NEW! Digital Assets Investing
Echo45 Advisors is now able to invest directly in select digital assets for our clients! We work with a third-party manager, Eaglebrook Advisors, and custody those assets with Gemini, a regulated digital assets custodian. This structure provides access to Cryptocurrencies in a way that clients have not had available to them in the past by working with an advisor to provide guidance from an estate and tax-planning perspective.
Over the years, you may have heard me talk about Blockchain technology and Digital Assets at some point. Bitcoin (BTC) and Ethereum (ETH) came into my consciousness in 2017 and I went down the rabbit hole, learning as much as I could about what many people refer to as Web3 or the Metaverse. I was immediately fascinated by the disruptive possibilities of blockchain and its potential to ultimately reduce the high cost of trust we all pay in modern society.
I became an investor in the space in late 2017 when I picked up my first 0.16675867 BTC and quickly followed that up with my initial purchase of ETH. I didn’t know if I was simply hoping for a greater fool to come along and buy these “magic beans” from me at a higher price later or if I was investing in something truly revolutionary that could have the potential to replace Gold as a globally recognized, non-deflationary storage of value. I felt pretty good about my investment by December with BTC hitting over $16,461 before entering a multi-year slide, or “crypto winter”, when I did feel like the greater fool after all; the media seemed all too happy to confirm my suspicion with consistent coverage of cryptocurrencies as fraudulent or a scarcity of nothing.
2021 was the year of the crypto and the whole world seemed to be getting in with FOMO (fear of missing out) hitting levels not seen since the Dot Com stock boom. This mania sent the price of a single Bitcoin to over $67,600 before crashing back down into yet another crypto winter, scarring a whole new set of investors that got in at the peak. This time though, a stronger base had formed and the price hovered between $16,000 and $22,000… the old ceiling had become the new floor.
In 2022, the price of Bitcoin was down over 65% for the year as it faced pressure from rising interest rates and more capital moving into the US Dollar as it offered an increasingly more attractive yield and unmarred global dominance as the world’s reserve currency.
Leading up to 2023, I was excited about the prospects for Cryptocurrencies to finally become regulated in response to fraudulent actors like Sam Bankman-Fried (SBF) and his historic grift at the Crypto exchange, FTX. That event dominated the news recently until being overshadowed by the current banking upset that is still unfolding. The coverage of the FTX theft has left most observers with the impression that cryptocurrencies themselves are a Ponzi-scheme or Monopoly Money, but that sentiment was not shared regarding US Dollars when Bernie Madoff lied and stole from his investors… Theft is theft, but it may well turn out that this renewed, negative focus on this new asset class will ultimately drive regulation of the space by either the Securities Exchange Commission (SEC) and/or the Commodity Futures Trading Commission (CFTC). Should that come to fruition, the door will be open, for the first time, for many large players to make a meaningful institutional investment in the space which could prove beneficial for all investors in the long run.
Bitcoin’s price has surged in recent weeks in the wake of the collapse of three sizable US Banks with contagion spreading to First Republic Bank and Credit Suisse, both of whom required rescuing in the form of large cash infusions or by being acquired. During the time since the banking crisis has been unfolding, Gold has gone up roughly 8% with Bitcoin lurching forward more than 40% in tandem. Bitcoin Bulls would point to this jump in price as affirmation of Bitcoin as an alternative to traditional banking.
As Chief Investment Officer, I’m excited by Bitcoin’s potential to provide a highly volatile, non-correlated asset to add to portfolios seeking to enhance overall diversification beyond Stocks, Bonds, Commodities and Cash. The contrarian desire to seek safe haven from FIAT currencies in Gold now leads me to Bitcoin, considering that no more than 21 million Bitcoin will ever exist. That cap is hardcoded into Bitcoin’s governing software which gives it the potential to replace Gold for more tech savvy investors that see more stability in a digitally native currency that was designed to facilitate peer-to-peer online transactions free from borders than they do in a yellow metal that was generally accepted as a storage of value due to its relatively rare supply, durability in fires or floods and smeltable into spendable coins. Gold is rare, but it isn’t a completely limited supply like Bitcoin.
As an early adopter of technology and lifelong gamer, I saw huge potential for ownership online in a way that wasn’t previously possible. Ethereum is a completely separate blockchain and has its own native coin, ETH. Unlike Bitcoin that is desirable as a storage of value and hedge against a continually weakening USD, ETH introduced Smart Contracts which gave birth to DeFi, or Decentralized Finance, and the rapid rise in popularity of something called NTF’s, or Non-Fungible Tokens. I proudly purchased my first NFT in the form of a “Crypto Kitty” and thought of them as a digital collection similar to picking up a set of baseball cards when I was a kid - something fun to collect in the moment with the hope of higher value when sold to another collector in the future. Like websites, NFTs have rapidly improved in quality and capabilities, and their use cases continue to evolve as more and more innovative thinkers are drawn to the space. Tangible assets can be bought and sold on the Ethereum blockchain as well and can be broken into much smaller pieces, referred to as tokens. Think of it as buying a .0001% share of a high-rise building that you would otherwise never be able to invest in directly.
The technology behind all of this is truly fascinating to me and can be discussed ad nauseum with terms like Proof of Work and Proof of Stake Consensus Protocols being thrown around. While these terms sound wonky and tend to initially create a blockade to new investors that don’t come from a tech background, they are important and something that clients will eventually come to understand.
Whether you are a newcomer to the space or a seasoned veteran that has been running their own mining node, there are tangible benefits to working with Echo45 Advisors to manage those assets from a tax planning and estate planning perspective. We can assist with the harvesting of losses, maintaining accurate record keeping for tax preparation, as well as ensuring that these assets are transferred to your heirs, according to the instructions outlined in your estate plan, when the time comes.
The price volatility of digital assets is only one aspect of the risks involved with investing in the space. Historically, investors have been faced with Sophie’s choice of being relegated to paying fees to purchase a futures fund, going it alone by establishing a wallet with an exchange and bearing all the inherent risks involved in direct investment, including the potential loss of assets, exposure to hacking of a “hot” wallet, or simply misplacing a passkey and permanently being locked out of their own account.
Please book 30 minutes here with me at your convenience if you would like to have a conversation about whether digital assets could enhance your portfolio and long-term plan or just to learn a bit about them and how they work. In the interim, here are two educational pieces to explain the basics of Bitcoin and Ethereum.