client have likely reviewed, but one designed to provide both transparency and liquidity to investors. It is the belief of many that the popularity of digital currencies that lack a fundamental business or product to support their coin’s value, clearly shows there is an appetite for ones based on traditional fundamentals like cap rate and dividend yield.  

Questions About Liquidity

Ah, liquidity—the source of much frustration and countless hours spent creativity addressing by investment sponsors. Real estate, for example, is widely recognized as an income generating and appreciating asset. One of its few drawbacks has historically been its liquidity features, something that many REITs and fund managers have tried to equip with their offerings. Now, via tokenized real estate offerings, crypto has begun to establish itself as a potential means for providing the liquidity investors crave.

When any form of asset class becomes substantial in terms of size, liquidity players always pay attention. Coin offerings that are asset-backed make a liquidity event that much more possible, especially when increases in valuation are so transparent and easily tracked. As with any investment vehicle, advisors should carefully review all prospectus information to ensure they understand any coin offering’s liquidity features, including lock-up periods and, of course, banking processes with respect to the exchange the offering is hosted on.

Cryptocurrency is that it may just represent the intersection between the old world of investing by providing investors’ exposure to traditional asset classes, and the new world of fintech innovation and transparency. Like any trendy investment concept, financial advisors and money managers need to approach with caution, but also with an understanding that there may be significant opportunity for their clients being an early adopter.


Stephane De Baets is the Founder and President of Elevated Returns, an asset management company that manages assets across service industries, including hospitality, real estate and a number of consumer brands.

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