Ask Ric Edelman

If you’re simply listing asset classes such as stocks and bonds, I see no issue with also mentioning digital assets (I wouldn’t mention bitcoin specifically) – just as I’d see no issue with mentioning other asset classes, such as real estate or gold. I’d have my compliance department approve any ad before using it, to make sure the proper disclosures are present; you want to be clear if you’re offering an asset or a security investing in that asset (a REIT vs real estate, or gold ETF vs gold, or GBTC vs bitcoin). And be sure you’re not violating your firm’s “selling away” rules.

OTC products will likely be of little interest to investors after ETFs become available. That’s why all the OTC sponsors have committed to converting their OTC securities to ETFs. Makes sense. And that offers investors an arbitrage play: GBTC, for example, is trading at a discount. If it converts to an ETF, theoretically that discount would vanish – giving GBTC owners a nice little bump! Of course, this depends on the conversion occurring.

The appraisal is required by the IRS, not Fidelity. This is true for any charitable donation of non-cash, non-securities of $5,000 or more. Fidelity gives you a confirmation showing the date they receive your crypto and the selling price, but the IRS won’t accept that as a legal appraisal. You have to hire an appraiser, and Fidelity can refer you to such folks (and look at our Yellow Pages for a list of appraisers – we’re adding to this list often.) Yes, an annoying aspect of making donations of crypto. I think you can get it done for less than $600.

I’m not aware that you can name a beneficiary to accounts at Coinbase. This is not uncommon, as many institutions don’t allow you to name beneficiaries on taxable accounts. Traditionally, beneficiary designations are set for retirement accounts, wills & trusts, and annuities. So, if your financial institution doesn’t allow you to name a beneficiary on the account, you’ll have to do so in your will or trust (and make sure the relevant document references or applies to the account).

Many digital asset exchanges do not permit trust registrations, or even joint registrations with spouses; they often permit only registrations featuring the name of a sole individual. This is archaic, reflecting the fact that they are not aware of, or don’t care about, the estate planning and tax planning aspects of asset ownership. This will improve over time as they mature – and as they continue to engage with the financial services industry. For now, it remains cumbersome at many exchanges. No one in the field is winning any awards for customer service yet. Soon, though, as competition grows, pricing and service will improve. The analogy: when Model T cars first got produced, there weren’t any paved roads. Just dirt trails created by horses pulling buggies. Over time, those trails were paved, and later, highways built. Service, performance and reliability all improved exponentially. In crypto, we’re still in the horse-and-buggy days. It’s a hassle, but you’re being rewarded by having profit potential that future participants might not enjoy.

Your notion of using a cold wallet won’t help you, by the way. There’s no registration at all with such a device, let alone opportunity to name a beneficiary. If you put your digital assets onto a flash drive, make sure your heir knows where you store it and how to access it.

For sure, our Certificate in Blockchain and Digital Assets program is a great way to start. Beyond that, read as much as you can and attend as many events as you can. We list great news services at the DACFP Yellow Pages. And when you become fully immersed and are ready to devote full-time effort to this career-wise, the crypto community will welcome you!

That’s a big question. We cover it in detail in our DACFP Certificate in Blockchain and Digital Assets program – and we’re creating a new 1-hour presentation to address this specifically. Visit our Events page to register for our upcoming webinars and to watch replays of our past events. Also, you can find all the offerings at the DACFP Yellow Pages – it’s a great place to start your due diligence efforts

We offer a list of estate planning attorneys with expertise in digital assets in our Yellow Pages directory.

It’s all over the map. RIAs are a diverse group of professionals – and as a result, their approaches to digital assets vary greatly. Thus, every company offering access to the marketplace is gaining assets.

Don’t worry about what others are doing. Explore each option that’s available. Then, using your knowledge about your clients and your practice, you’ll be able to choose the approach that’s best for you and each client.

Great idea! If gains occur as many project, placing those gains into a tax-free account is a great idea. Several firms, including Choice by Kingdom Trust, allow you to buy digital assets in IRAs and Roth IRAs.

With many exchanges, yes.

Yes. Several firms facilitate this.

Same as IRAs. The paperwork is mildly different but no big deal.

I have certainly felt that this is a given. However, Sunayna Tuteja, Chief Innovation Officer at the Federal Reserve, said at October’s DACFP VISION conference that use of a blockchain to create and operation a US CBDC is not a given. Other technology, she speculated, could be used, although she did not elaborate. My bet is still on DLT.

Sure, provided they have an earned income. I often joke with clients that they should have their babies become models, appearing in ads for baby food and kids’ clothing. Let them earn an income so they can place it into a Roth IRA! Teenagers mowing lawns and babysitting can also open Roth IRAs. Mom and Dad can hire the kids to do chores. Allowances are not eligible for IRA contributions, but income is!

Those serving financial advisors do.

Yes. Offline is safer (you can’t hack a filing cabinet) but doesn’t allow for instant trading. Online is convenient but exposes you to hacker risk.

Sure. And many think that’s exactly what will happen.

I expect the SEC to approve a bitcoin ETF within 18 months. And I’ve been saying that for 7 years.

I have no idea what their theoretical value is. I only know their real prices.

The wash sale rule applies to securities. Bitcoin is not a security; therefore, the wash sale rule does not apply to it. But other coins are considered to be securities, so the wash sale rule does apply to them. Also, OTC trusts, such as GBTC, BITW and OBTC, are securities and thus fall under the rule.

But all this is likely to be moot. The new tax bill has a provision that applies the wash sale rule to everything, whether they are securities or not.

Give them a copy of new book, The Truth About Crypto, which is being released in May. You can preorder now, and if you’d like to order bulk copies at a discount, give us a shout.

