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Why You Should Know the Technology behind Bitcoin

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Jan. 24 2018, Published 9:00 a.m. ET

VanEck

What should financial advisers do?

Firstly, financial advisors (FAs) should understand the potential of distributed ledger technology. One does not have to like or buy bitcoin, but to wave off the whole thing as a fraud is probably wrong. Large U.S. corporations are investing in blockchain-related projects, and, given that Coinbase has over 10 million U.S. clients, it is likely that an FA’s client has bought bitcoin and is sitting on nice gains.

Secondly, FAs should advise clients to size their digital asset exposure intelligently. Probably zero or a range of over 5%-10% are not right. And better to buy over time than buy all at once. Lastly, FAs should absolutely make sure that clients are reporting digital asset gains on their tax forms.

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Market Realist

Blockchain technology has enormous potential

Bitcoin and its underlying technology (XLK), blockchain, are interesting concepts that have caught the attention of people all around the world. DLT (distributed ledger technology) (SOXX) is the first major innovation after computerization, which simply converted paper records into digital form. Although DLT is still at a very nascent stage of development, it is being used in many industries as a basis to store and share data.

Enormous potential

This algorithm-based technology has the potential to reform consumer-centric services, including financial (XLF) transactions, healthcare (XLV) records, property transaction data, and other publicly focused registers. The technology gives individual consumers access to view and cross-check their personal records. The integrity of the data is assured to a large extent in DLT since it is less vulnerable to tampering and cyberattacks than the existing system. In view of its immense applications, it is important to understand blockchain technology.

Trading with prudence

In view of the high volatility of bitcoin’s price discovery process, many investors are trading cautiously, understanding their risk level and financial goals. Some investors are considering the possibility of investing in companies (SMH) associated with blockchain technology.

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