3 ways you can help your clients navigate crypto

The narrative about money hasn’t garnered this much excitement since credit cards started offering points, travel miles, and cash back rewards.

Cryptocurrencies and the evolution of Web 3.0 are here to stay.

As tax and accounting advisors, ignoring this tsunami of change is like Kodak ignoring the digital camera market, Blockbuster ignoring the digital entertainment market, and independent hotels ignoring the online travel market.

Finance has already experienced a shift in how people spend, invest, and send money, and the “check is in the mail” days are nearly obsolete. Many business owners want to be paid as swiftly as possible via credit card, ACH, wire, Venmo, Zelle, Paypal, and now cryptocurrencies – and specifically Bitcoin.

Here are three practical ways to help your clients navigate crypto as smartly and profitably as possible.

1. Educate yourself, first

As an advisor, understanding how the IRS treats cryptocurrencies is merely step one.

Future and existing crypto millionaires are hunting for clever CPAs and tax strategists who will help them maximize their wealth in the same or better ways as you would with securities, commodities, real estate, and collectibles.

The laws right now are straightforward about what triggers a taxable event; it’s the granularities that are murky. Crypto is still maturing, and strategies to earn rewards and yield are being created at a breathless pace. 

The market capitalization of crypto in fall 2020 was around $350 billion. Nearly a year later, it’s more than $2 trillion, and growth estimates predict this global market will reach $10 trillion in just a few short years. 

Two years ago, yield farming and staking were nebulous terms. Today, both are as common to the crypto kingdom as a saving account – and earning 5X+ more rewards than traditional banking. This “digital gold rush” will make the California Gold Rush look like a pre-season baseball game.

Getting educated about cryptocurrencies will reward you and your clients. Today, there is a fire hose of information to absorb, as crypto is a fast-moving tidal wave of innovation, scams, and financial creativity. Educational resources, such as AltMonie, The Defiant, and Decrypt, are good places to get educated.

Doing your own research, learning from the mistakes of others, and understanding the economic opportunities of crypto will serve you well.

2. Make tax tracking easier

Many crypto users have multiple wallets and exchange accounts, and the amount of buying, selling, trading, and sending transactions can be in the thousands. Attempting to manually keep track of these transactions is as inefficient as managing the books of a hedge fund by using ledger paper and a calculator.

Become an ally to your clients by suggesting the use of crypto portfolio and tax tracking software such as CoinTracker. It will make life simpler for everyone. After your clients connect their wallets and exchange accounts, the software will determine the appropriate taxes due for the year. 

Plus, your clients will witness the performance of their crypto portfolio in real-time, which can spark them to have a conversation with you about wealth preservation strategies, tax loss harvesting, and tax minimizing opportunities for their assets, whether physical or digital.

3. Use crypto as collateral

Does your client need a business or personal loan? If they’ve been accumulating crypto, they can now use this asset as collateral to expand the business, get through a sales slump, buy real estate, invest in an opportunity, and use in countless other cases that simply require some financial imagineering.

Every month, more financial apps like Celsius Network accept crypto – specifically Bitcoin and Ethereum – as collateral for loans. There are no credit checks and no origination fees. Simply supply the collateral, choose a loan-to-value (LTV) percentage and interest rate that makes sense, and usually within 72 hours the loan is issued for immediate use.

As for repayment, many apps offer flexible payment options to fit your client’s budget.

Keep in mind that crypto remains a roller-coaster ride of 40%+ price swings, and most apps have a max LTV of 50%. For Bitcoin and Ethereum, this usually provides enough margin for the price to swing, with a lower risk of liquidating the loan prematurely.

Since Bitcoin and Ethereum are still in price discovery mode, a loan can be liquidated if the LTV exceeds the loan agreement terms. Having a plan to keep the loan in a healthy LTV range is an important issue to address early and often.

Put on your advisor hat

When it comes to crypto, there’s no doubt that clients will need your guidance and advice like never before, so you’ll also want to stay intellectually curious, even if you do not currently have clients investing in crypto.

The fundamentals of accounting will stay relatively the same; it’s the earning, spending, investing, gambling, and saving part of the money that will evolve. The best way to be prepared is to proactively learn more about crypto.