These days, it seems that every other article is about Bitcoin or cryptocurrency. At the same time, it also appears that no one can agree on precisely what is going on with this new and elusive technology. 

Bitcoin and cryptocurrency’s expansive growth is so overwhelming that to keep up with it is akin to holding two to three full-time jobs. Predicting whether Bitcoin and the crypto market will go up or down is more challenging than calling a summer rainstorm in Florida.  

Financial advisors with a lot on their plate can’t hope to stay current on every single advent in the unfolding landscape of the blockchain. 

So what is a financial advisor to do? 

The short answer is while it is probably not the time for financial advisors to give hard recommendations for or against investing in crypto, it is important that they be ready to discuss these new investment opportunities with their clients.

Here are ten points to consider when preparing to discuss this ever-evolving subject:

1. Remember the 5% rule

Bitcoin is, by definition, a high-risk asset. There has always been a spot for these types of investments in any portfolio. The rule of thumb has always been no more than 5%. While many cryptocurrency investors ignore this completely, it is a good guideline of which to remind your clients.

2. There are many more “coins” than BitCoin

There are currently over 9,929 different crypto coins listed on the major exchanges. There are an uncountable number of other coins often referred to by an obscene moniker we won’t print here. The smaller the coin the bigger the risk and reward. While they often experience periods of sharp growth, these are inevitably followed by steep declines, often eclipsing any progress made. Even if it looks like one of the coins is a sure thing, chances are it has a hard road ahead of it.

3. The whales are at play

Bitcoin is new enough that it is still experiencing heavy manipulation from major holders or, as they are called in the parlance of cryptocurrency, whales. Because the stock market and other mainstream financial investment avenues have been around and regulated for decades or even centuries, they are much harder to manipulate and take much more coordination amongst top holders. Regulatory agencies are still playing catch up with this new technology, making it akin to the wild west during the gold rush. 

4. Over leveraging is a must-avoid

Cryptocurrency is so new that it is continually being hammered by major manipulations. Sharp dives in value engineered to liquidate long and short positions are not infrequent but are the norm. One piece of advice that you can give your investors with impunity is to avoid high leverage like the plague.

5. Crypto is not a fad

Cryptocurrency and the underlying technology of the blockchain aren’t going anywhere. When compared to other technologies, blockchain has had an incredible adoption rate. Even the advent of the internet can’t measure against the quick adoption of blockchain technology. Over the past year, Bitcoin has gone up by 113% compared to the growth of the internet which, over the same time period, was 63%. Even if bitcoin adoption slowed to the level of the internet, it would still have 1 billion users by 2024 and 4 billion users by 2030. 

6. BitCoin is part of the BlockChain (not the other way around)

It’s important to understand that blockchain technology is much more expansive than cryptocurrency. NFTs, DAOs, DeFi, and other decentralized Web 3.0 entities will play significant roles in information storage, organizational structures, and value transfer in the future. New technologies and areas of development are emerging almost daily. 

7. Regulatory laws are still evolving

The Federal Reserve’s attitude towards cryptocurrency is still developing. For example, Janet Yellen suggested that federal agencies could subject cryptocurrency (and other liquid assets) to taxes on unrealized gains. New declarations by politicians, including the current president and high-ranking members of regulatory bodies, seem to come along every other week.

8. Cryptocurrency is a global concern

Cryptocurrency is playing an important if tumultuous role in international relationships. While countries like El Salvador have adopted it as a national currency, other countries like Turkey have outlawed its use altogether. Many countries, especially in South America, seem very keen on utilizing cryptocurrency to varying official degrees. 

9. Scams abound

From October 2020 through March 31, 2021, nearly 7,000 people reported losses of more than $80 million through crypto-related scams, according to the Federal Trade Commission (FTC) Consumer Sentinel. Because cryptocurrencies are more like physical assets than digital in many ways once an error has occurred it can be almost impossible to remedy the situation.

10. Crypto is paying off for many

While investing in cryptocurrency is extremely risky, the upside is undeniable. Cryptocurrencies have made millionaires out of teenagers investing small sums of allowance money. It would be short-sighted to overlook the appeal of such stories. Identifying where the next super surge will come from is the current occupation of many an amateur and professional online speculator. And while many are experiencing devastating losses, others are achieving life-changing gains.

While it is too soon for financial advisors to strongly advise investing in Bitcoin or other cryptocurrencies, this does not mean you should avoid discussing it with your clients. Be very upfront about the limitations of your (and everyone’s) knowledge on the subject. But be prepared to share what you know, and know all you can.