Bitcoin, Coinbase, Litecoin, Dogecoin, etc.
Bitcoin is by far the most well-known cryptocurrency. Bitcoin backers believe Bitcoin is the future. These believers keep buying Bitcoin regardless of the ups and downs of day-to-day valuations. They are “all in” and believe the Bitcoin value is unlimited. The IRS, however, classifies Bitcoin as a commodity. What it really is, is a software program used to facilitate online currency transfers without a middleman to guarantee the exchange. Bitcoin advocates believe Blockchain software will take the place of banks and clearing houses who have been in charge of verifying transactions in the past.
Not having a middleman to guarantee the exchange of currency creates some very difficult problems. Banks, clearing houses, and other financial companies are worried about meeting their responsibilities in regard to Anti Money Laundering (AML), and Know Your Customer (KYC) regulations which are required by the Financial Industry National Regulatory Authority (FINRA). A survey by Gartner Inc. found that institutional investors were being very cautious. The survey also found that only 5% of finance executives plan to hold Bitcoin as a corporate asset and 84% said they would never buy Bitcoin.
Financial Professionals, Inc. also has the responsibility to make certain we know who we are dealing with and that there is no criminal activity involved. We are proud that in the 30 years since we started our business we have always verified the identity of our clients and avoided any type of criminal activity. I’m sure you can understand our reluctance to turn that responsibility over to a computer program.
Recently we have seen a number of ransomware attacks in the United States. Ransomware is a developed software used by criminals to cut companies off from their data where the criminals freeze that company’s ability to do business. In order to get their personal data back they are forced to pay the criminals a ransom. Companies are struggling to find a way to prevent this crime, but until they do, many of them are giving up and simply paying the ransom. Over the last year there have been a number ransomware attacks on U.S. corporations: Colonial Pipeline, Steamship Authority of Mass., JBS (the world’s largest meat packer), Washington D.C. Metro Police Department, CNA Insurance Co., and the NBA (National Basketball Association) just to name a few. We believe our industry should be very cautious when someone tells us they have the technology (i.e. Blockchain) to protect investors and financial industries from being hacked.
We at Financial Professionals, Inc. believe that, for now, the best approach to handling our clients’ assets is to stick with our existing policy of using U.S. currency and working with traditional transfer agents like banks and clearing houses to verify every transaction.
Sources: Wall Street Journal, Wolf and Company Insights, Touro College of Illinois