The case for cryptocurrency and blockchain remains strong despite recent market upheaval, with major, time-tested players presenting appealing opportunities for long-term value, according to Neil Bergquist, co-founder and CEO of the digital currency cash exchange Coinme.
The cryptocurrency market lost hundreds of billions of dollars in value in May as the broader financial markets slid on economic concerns and as the algorithmic stablecoin TerraUSD lost its peg to the dollar and the companion coin, Luna, collapsed.
Nonetheless, Bergquist expects long-term growth for key digital currencies and technologies, notably industry leaders such as Bitcoin and Ethereum.
"I do think that fundamentals of cryptocurrency and blockchain are still valuable and I think people will move their asset reserves to more of the longer-term cryptocurrencies that have larger market caps and have more resiliency, and that have not shown to have any kind of technical issue like what we're seeing in the stablecoins," he said in an interview in May, days after Bitcoin hit a 52-week low.
"Personally I'm not selling any cryptocurrency, I'm just holding, and I know that this time will pass and the top cryptocurrencies will continue to grow in value long term," said Bergquist, who favors cryptocurrencies with large market caps that have stood the test of time, have large communities and offer unique real-world use cases or technological value enhancements to the industry. There are many different strategies available to individual investors, he noted.
Value in Proven Players
Potential buyers need to take care, though, because the nearly 20,000 cryptocurrencies now in existence likely won't all survive in the longer term, he predicted.
"From a technical perspective it's extremely easy to create a cryptocurrency these days, which is one reason why purchasers need to be cautious, because there could be a coin that was created and then it was beautiful lipstick on the pig, and then that coin really doesn't do anything unique or novel and actually it might even have suspect actors behind it," Bergquist said. "So it's really important to do the due diligence on coins when you start looking at alt coins and coins with small market caps or coins that are relatively new."
Coinme, which started in 2014 by introducing Bitcoin ATMs, now operates the largest such network in the U.S., with more than 21,000 cash exchange locations, and enables consumers to buy seven cryptocurrencies through its app: Bitcoin, Ethereum, Polygon, Stellar Lumens, Dogecoin, Litecoin and Chainlink. The venture capital-backed company, based in Seattle, considers digital currency an economic empowerment tool.
While experts and enthusiasts see a financial services revolution in cryptocurrency and the blockchain technology underlying it, many consumers remain confused and wary. Even before the recent market dive, critics cited the risks surrounding digital currencies, including their volatility, a lack of standardized procedures for holding them and an uncertain regulatory structure.
Then there's simply the lack of understanding. Crypto Literacy, an industry group, says on its website that 98% of people taking its online crypto literacy quiz failed.
As consumer interest grows, however, and cryptocurrency starts to take hold in the corporate world — Fidelity recently announced it would add Bitcoin as a choice in 401(k) accounts — financial advisors who may not have paid attention to the industry have come under pressure to get up to speed.
Cryptocurrency expert Ric Edelman, founder of the Digital Assets Council of Financial Professionals, recently warned that financial advisors risk losing credibility if they can't discuss digital currency with their clients. Cryptocurrency is expected to produce $5 billion in advisory fees over the next five years, he said at a wealth management conference.
To Know It, Buy It
Coinme's Bergquist offered tips on ways financial advisors can help clients who are interested in Bitcoin or other digital currencies, and suggested that advisors keep it simple.
"For people that are just starting to want to allocate money to cryptocurrencies, it's important that they understand the ABCs of what is blockchain, what is a digital currency and specifically what are the top cryptocurrencies in the market — Bitcoin, Ethereum — and really help them understand why they're valuable. And then also help them understand why they're valuable by buying them and being able to transact with them either as a store of value or as a medium of exchange," Bergquist said.
Rather than trying to learn everything about cryptocurrency and blockchain all at once, those interested in understanding it should start by focusing on Bitcoin, then learn about Ethereum "and then go from there," Bergquist said.
"We always say the best way to learn about Bitcoin is to buy it, and being able to use it as digital money the way many of our customers and people in the industry use it," he said. More than 80% of the world population now owns smartphones, "and thanks to blockchain technology those phones can now receive, store and send money in a decentralized, distributed manner. And that is a massive technological breakthrough," he added.
Learn the Basics
"As financial advisors and clients of financial advisors start to learn more about what, really, Bitcoin is and what cryptocurrencies do to solve real-world problems, then they'll start to understand the value in them and then start to look beyond the headlines and know fundamentally this is going to change the world," Bergquist said. "And that creates a long-term perspective, which is really important, especially in times like these."
The famous Bitcoin white paper that introduced the concept details exactly what the peer-to-peer electronic cash system does, Bergquist said. The paper explained that parties would make direct cash payments through a peer-to-peer network without a financial institution serving as intermediary.
Bitcoin, a software-based unit of account, sits on the Bitcoin blockchain, an online distributed ledger powered by a network of computers, called miners, that process transactions on the ledger.
