​ 5 Crypto Questions Advisors Should Know How To Answer

by Andrew McGuinness     Jul 16, 2019

Gone are the days when cryptocurrencies were niched digital coins meant for small-time transactions in obscure parts of the internet. Nowadays, cryptocurrencies are regarded with as much enthusiasm as their physical counterparts, earning a lot of interest from seasoned investors all over the world.

As it is easily becoming one of the most sought after assets in the world, financial advisors are now responsible in understanding at least the basics of the crypto market in order to provide informed advice for their clients.

As a financial advisor, you might not know the nuances regarding cryptocurrencies but there are basic information that you could use to assess whether or not a digital investment is the right move for your advisee.

How Do Cryptocurrencies Work?

One of the first things advisors, or anyone interested in the market, should understand is the way cryptocurrency works. Unlike physical currencies, digital coins aren’t regulated by institutions like banks and governments. They rely completely on a technology called blockchain to decentralize the process.

The best way to understand blockchain technology is by imagining it as a public albeit anonymous ledger. A transaction will instantly be recorded to this ledger, processed by the algorithms held by the participants.

How Safe Are Cryptocurrencies?

Cryptocurrencies aren’t tangible and therefore can’t be stashed away safely in your home. Despite its many projected benefits, there are still some risks that come with putting your money in digital currency.

A typical example of how risky it could be to invest in digital coins is the case of Mt. Gox, a popular Bitcoin exchange in 2013. It processed 70% of the transactions on Bitcoin and is considered one of the largest exchange sites up to date. In 2014, the site collapsed after 850,000 Bitcoins went missing worth up to $450 million.

However, with newer developments in cryptocurrency technology, it’s easier for investors today to feel secure with their digital coins.

What Are The Top Risks Of Cryptocurrencies?

Aside from the possibility of hacking, investors have no way of knowing their investment’s future in the long-run. While other assets are easier to predict, market trends and performance data are all but irrelevant when it comes to crypto trading.

A considerable risk investors should acknowledge is the fact that cryptocurrencies may very well be in a bubble. This means that, at any moment, the bubble could stop inflating and “pop”; the market could come crashing down without actual notice.

What Are The Key Benefits Of Cryptocurrencies?

Investors always want the best for their money and as an advisor, you can use these points to highlight why they should invest in digital coins. Despite its early signs of risk, cryptocurrencies have since evolved to be more secure, minimizing the possibility of fraud. Unlike credit cards, cryptocurrency transactions are impossible to create out of thin air.

Naturally, there’s the unique point of decentralization. Crypto-based transactions are not dependent on banks and other organizations. Digital coin holders can send cryptocurrencies by simply sending their desired amount to a receiver. No contracts, no paperwork.

Most importantly, crypto-based transactions don’t come with fees. When sending large amount of money overseas, going crypto might be the best way in order to avoid exorbitant fees found in banks and exchange centers.

What Are Real-life Applications?

While digital currencies have experienced tremendous growth in a short span of time, the system is very much in its very early stages. There are considerable establishments opening up to the possibility of adopting Bitcoin and other altcoins to their mode of payment, but an entirely cashless future is still far down the line.

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