- About 14% of financial advisors recommend that their clients invest in cryptocurrencies.
- Cryptocurrency investments can benefit from a tax loophole that lawmakers are working to close.
- Even more asset managers plan to recommend investing in crypto, a report found.
- See more stories on Insider’s company page.
Wealth managers help ease their clients into the cryptocurrency market by helping them tap a loophole that uses losses to offset taxes elsewhere in their portfolios, The Wall Street Journal reported.
Rules against “washing sales” prevent investors from using the loophole with their stock holdings, but because cryptocurrencies are considered property of the federal government, the regulation does not apply in the same way, the Journal report said.
A financial adviser told the Journal that he is “exploiting the volatility of crypto” to increase portfolio returns. Another adviser said his client bought bitcoin and ether worth $ 100,000 and will use his $ 30,000 losses to offset taxes on profits in his portfolio, and all the while, his crypto investment has jumped 10%.
A June report from the Financial Planning Association showed that more and more advisors are recommending cryptocurrencies to their clients. Now, 14% of asset managers approve digital assets for investors – a jump from 1% in both 2019 and 2020. In the future, even more financial advisers are looking to jump on board, the report says.
However, the loophole could disappear if lawmakers pass new tax provisions that would add cryptocurrencies to wash-sales rules in an attempt to raise billions of tax dollars, Bloomberg reported earlier. Lawmakers also wrote a provision requiring crypto firms to provide user information to increase tax compliance and provide an estimated $ 28 billion over the next 10 years. However, Bloomberg reported that crypto-advocates said companies could not collect such information.