Your Clients May Already Own Crypto. Here’s How to Hold It

How do we advise clients on an asset we can’t (yet) handle directly?

AccessTimeIconAug 26, 2021 at 7:30 a.m. UTC
Updated Sep 29, 2023 at 11:34 a.m. UTC


  • Products and services to help advisors handle crypto on behalf of clients are only just emerging.
  • Even so, most serious cryptocurrency investors want to hold tokens directly.
  • Advisors should understand how hot wallets and cold storage work for their crypto investor clients.

How do we advise clients on an asset we can’t (yet) handle directly?

Clients are already asking about investing in cryptocurrencies, but within the next tax year, they’ll almost certainly be asking about what to do with the digital tokens they already have.

That’s because billions of dollars in new wealth have been created since bitcoin roared into the marketplace. And to handle this influx, our industry will have to speak the language of cryptocurrency – specifically, how crypto enthusiasts hold and store their digital wealth.

This column originally appeared in Crypto for Advisors, CoinDesk’s new weekly newsletter defining crypto, digital assets and the future of finance. Sign up here.

Cryptocurrencies and other digital assets were born in a move toward self-sovereignty during a time of very low trust in the financial industry. As a result, many digital asset owners are accustomed to holding tokens themselves, and will be slow to trust products and services that introduce intermediaries, whether advisors or third-party corporations, into the crypto market.

Apps like CashApp and Robinhood have introduced alternatives allowing individuals to buy and own cryptocurrencies on their platforms, sparking a backlash among digital asset owners for whom handing control of cryptocurrencies to a third party runs counter to the do-it-yourself ethos of the asset class: If you don’t own the keys, you don’t own the crypto.

A decentralized status quo

To date, there are very few options for advisors who want to serve as a crypto custodian and handle digital asset investments for their clients. The status quo has been for most digital assets to be held away from advisors.

“There really isn’t a platform yet that has designed a solution where an advisor can open an account and have power-of-attorney over it and manage it to the portfolio construction they would like to have,” said David Olsson, global head of institutional distribution at crypto financial services firm BlockFi. “While we’re working on that capability, currently it isn’t easy for advisors. Part of the reason is that cryptocurrencies are analogous to bearer bonds: The person who has it, has it. That’s why concepts like cold storage [keeping a device offline] are so important to custody and security.”

And the crypto sector may stay that way for some time: One of the primary trends fueling the popularity of bitcoin and altcoins has been the idea of decentralized finance – transactions, investments and other money management tasks handled without the need of an intermediary like a broker or an agent.

“This is something we’ve never really seen before – a new asset class that didn’t originate with custodians or traditional financial institutions,” said Dani Fava, head of strategic development at financial software provider Envestnet. “It’s so decentralized, it’s going to take a while for the same ease of access and use we’ve seen from consumer apps and crypto exchanges to come to advisors.”

In lieu of keeping their coins within accounts on exchanges or fintech apps, long-time investors often move the keys to their tokens off these platforms and into a personal cryptocurrency wallet.

What is a digital wallet?

A wallet consists of a public key, the digital location of the wallet, similar to a bank account’s number, which can be used to allow others to send or take money from an account. A private key is more like the online password to an account or the personal identification number to a debit card offering access to the account. Public and private keys define an individual’s ownership stake in crypto.

Simply put, a wallet is a place to store digital currency. Wallets come in two flavors: A hot wallet is based on software that is connected to the internet, while cold storage refers to a hardware device that is kept completely offline.

Hot wallets resemble bank accounts – they can be accessed via websites, mobile apps and software on a computer desktop. A hot wallet is typically used when people want to transact with cryptocurrency, either to make sales or purchases, or to trade frequently. Most hot wallets are able to store many different cryptocurrencies and other digital assets.

Many crypto enthusiasts balk at hot wallets associated with exchanges and mobile apps. While these wallets are secure, they offer investors less control over their digital assets, because an exchange or mobile app could experience outages, go out of business, or unilaterally choose to freeze an account.

Cold storage wallets often resemble a USB drive, but they can be as simple as a paper document containing information about public and private keys. These offline wallets are often seen as very secure, because they are difficult for outsiders to access and hack. Cold storage is typically used by those who want to hold a token like bitcoin for its utility as a long-term store of value.

If you’re using a hot wallet, make sure to update any software associated with the wallet frequently, use two-factor authentication to minimize the risk of hacking and follow best practices when it comes to creating and updating passwords and protecting private keys. Most hot wallets are able to store many different cryptocurrencies and other digital assets. Novel altcoins like ERC20 coins, monero or dogecoin may not be able to be held in certain devices or in cold storage at all, because they may require their own dedicated hot wallet.

Which way of holding crypto is best?

In some ways, the choice of which method to hold cryptocurrencies is related to an investor’s risk tolerance and philosophical stance toward financial institutions. Risk-averse, low-trust clients and those with a deep knowledge of digital assets may be the best candidates for the cold storage concept, while clients with a high-risk tolerance or who are merely experimenting with cryptocurrency investing may be better suited for keeping more of their assets in a hot wallet.

“It’s tough, because moving forward, some clients might ask their advisors to buy and handle crypto assets for them, but the majority will come to an advisor with their Gemini and Coinbase accounts and their cold storage devices and say, ‘I have some crypto here, here and here, can you pull it into your system? Can you tell me if I own too much, or if I need to rebalance?’” said Tyrone Ross, CEO of crypto-asset integration platform company Onramp Invest.

“But advisors aren’t going to be able to bill on those assets directly. They’re still going to want financial planning and crypto management, but many will insist, ‘My crypto is mine. I’ll deal with it, I just want you to see it.’”


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Christopher Robbins

Christopher Robbins is a nationally recognized journalist who has been featured as a speaker and panelist on topics including investing, personal finance and wealth management. He is a contributing writer for CoinDesk’s Crypto for Advisors newsletter.