Bitcoin has been on a tear lately, up nearly tenfold since the beginning of 2016, when a single “coin” could be had for just over $400.
By mid-September 2016, Bitcoins were trading well north of $4000 — and investor interest has become feverish as returns dwarf all other assets. Even a rumored move by China to shut down all three of its Bitcoin exchanges could only dent Bitcoin’s rise, chopping prices from a high of nearly $4700 per Bitcoin to just over $4000.
Investors who missed the steep climb — most of them, in what is still a very new, untested asset — are on the phone asking financial advisors how they can get into this hot new vehicle.
Not everyone is on board.
Indeed, JP Morgan Chase CEO Jamie Diamond recently compared Bitcoin to historic investment mania, telling participants in a Barclays Banking Conference that “Bitcoin will eventually blow up. It’s a fraud. It’s worse than tulip bulbs and won’t end well” and saying he’d fire any trader stupid enough to trade in the currency.
That drew a swift response from Bitcoin advocates like MGT Capital CEO John McAfee.
““You called bitcoin a fraud…The fact that bitcoin is consistently growing in its use and its value has to say something — Sure it will rise and fall as all new technologies are. But at the same time, it is certainly not a fraud.Even as the debate continues wealthy investors have found a place for Bitcoin within their overall strategy, as David Berger, chairman of the Digital Currency Council, notes.
“Wealthy investors have been flocking to Bitcoin,” he explains.
“As the former CEO of the Institute for Private Investors, the leading peer network for ultra-high net worth investors, and the Chairman of the Digital Currency Council, the leading professional association in the digital currency economy, I've examined the asset class for countless wealth investors. In almost every instance, there is a portion of their portfolio that is appropriate to allocate to bitcoin or other digital assets.”
Mark La Spisa, CFP®, managing advisor and president of South Barrington, IL-based Vermillion Financial Advisors Inc., cautions that, “Anything that becomes hot, anything where there’s a lot of money being made in it, becomes something that people become interested in,” La Spisa explains.
“But as more money jumps into Bitcoin, the more there’s pressure to regulate it. At some point in time, it doesn’t keep on going up like it did in the past.”
“For the average person, if they want to speculate and they want to use it as fun money or they want to take a small part of their assets and buy Bitcoin, that’s probably fine,” says La Spisa, “but there’s no financial advisor that I know that’s going to take 50% of a person’s money and buy Bitcoins with it. It still comes back to the basic principles: diversification, proper asset allocation, things of that sort, and the challenge is that with an investment, if a client doesn’t understand it, they should stay away.”
For more on the rise of Bitcoin, its place in wealth planning and how to tell if it’s right for your clients, download Premier Trust Company’s free white paper, “Speculative Madness or Smart Place: Does Bitcoin belong in wealth planning.”
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Gino Pascucci heads the business development and marketing department for Premier Trust. He is an advisor liaison, assisting the estate planning community with advisory friendly trust services. Gino received his B.A. in English from the University of Nevada and is working towards obtaining his CFP designation.
