The very real volatility of cryptocurrency has often grabbed headlines, as investors have seen their funds in digital assets plummet, and scandals of fraud and misuse of client funds have engulfed th﷽e industry.

Volatility is one ꦫaspect of cryptocurrency investing that you need to tell your clients about. However💧, it is not the full story. Some investors profit from crypto, too.

Your clients may have only heard the terms “cryptocurrency” or “digital assets,” and they may not know what they mean or how they work. Others may have limited knowledge, and still others may have 澳洲幸运5官方开奖结果体彩网:already invested in crypto and 💟uℱsed it to buy goods and services. Because of the range of possibilities, it is best to ask your clients first what they know about the subject.

It is part of your job as a 澳洲幸运5官方开奖结果体彩网:financial planner or advisor to present your cꦜlients with a range of investment options, evaluate these options, and explain how investing in cryptocurrencies may help or hinder them from reaching their goals. Although ꦿeconomists may disagree on the longevity of cryptocurrency, many believe that it's likely to be around for years to come.

What Is Cryptocurrency?

A cryptocurrency is a decentralized digital currency that relies on cryptography for security. You can help your client understand that cryptocurrency can be used like traditional fiat curr🌠encies such as U.S. dolla𒁏rs and euros, as an investment, or to pay for everyday goods and services.

There were over 25,000 digital currencies with a combined market capitalization of $2.3 trillion as of Oct. 18, 2024, according to CoinMarketCap. The largest by far is Bitcoin, released in January 2009 by the pseudonymous Satoshi Nakamoto.

The early digital products were easy to replicate, which was an inherent challenge to digital currencies until Bitcoin launched with safety measures in place. Now the use of cryptography and 澳洲幸运5官方开奖结果体彩网:blockchain technology ensures that cryptocurrencies are nearly impossible to counterfeit or 澳洲幸运5官方开奖结果体彩网:double-spend, despite being digital.

What Is a Blockchain?

A blockchain is a distributed database shared among the nodes of a computer network. As a database, a blockchain stores information electronicalꦑly in a digital format.

Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secu♍re and decentralized record of trans♔actions. The innovation of a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need to use a trusted third party.

One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information in groups, known as blocks, that hold sets of information.

Blocks have certain storage ꦯcapacities and, whe𝕴n filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block, which then also will be added to the chain once filled.

A database usually structures its data into tables, whereas a blockchain structures its data into chunks (blocks) that are strung together, as its name implies. This data structure inherently makes an irreversible timeline of data when implemented in a decentralized nature. When a block is filled, it becomes part of the permanent record and of this timeline. Each block receives an exact time stamp when it is added to the chain.

6 Things Your Client Needs to Know About Crypto

1. How it works: Cryptocurrency is like fiat or traditional currency because you can use it to buy items and services. It’s different, however, because it’s digital-only. One simple way to spend cryptocurrency at retailers and vendors is through gift cards purchased on platforms like Bitrefill. Among the retailers that accept cryptocurrency through the third-party app are Starbucks Corp. (SBUX), Nordstrom Inc. (JWN), Best Buy Co. Inc. (BBY), and Walmart Inc. (WMT).
2. How to start using it: First, 澳洲幸运5官方开奖结果体彩网:create a crypto exchange account, and then purchase coins through an exchange, such as Coinbase. You can also buy crypto with traditional currency using debit cards or bank accounts.
3. How to store it: Transfer it to a noncustodial crypto wallet to secure your funds. A wallet validates your transactions and keeps your private key information safe.
4. Where you can use it: Crypto funds are always available at any place in the world because they aren’t tied to a bank or a government.
5. How safe it is: Cryptocurrency can be safer to use because you don’t need to provide personal information to a vendor, lessening the chances of identity theft or fraud.
6. How stable it is: Not at all. Cryptocurrency is volatile, which can be good or bad. Let’s say you have $2,000 in your crypto account. The value can increase, meaning you have more in your account. However, if it dips in value—to $750, for example—there’s nothing you can do to recover the lost funds but wait it out, hoping that the value will increase. 澳洲幸运5官方开奖结果体彩网:It may not.

CFP Board Issues Crypto Guidelines

On Dec. 5, 2022, the Certified Financial Planner Board of Standards, Inc. (CFP Board) released a new guide about cryptocurrency-related assets to help 澳洲幸运5官方开奖结果体彩网:CFP professionals. The guide, named the "Notice to CFP Professionals Regarding Financial Advice About Cryptocurrency-Related Assets," was developed in response to questions about financial advice on cryptocurrencies and other crypto-related assets.

In its notice, the board recommended that CFP professionals follow regulatory guidance when providing financial advice about crypto-related assets since both the Department of Labor (DOL) and the Financial Industry Regulatory Authority (FINRA) have expressed concerns about potential risks when investing in crypto-related assets.

In March 2022, the DOL's Employee Benefits Security Administration (EBSA) published compliance assistance warning 401k plan fiduciaries against cryptocurrency investments.

According to the board, CFPs are not prohibited or encouraged to provide 🌜crypto-related advice but should be familiar with the asset and its risks when discussing crypto with clients. In addition, the board highlighted the specific risks associatﷺed with crypto-related assets, including speculative and volatile nature, difficulties in analyzing, custodial and valuation issues, potential unregistered status, and the potential for additional regulation.

More compliance resources, including FAQs, videos, fact sheets, case studies, and other guidance resources to help CFP professionals understand and comply with the Code and Standards, can be found at CFP.net/compliance.

The Bottom Line

Clients may be hungry for information about cryptocurrencies, whether they plan to use them or not. As their financial advisor or planner, 澳洲幸运5官方开奖结果体彩网:it’s your job to explain to them this relatively new form of currency, which has investment potential 🦩and a clear downside. Be ready with th💦e facts.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our 澳洲幸运5官方开奖结果体彩网:warranty and liability disclaimer for more info.