Zero. That’s a beauty of buying bitcoin – it helps with portfolio diversification, ala Markowitz and the Efficient Frontier.

The wash sale rule applies to securities. Bitcoin is not a security; therefore, the wash sale rule does not apply to it. But other coins are considered to be securities, so the wash sale rule does apply to them. Also, OTC trusts, such as GBTC, BITW and OBTC, are securities and thus fall under the rule.

But all this is likely to be moot. The new tax bill has a provision that applies the wash sale rule to everything, whether they are securities or not.

Anyone can advise anyone on anything, subject to federal and state regulation. For example, you need licenses for real estate, insurance, securities and investment management. You don’t need licenses for rare coins, wine or comic books.

Bitcoin and Ethereum are not securities. But many other digital assets are, as are the mutual funds and ETFs in this space. So, you would need licenses.

If all you’re doing is education, and not managing money for a fee, then I don’t think licenses would be needed. States often have lots of license requirements – for everyone from hairdressers to masseuses – so check on all this with a local attorney.

Most standard E&O policies cover digital assets – when you obtain them via securities such as mutual funds and ETFs. And there’s plenty of opportunity to do that, with funds offered by Bitwise, Osprey and Grayscale, as well as Simplify, ProFunds and others. Lots of accredited funds are available, too, from Skybridge Capital, Pantera, Galaxy and more. There are also SMAs, such as Arbor Digital and Eaglebrook Advisors.

Buying bitcoin or other coins or tokens from exchanges like Coinbase or Gemini might not be covered by your E&O policy. But since you can’t manage assets for your clients in that way, I’m not sure why you’d want to.

In addition to block rewards, which is how miners receive bitcoins in exchange for solving the computational equations, users pay gas fees. These are costs to have your transaction verified ahead of other transactions. With the full 21 million coins in place, there will be lots of users, and lots of demand for transaction verification, and hence, lots of gas fees (both in number and price). Theoretically, the gas fees will be sufficient compensation to keep the miners motivated.

The captain of the Titanic was certain he had smooth sailing too. On that basis, that’s why you diversify.
Does that mean you should put all of your money into bitcoin? I think we can all agree that would be foolish. But to do none, out of extreme fear that something might go wrong, is equally foolish.

I think you need to look at it from a rational perspective of diversification and prudent money management. Just as you would with any asset class, especially an emerging one.

Ric responded, March 4, 2021

I created Digital Assets Council of Financial Professionals to answer questions just like this one. The DACFP Certificate in Blockchain and Digital Assets course provides allows advisors to demonstrate to their clients that they have attained the education and can provide advice that is in the client’s best interest.

This is an online class with 13 CE credits, taken at your own pace. The 11 modules are split into two camps. The first five modules are on blockchain and digital assets. This is the fundamental knowledge and education needed to understand digital assets and explain it to clients. The second five modules are centric to financial advisors. This half focuses on practice management elements so that advisors can actually put all of these methods to use. The certificate covers questions such as these:

• How do you integrate this into asset allocation?
• How do you diversify?
• And what are the reasons for doing so?
• How do you create the asset allocation models?
• Where do you buy it?
• What exchanges what?
• What custodians do you use?
• What are the funds that are available for purchase?
• How do you store it and safeguard it?
• Do you do that through hot or cold wallets?
• How do you track it?
• How do you provide the record keeping?
• How do you rebalance it?
• How do you do the tax reporting?
• How to integrate it into rebalancing with the rest of your portfolio and as a financial advisor?
• How do you provide or receive compensation along with the rest of your asset management services?
• What are the tax reporting obligations?
• The regulatory requirements?
• What are all the issues associated to allow the advisor to do their job as an advisor while serving the client in their best interests?

Please visit our Certification in Blockchain and Digital Assets page for further details and to register.

Ric responded, February 1, 2021

There are some platforms available where you can invest your IRA into Bitcoin. These are cumbersome. They are not primary players. It raises concern by the advisor who has reputational risk, as well as the investor who has confidence risk. And it reduces the degree to which there is engagement and involvement by both advisors and their clients. These do exist, but they’re more expensive than they alternatively would be. Some folks are saying, I don’t mind paying a 3 percent fee if I’m dealing with an asset that’s growing double digits every year.

Fidelity Digital Assets is providing these services for the institutional marketplace. They will eventually roll it out for the retail marketplace. You’ve got companies like Kingdom Trust, which manages 19 billion dollars in assets. That’s a qualified custodian you can actually use to buy Bitcoin in your IRA.

Ric responded, February 10, 2021

The SEC will approve a bitcoin ETF within 18 months. I’ve been saying that for five years. Hey, at some point, I’ll be right! Until then, you should explore alternative ways to buy. There are many, and we cite lots of them at RIADAC.com.

Ric responded, December 15, 2021

I’m the guy who pioneered the concept, a few years ago, of a one percent asset allocation model. In traditional asset management activities, if you’re not going to put three percent or five percent of assets into an asset class then why bother doing it? It’s not going to have a material impact on the portfolio. However, with Bitcoin, you don’t need five, 10 or 20 percent, which you would likely do with stocks or bonds. Bitcoin has a lot of unknowns technologically and regulatory.

My position is that you don’t need to do 10 or 20 to have a meaningful exposure. One percent allocation is plenty and the reason for that is Bitcoin’s incredible volatility.

A one percent allocation won’t hurt you. If you’re wrong, it’ll be annoying, but not devastating. And if you’re right, that one percent allocation can have a material impact on the improvement of your client’s returns.

Therefore, it is very much worthwhile to learn about Bitcoin. I’m not saying you have to like it. I’m saying as an advisor you have an obligation to learn about it.

Ric responded, December 15, 2020