The management and security of your Bitcoin
Bitcoin self-custody is a balancing act between security and ease of use.
There are countless self-custody solutions available, where the most popular would be hardware wallets – in which the private keys to Bitcoin are held.
The most popular hardware wallets are Ledger or Trezor devices.
These devices are password protected and also have a set of 12-24 words that allow the investor to access their Bitcoin on any other device – if their original device were to be lost.
Setting up a device is easy and there is a plethora of information, tips and techniques to properly secure one’s Bitcoin.
However, it is pretty clear that many investors may struggle to get this information in an effective and secure manner.
Advisors will play a key role in assisting investors to self-custody Bitcoin
That is where financial advisers play an important role. They can be a force that assists clientele to purchase, self-custody and properly secure their Bitcoin.
However, the mandate of an advisor can play an important role in the long-term management of this asset in an investor’s estate.
The complexities and risks around Bitcoin are not only about purchasing it, but also in the continuous management of the asset class.
That is where financial advisors can help the most.
Let’s look through the various use cases in an investor’s journey, alongside their IFA.
Bitcoin and advisory services
Setting up a self-custody wallet has improved exponentially over the past few years – both in user experience and security.
Bitvice can assist advisors in purchasing and setting-up different types of self-custody wallets for referred investors.
Bitvice also allows advisors and clients to purchase new, untampered hardware wallets through the website, from the sole authorised provider in South Africa – Cryptovault.
Assisting investors to set up self-custody wallets can be a valuable advisory offering.
Purchasing Bitcoin through Bitvice is seamless and secure. More importantly, we provide referral fees to an advisor, paid in Bitcoin. Bitcoin is settled directly to an investor’s pre-confirmed wallet. Bitvice tries to educate all investors on the importance of self-custodying their Bitcoin. Advisors can earn referral fees through Bitvice for doing the same.
Tax and Investment Reporting
Bitvice has exportable reports that confirm the individual Bitcoin purchases, at what time and at what price.
This allows investors and referring advisors to easily determine tax implications (capital gains) if an investor were to sell their Bitcoin down-the-line.
Providing advice around taxable events and how to mitigate these as early as possible, allows investors to understand how to manage Bitcoin over the long-term.
When an investor holds Bitcoin on their mobile or hardware wallet, in most cases – they need one set of private keys to sign a transaction. In other words, there is one ‘signature’ needed to send Bitcoin out of the address/wallet.
Bitcoin has the inherent ability to allow a multiple set of private keys to sign a transaction. This is called a multi-signatory setup. There are current solutions available that allow users to easily set up multi-sig on their Bitcoin.
An interesting use case for advisors, would be to hold one set of keys for an investor in a standard 2-of-3 multi-sig setup. What this means is that there are 3 sets of private keys for a wallet that holds Bitcoin. 2 keys, out of the 3, are needed to sign a transaction.
In this scenario, the investor can hold 2 sets of keys – so they remain independent on their Bitcoin. However, a trusted advisor can hold the third set. The advisor cannot directly access the Bitcoin, as he/she only has one set of keys, where 2 are required. If the investor were to lose a keyset, the advisor has access to one, and can assist the investor to access their Bitcoin.
In this way, the advisor still has a long-term relationship with the investor over this asset.
Bitvice believes this will be an incredible offering for advisors to bring to their clientele.
As stated above, advisors can assist in securing an investor’s private keys and thus, their Bitcoin.
When self-custodying, Bitvice believes that educating investors on the underlying risks is a lengthy and confusing process.
Bitcoin is becoming a large part of investors’ estates as it has grown to a Trillion Dollar asset in marketcap.
What happens to Bitcoin in an investor’s self-custody wallet if they were to pass on? More importantly, how can it be securely transferred to the correct beneficiaries?
These are becoming popular questions and there are various methods to allow executors to pass this asset on to correct beneficiaries.
Multi-signatory setups can be used, and trusted third parties can potentially have access to certain or all private keys.
Bitvice can provide technical input to these questions.
Moving or Selling Bitcoin
If Bitcoin is immediately self-custodied by investors, it can be moved anywhere, anytime at the investor’s whim.
It is important to educate investors on how to securely move their Bitcoin, so to ensure they send to the correct receiving address.
There are other options available to ensure there is always a hands-on approach, to assist investors when the need to move their Bitcoin arises.
This is where multi-signatory setups become a very interesting and valuable advisory service.
If the price of Bitcoin continues its upward trajectory in the current bull market, there will likely come a day that investors wish to sell their Bitcoin.
There are numerous options available for investors to safely sell their Bitcoin, which we explain on our Wallets page.
Advisors can assist investors in setting up these wallets and how to place sell orders, before the need arises.
Once again, advisors can also play an important part in determining the tax implications. Bitvice assists with easy-to-export order details, and provides the base price of what the Bitcoin was bought at.
Holding Bitcoin for the long term
Bitcoin as an asset that will play a more important role in a lot of investors’ portfolios as it continues its adoption curve and price realisation.
It is quite different from other investment vehicles as its ability for self-custody is one of its strongest characteristics.
Yes, Gold can be stored in a safe and effectively self-custodied, but Bitcoin as a digital asset has much more complexity and a requirement for proper management – to ensure investors retain it securely.
Financial advisors are continuing to learn the fundamentals of Bitcoin and Bitvice is here to help them with their educational journey. It is inevitable that Bitcoin will form a part of advisory services and Bitvice wants to be the lead service and Bitcoin provider for all financial advisors in South Africa.