Key Takeaways
- • Financial advisers are increasingly fielding client questions about digital assets, with three questions recurring most often: volatility, asset selection, and custody.
- • Fidelity Digital Assets, as cited in the supplemental material, views bitcoin as the entry point for traditional allocators, given its relative security, decentralization and soundness as digital money.
- • Per the source material, bitcoin's volatility is lower than other digital assets and has reached new all-time lows on a yearly scale, though it remains more volatile than major traditional asset classes.
- • Self-custody places key-management and security burdens on the investor, while third-party custodians assume those responsibilities, making the custody choice a central advisory discussion point.
Summary
Digital assets and the broader crypto sector are increasingly a subject of conversation between financial advisers and their clients, according to a publication on the cryptoforinnovation.org platform that reproduces Fidelity Digital Assets content. The piece identifies three questions that typically arise and argues that they underscore the need for greater investor education on the asset class.
On volatility, the source states that young asset classes with small market capitalizations tend to be more volatile as new capital flows in. It adds that bitcoin's volatility is lower than that of other digital assets, has reached new all-time lows on a yearly basis, and is trending downward. The article acknowledges that bitcoin remains more volatile than other major asset classes, but notes that it can be less volatile than prominent individual equities. Compared with the so-called "Magnificent Seven" group of large technology stocks, including Apple and Microsoft, bitcoin's volatility does not appear to be an outlier.
On asset selection, Fidelity Digital Assets is cited as viewing bitcoin as the entry point for traditional allocators, as it is considered fundamentally different from other digital assets. The source argues that no competing asset is likely to improve upon bitcoin as a monetary good, since any improvement would involve inevitable trade-offs. Ether, the second-largest digital asset by market capitalization, and other alternative coins may be evaluated later, based on a client's experience, risk tolerance and financial goals. The source also notes that institutional access channels have expanded, including third-party custody, passive single-asset funds, futures contracts, actively managed funds, futures-based exchange-traded funds and, most recently, spot exchange-traded products.
On custody, the article notes that self-custody is a core feature of bitcoin and digital assets, but requires robust security and risk management that some investors may lack the time, resources or expertise to establish. Self-custodians hold a private key, and loss or theft of that key means loss of the assets. Estate planning gaps can leave heirs unable to access holdings. Third-party custodians, by contrast, assume security and key management and can offer enhanced risk management assurances. The source stresses that advisers should discuss both the advantages and disadvantages of each option with clients.
On volatility, the source states that young asset classes with small market capitalizations tend to be more volatile as new capital flows in. It adds that bitcoin's volatility is lower than that of other digital assets, has reached new all-time lows on a yearly basis, and is trending downward. The article acknowledges that bitcoin remains more volatile than other major asset classes, but notes that it can be less volatile than prominent individual equities. Compared with the so-called "Magnificent Seven" group of large technology stocks, including Apple and Microsoft, bitcoin's volatility does not appear to be an outlier.
On asset selection, Fidelity Digital Assets is cited as viewing bitcoin as the entry point for traditional allocators, as it is considered fundamentally different from other digital assets. The source argues that no competing asset is likely to improve upon bitcoin as a monetary good, since any improvement would involve inevitable trade-offs. Ether, the second-largest digital asset by market capitalization, and other alternative coins may be evaluated later, based on a client's experience, risk tolerance and financial goals. The source also notes that institutional access channels have expanded, including third-party custody, passive single-asset funds, futures contracts, actively managed funds, futures-based exchange-traded funds and, most recently, spot exchange-traded products.
On custody, the article notes that self-custody is a core feature of bitcoin and digital assets, but requires robust security and risk management that some investors may lack the time, resources or expertise to establish. Self-custodians hold a private key, and loss or theft of that key means loss of the assets. Estate planning gaps can leave heirs unable to access holdings. Third-party custodians, by contrast, assume security and key management and can offer enhanced risk management assurances. The source stresses that advisers should discuss both the advantages and disadvantages of each option with clients.
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