Firstly, we must explore the need for crypto advisors. Only then can we properly consider what to watch out for when choosing a crypto advisor.

Over the last few years, cryptocurrencies and all related projects and products have become increasingly popular. Indeed, this asset class is considered a hot area for investment among younger investors and is increasingly seeing mainstream adoption. In 2021, the total cryptocurrency market cap surpassed $2 trillion and many analysts believe it will grow further.

Investors are looking for ways to diversify their portfolios in spite of the volatility of the crypto market. This is, of course, where the importance of crypto advisors becomes clear. Amid such a new financial market, investors are often left looking for guidance on crypto matters. Common questions include which coin to buy and how to account for taxes on proceeds from crypto trading.

As exemplified by the financial sector, investors who are not well acquainted with the domain should seek expert advice. What’s more, it’s not advisable to follow advice concerning crypto investments from family, friends or unknown people on the internet. 

What are crypto advisors?

Crypto advisors are responsible for advising their clients on crypto investments. They use their knowledge and expertise to guide their clients towards healthy profits in the crypto markets. 

Crypto financial advisors can also help to create and manage an investment portfolio. They can provide financial advice both to crypto investors and crypto-based startups. To help a client make the right investment choices, a crypto advisor usually does extensive market research.

Moreover, crypto advisors should hold crypto-specific certifications. For example, they should have a Certificate in Blockchain and Digital Assets or be a Certified Digital Asset Advisor. It is not only a matter of education and certification, though: the experience makes a huge difference.

What crypto advisors should not do

As in every sector, one can find professionals who are more or less serious. Especially in new domains such as crypto, it is easy to meet less serious professionals. For example, there are people who have just entered the sector and are trying to build a new career. There are also people from the traditional financial sector who try to apply their knowledge to the crypto market. Unfortunately, these individuals often do not have enough understanding or experience in the crypto-specific space.

Crypto advisors such as these are likely to give bad advice, resulting in poor investment decisions. Here are a few actions that might suggest that a crypto advisor has limited knowledge and experience:

- Promoting a project without having received proper advice from a lawyer

Crypto is a specialized financial domain, hence, there are specific rules and laws that apply. Due to the current state of the sector, the rules and laws depend on the relevant country. Therefore, it is critical for crypto advisors to rely on lawyers to provide a clear view of the specific situation. This will avoid the client undertaking any investments without being aware of the consequences in legal and fiscal terms. For example, it must be clear whether the client is investing in a security or a utility token.

- Not doing due diligence on the project

Due diligence helps investors and companies understand the nature of a deal. Additionally, it informs them of the risks involved and whether the deal fits with their portfolio. Crypto advisors should undertake sufficient due diligence on the proposed project. Notably, there have been numerous examples of fraudulent Initial Coin Offerings (ICOs). Other ICOs have ended up failing in a matter of weeks or months after the funds were raised. Accordingly, these resulted in a loss of money for investors. Good crypto advisors should be able to identify scams.

- Being an advisor without really understanding the project

Knowing in detail the product or project that you are recommending is critical in every sector. It is, however, even more vital in the crypto space due to the likely complexity and innovation of a project. Reading the marketing material is not enough. Instead, crypto advisors must have complete understanding of the financial, technical and legal implications.

- Participating as an advisor in too many projects

The work of crypto advisors requires deep knowledge of each and every project they are involved with. Being active in too many projects precludes this, meaning they cannot properly advise the project team or potential investors. Unfortunately, this happened with some of the ICO scams, leading to poor quality advice.

Conclusions

The crypto space is new, dynamic and very complex. Those who enter this sector and intend to invest money often lack the relevant knowledge to make the best decisions. For this reason, the category of crypto advisors has grown in the last decade.

Crypto advisors are available to support both the investors and the crypto project. Like in every sector, however, it is critical to rely on good advisors. In this specific case, a good education and several years of experience in the crypto market can make a difference. 

One way to determine the quality of an advisor is to look at what they have done so far. In addition, you should check if their way of working includes any of the questionable actions listed above.

______

Are you interested? Contact us