In the current piece, Scott Sunshine from Blue Dot Advisors discusses financial management in the context of blockchain technology – one of the major advantages public blockchains bring to financial services is transparency.

At Ask an Expert, Cato Felán III of La Hoja Capital Partners discusses the role of bitcoin as collateral in diversified debt portfolios.

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From Accountability to Accessibility: Financial Governance in a Blockchain World

In the fast-paced world of finance, the use of blockchain technology is transforming old corporate governance methods. This cutting-edge tech provides a clear, unchangeable, and communal system that can greatly advantage financial advisors’ clients. By integrating blockchain for governance purposes, financial advisors can bolster trust, increase responsibility, simplify processes, and discover fresh investment possibilities for their clients. Here’s the gist of it:

Transparency as the New Gold Standard

An intriguing benefit of blockchain technology lies in its unmatched transparency. By creating an unalterable ledger, blockchain records all corporate actions and transactions, enabling financial advisors to effortlessly confirm data and have faith in the companies they consider investing in. This heightened transparency fosters greater certainty in investment choices, decreases the likelihood of fraud or mismanagement, and fortifies the bond between financial advisors and their clients.

Corporate Accountability and Performance in a New Digital Era

In simpler terms, the unchangeable quality of blockchain means that transactions are permanently recorded and cannot be modified or erased without network approval. This transparency fosters responsibility among business leaders, as every action and decision is documented and traceable. By prioritizing sound governance through blockchain technology, companies may experience long-term success, leading to better returns and less investment risk for investors. Therefore, financial advisors who advocate for the use of blockchain in their clients’ investments can benefit from these advantages as well.

Democratized Decision-Making and Shareholder Engagement

Using blockchain technology, clients have the opportunity to engage directly in voting and management processes of companies they own shares in. This active involvement can result in corporations adopting strategies that align more closely with investors’ preferences, as well as fostering agile leadership. In turn, this democratized decision-making contributes to a stronger and more adaptable investment portfolio for clients, ultimately leading to superior investment results.

Streamlined Operations and Cost Efficiency

Blockchain technology has the power to simplify and automate numerous governance procedures, resulting in decreased administrative expenses and enhanced operational productivity. For instance, smart contracts – digital agreements with their conditions embedded within code – can handle repetitive tasks like compliance checks, stock dividend distribution, and proxy voting. By removing the need for human intervention and lowering administrative burdens, financial advisors can then transfer these cost savings to their clients in various ways such as reduced fees, improved investment prospects, or higher returns on investments.

Enhanced Security and Data Protection

In the financial sector, ensuring security is paramount. Luckily, blockchain technology brings effective methods to safeguard confidential client information and investment details. With its complex encryption techniques and decentralized structure, blockchain is extremely resilient against manipulation and unwarranted intrusion. By keeping data on a blockchain, financial consultants can bolster security, minimize chances of hacking and identity theft, and conform to rigorous data confidentiality rules. This results in greater assurance for clients.

Regulatory Compliance and Risk Mitigation

Financial advisors face difficulties in maneuvering intricate regulatory environments. However, the use of blockchain technology can simplify this process. With real-time transparency, traceability, and auditability, it becomes easier for advisors to prove adherence to laws and regulations. This improved compliance monitoring reduces regulatory risks, leads to more effective interactions with regulatory bodies, and ensures that client investments meet legal standards. In turn, this safeguards both financial advisors and their clients from potential legal issues.

To summarize, the implementation of corporate governance using blockchain technology brings about substantial advantages for financial advisors’ clients. This includes increased transparency and trust, accountability, efficient processes, heightened security, and regulatory adherence. In essence, blockchain technology is transforming the way financial advisors work with their clients. By integrating blockchain-driven governance solutions into their practices, financial advisors can effectively meet client needs, assist them in reaching their financial objectives, and construct robust, adaptable investment portfolios for a thriving and enduring future.

Scott Sunshine, managing partner, Blue Dot Advisors

Ask an Expert

Question: How do managers use bitcoin collateral in their real estate lending portfolios?

In a hybrid collateral arrangement, bitcoin serves as an additional form of security for loans. The value of real estate assets is taken into consideration along with the planned purchase of bitcoin using loan funds. Consequently, the loan is guaranteed by two distinct collateral assets: the real estate and the digital currency.

Question: Why would a borrower want to do that?

For individuals who are currently involved with bitcoin and have a comfort level with this digital asset, we offer hybrid loans. In these arrangements, the ownership of the bitcoin is shared between the lender and the borrower. Both parties stand to gain from any potential long-term price increases.

Question: How does this affect portfolio risk?

The new model comes with some uncertainty regarding risks. Managers employing this approach bet on the long-term upward trend in bitcoin prices, acknowledging its historical price fluctuations. They examine bitcoin’s price patterns to inform investment decisions and boost portfolio gains as the price surpasses specific levels. There is a reduction in reliance on traditional credit risk because of bitcoin’s potential for growth, enabling managers to avoid utilizing conventional tools like leverage or high-risk loans.

– Cato Felán III, managing partner, La Hoja Capital Partners

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2024-04-04 18:58