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What Clients Investing in Crypto Should Know

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As expenses like energy and groceries continue to rise at double-digit annual rates in the United States, some investors might be wondering whether cryptocurrency can be used as a hedge against inflation. The answer is more nuanced than you might think and depends on whether cryptocurrency like Bitcoin is being used as a long-term or short-term investment.

Many cryptocurrency enthusiasts believe that Bitcoin’s value will increase over the long term as capital growth expands into new avenues beyond real estate, bonds, gold and so on. In crypto that growth can happen in two ways: yields from platforms that offer interest rates or price appreciation.

“The narrative about bitcoin being a store of value goes out the window in a bear market, but in the long term, a lot of us are still very bullish about its adoption and use. There’s a limited supply of bitcoin, and we’re trying to stabilize it,” said Sonia Dumas, founder of Curio Haus, which educates accountants and business leaders on cryptocurrency so they can better assist clients who use it.

That’s where stablecoins come in, which are cryptocurrencies that are designed to maintain a steady value that is tied to an underlying asset. The two most popular are currently USD Coin (USDC) and Tether (USDT), and their value is typically tied to U.S. fiat currency, such as the dollar. 

“There are platforms that offer yields of three to seven percent. You can participate in crypto using stablecoin but earn yields that exceed those of bonds while staying on par with, if not ahead of, inflation,” Dumas said. 

However, Dumas suggests that accountants who are offering strategic advice do their due diligence when choosing a platform because some are riskier than others. Stick with the ones that have been around the longest and are the most secure. 

After all, when it comes to crypto, “it’s all about risk tolerance,” Dumas said. In fact, she believes clients who have not already been exposed to crypto will find it too risky, and pushing them to get involved could be a “recipe for disaster.” However, clients who are already in crypto will understand the risks.

“Their risk tolerance is through the roof, so that conversation should focus on their cash flow strategy as the economy contracts and tightens. Ask them how crypto will play a role in sustaining their cash flow,” she said. 

If your client needs cash flow in the short term, they should be a little more conservative when it comes to bitcoin. For example, if their company is accepting bitcoin as payment, they may want to invest about 90 to 98 percent of that in stablecoin depending on how they can handle fluctuating value, Dumas advises. 

Overall, there is no one-size-fits-all strategy when it comes to cryptocurrency, and those who are in crypto for long enough will develop strategies for how to handle crypto market downtrends. After all, when the NASDAQ dips, most investors wait it out because they have a long term plan, Dumas points out.

“We’re moving toward a time where investments will be hyper-customized to the individual or company depending on their goals and hobbies and interests. The days of ‘set it and forget it’ are ending,” Dumas said. 

Accountants should set up a one-on-one conversation with clients who are already in crypto to determine their plans and goals and how their personal finances or business might be affected. After a handful of strategic conversations, CPAs should be in a good position to put together a package of services for each client to help them reach their goals and minimize tax liability, Dumas said.

Dumas recommends that accounting professionals take as many CPE courses in crypto as they can to ensure they understand how the industry is changing before they advise clients. And it’s not just about crypto: accountants should know how blockchain technology is disrupting their industry, as well as those of their clients, who will need to be prepared financially.

“There is such a large ripple effect with this technology, so we have to look beyond ourselves and think about how changes might eventually affect our lifestyles and livelihoods,” Dumas said