Ask Ric2021-07-21T15:44:50-04:00

Ask Ric

Ask Ric your questions about blockchain and digital assets. And read Ric’s answers to questions posed by other financial professionals.

Do “wash sale” regulations apply to digital assets?
Patricia Whitley, Advisor | Ric responded, September 22, 2021
2021-09-22T14:24:55-04:00

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.

Is there any path to becoming a Crypto Advisor, without being an Investment Advisor?
Brendan Murray, President, Health & Wealth Inc. | Ric responded September 16, 2021
2021-09-16T16:02:51-04:00

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.

Are there any E&O carriers that have a policy that will cover digital assets?
Dustin Terry, Founder, Clear Harbor Wealth Management | Ric responded, September 7, 2021
2021-09-07T19:15:57-04:00

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 the certificate training it notes that the last coins will be mined in 2140, how will the integrity of Bitcoin be maintained if there is no further compensation to verify the block chain?
Rick Dwyer, Chief Development Officer, Strategy Marketplace | Ric responded, Aug 13, 2021
2021-08-16T01:48:50-04:00

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.

Give us the bear case. How would this fall apart?
Jason Cooke, Advisor, Hermann & Cooke | Ric responded, March 4, 2021
2021-07-20T10:47:35-04:00

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

As RIAs, how do we handle compliance and regulation with bitcoin?
Bruce Lemley | Ric responded, February 1, 2021
2021-07-20T10:47:25-04:00

I created RIA Digital Assets Council (RIADAC) to answer questions just like this one. RIADAC is launching a Certification in Blockchain and Digital Assets at the end of Q2, to not only provide education but also for advisors to be able 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 taken at your own pace. The 10 modules of the certification 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 certification 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

>> Add Your Comment
Are we able to put Bitcoin into an IRA?
Beth Bebb, Regional Learning Specialist, Thrivent | Ric responded, February 10, 2021
2021-07-20T10:47:58-04:00

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

What is the likelihood that the SEC approves an ETF, and what is the estimated timeline?
Patrick McReynolds, Investment Analyst, Merrill | Ric responded, December 15, 2020
2021-07-20T13:53:59-04:00

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

What would be your advice for clients asking how much to invest in Bitcoin?
Christopher Rubio, Account Development Representative, MongoDB | Ric responded, December 15, 2020
2021-07-20T10:48:40-04:00

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

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