AAdvisors remain wary of the crypto space for a variety of reasons, but perhaps one of the more uncertain aspects for most advisers is the classification of the cryptocurrency. Current regulations are largely lacking, and advisers question whether cryptocurrencies are securities or not, and for good reason, reports CoinDesk.
The meteoric growth of crypto over the past two years has catapulted cryptocurrencies and tokens to the fore, with investors drawn to the potential for large returns while risking equally large losses. The novelty of digital assets means that for now, they don’t really have a particular regulatory framework into which they fit.
So what exactly is security, and why is it so important to cryptocurrencies? A title is defined by the SECOND as âinvesting money in a joint venture with a reasonable expectation of profit to be gained from the efforts of othersâ.
According to this definition, bitcoin is not considered a security because there is no easy to identify third party company and, therefore, it is classified as a commodity and falls under CFTC regulations. Other tokens, however, will most likely fall under the definition of a security and SEC regulations.
“Many or most crypto assets pose significant regulatory risk, especially as it relates to being securities under U.S. law, but we believe these issues are now resolved for bitcoin,” said Andy Edstrom, Head of Institutional Investments at Swan Bitcoin. “We don’t think this question has been answered for most other digital assets, and they potentially pose problems for intermediaries like financial advisers.”
The impact on advisers
The reason cryptocurrency classification is so important to advisers is because of the SEC’s custody rules for digital assets. If a digital asset is classified as a security, it should be held by a qualified custodian, not an advisor. Qualified custodians are defined primarily by their cybersecurity and ability to protect assets and keys, as well as their ability to work with a variety of networks.
Congress is working to define and help resolve issues around how crypto fits into existing regulations, as demonstrated by a recent meeting with some of the top executives in the crypto industry. cryptography before the House Financial Services Committee. While no official regulations have yet emerged from the meeting, it was full of bipartisan members asking thoughtful, focused questions and receiving fairly honest answers on a wide variety of topics and concerns within crypto.
Investing in Crypto Fundamentals Instead of Cryptocurrencies
For advisers who remain on the sidelines of crypto investing due to the uncertainty surrounding cryptocurrency regulation, an alternative is to invest in some of the big players in different segments of the crypto industry while avoiding direct exposure to cryptocurrencies.
By investing in companies that work within the crypto-economy rather than directly in cryptocurrencies, investors can diversify their risks related to regulatory impacts. the ETF Bitwise Crypto Industry Innovators (BITQ) offers investments in some of the largest crypto firms in a variety of segments.
BITQ tracks the Bitwise Crypto Innovators 30 Index, an index with at least 85% allocation to companies that are cryptocurrency exchanges carrying bitcoin and other cryptocurrencies, crypto miners, companies in mining equipment and service providers. The remaining 15% is allocated to large-cap support companies with at least a large portion of their business dedicated to crypto.
BITQ transports crypto companies, including Coinbase Global Inc (COIN), a major crypto exchange, at 10.58%; Silvergate Capital (SI), a bank that provides services for crypto exchanges, at 10.08%; and crypto mining company Hut 8 Mines (HUT CN) at 4.09%.
The fund has an expense ratio of 0.85% and net assets of $ 123 million.
For more news, information and strategies, visit the website Encryption string.
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