New Stablecoin Bills Are Normalizing Crypto for Advisors

Love them or hate them, stablecoins are here to stay.

The GENIUS Act, signed into law earlier this month, mandates that crypto issuers back stablecoins with liquid assets, register with federal authorities and comply with anti-money-laundering laws. It represents possibly the largest step toward legitimizing crypto in the eyes of advisors, and experts say it will make more of them hop on the stablecoin train — particularly since many haven’t considered crypto for client portfolios due to their past volatility and “Wild West” status.

Advisors were also hesitant to invest in crypto because some clients see it as “internet gambling”  — something the new bill could change, said Zoltan Pongracz, CFP of Third View Private Wealth. “I’m a huge crypto advocate, but I’ve been hesitant to talk with my clients about it,” Pongracz added. “This adds guardrails, so advisors will become more comfortable speaking about it.”

Stable Hand

The GENIUS Act requires stablecoin issuers to back their currencies with assets like cash or US Treasury securities on a one-to-one basis, with the goal of reassuring crypto skeptics that the kind of scandals and losses of previous coins — à la Sam Bankman-Fried — won’t happen. Drew Boyer has witnessed the uncertainties of crypto firsthand, having had family members who “lost everything” to unregulated coins; he said he first tried to “laugh away” the crypto craze but has since accepted digital currencies as a useful way to alleviate US debt concerns. “[The bill], conveniently for our government, creates a new purchaser for US Treasury bonds and bills,” he said. The new law states that:

• Stablecoins can only be issued by “permitted payment stablecoin issuers,” a status that firms can apply for as bank subsidiaries or by appealing to a federal or state regulator.
• Issuers must regularly disclose information about their stablecoin reserves, redemption policies and custodians.

Stablecoins are also a big step toward digitizing manual transactions. Soon, even things like homeownership could be handled via stablecoins, Pongracz said. “How we transact is pretty antiquated when you look at the tech that’s out there, and stablecoins are a big step in that since not everyone wants to own a super volatile asset,” he added.

AM-StabL. Since stablecoins are not considered commodities or securities and therefore not subject to the Investment Advisers Act of 1940, advisors who deal with issuers also have to be aware of the requirements for dealing with them, such as robust accounting systems, technical infrastructure, and compliance with legal orders, said Jon Glass, a partner at SolomonEdwards who specializes in money-laundering regulations. That, and making sure their knowledge is up to date. “Many mid-size to smaller advisors have a lack of understanding of what the difference is between a stablecoin and other types of digital currencies, what’s regulated under the act and what’s not regulated,” Glass said. “I think it will take investment advisors some time to catch up.”