Digital Asset Disclosures

Investments in Digital Assets is highly speculative and involves a high degree of risk. Investments in Digital Assets are extremely volatile in nature and can have higher volatility than other traditional investors such as stocks and bonds, and market movements can be difficult to predict.  The value of Digital Assets can change constantly and dramatically. If the value goes down, there’s no guarantee that it will rise again. Investors should be prepared for volatile market swings. As a result, there is a significant risk of loss of your entire principal investment. Interests should not be purchased by any person who cannot afford the loss of their entire investment. Due to the high price volatility, gains or losses are unpredictable and there can be no guarantee of returns. Transactions in Digital Assets may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable.

Valuation of Digital Assets can differ significantly depending on the price source or otherwise due to factors such as market fragmentation, unregulated markets, illiquidity and volatility. There is no guarantee that a client will be able to achieve a better than average market price for Digital Assets or will purchase Digital Assets at the most favorable price available.  

In addition to traditional market price risk factors such as inflation, interest rates, market and other political or economic events, the price of Digital Assets may be affected by a wide variety of additional complex factors including supply and demand as well as access to Digital Asset service providers, exchanges, miners or and market participants.

Digital currencies are NOT considered securities and are NOT subject to the same regulatory requirements as Securities and Exchange Commission registered securities, exchange-traded funds, or similar investment vehicles.

There can be no assurance that Digital Asset investments will not be adversely affected by increases in regulatory activity concerning particular Tokens or Token exchanges or trading platforms. Regulatory agencies and/or the constructs responsible for oversight of a Digital Asset or a Digital Asset network may not be fully developed and subject to change. Regulators may adopt laws, regulations, policies or rules directly or indirectly affecting Digital Assets their treatment, transacting, custody, and valuation.

Regulatory actions could negatively impact Digital Assets in various ways, including, for example, through a determination that one or more digital assets are deemed regulated financial instruments or securities that require registration or licensing.

Any liquidity may be limited or disrupted, and there can be no guarantees on the ability to sell or exchange Digital Assets at any price. It is also possible that regulatory agencies may then consider certain Digital Asset trading being conducted as unlawfully under interpretations of existing law and may take action at any time to freeze or stop Digital Assets from being released or traded.

Exchanges can stop operating due to security breaches, fraud, insolvency, market manipulation, market surveillance, KYC/AML procedures, non-compliance with applicable rules and regulations, technical glitches, hackers, malware or other reasons; blockchain technology is a relatively new and untested technology which operates as a distributed ledger. Blockchain systems could be subject to internet connectivity disruptions, consensus failures or cybersecurity attacks, and the date or time that you initiate a transaction may be different than when it is recorded on the blockchain.

Digital asset holdings are not considered legal tender and are not insured by the government like U.S. bank deposits and therefore, you don’t have the same protections as a bank account. Unlike most traditional currencies, such as the U.S. dollar, the value of a Digital Asset is not tied to promises by a government or a central bank. Digital asset investments are not insured.

There is currently no regulation or standard auditing practice of accounts holding Digital Assets to verify ownership. There are counterparty and custody risks associated with Digital Assets including loss or theft of the Digital Asset. The organizations offering custody services for Digital Asset are likely to be much less liable or secure than more common custodians due to their lack of regulatory experience. In general, digital assets cannot be held in custody by US broker-dealers.  Therefore, under the Advisers Act, as an SEC registered investment adviser, we are required to use a “qualified custodian” that is suitably licensed to maintain client assets in separate accounts in their own name. Theft is less likely when holding digital assets at a qualified custodian in offline systems (cold storage) with institutional security and controls.

Digital Assets exist as computer-coded entries on a digital ledger, or blockchain, visible to and verifiable by nodes. Ownership is reflected in a string of numbers on a distributed ledger, accessible only by a public key and a private key in “wallets”.

To satisfy regulatory requirements, a custodian could hold a “private key” and a “public key” to the digital asset. A custodian can maintain private keys in digital form on a computer hard drive unconnected from the internet and protected by layers of cybersecurity. Or, the custodian can maintain and secure the private key in a “cold wallet” by, for example, locking it in a physical vault. In any event, the technology used for safeguarding digital assets is emerging. Digital Assets are essentially bearer assets. In general, anyone who obtains possession of the private key can, in theory, misappropriate the asset, no matter where the private key is maintained. The custodian may periodically store Digital Assets in “hot wallets” which are connected to the internet to facilitate transactions in. Digital Assets stored in “hot wallets” may be more susceptible to theft or compromise than Digital Assets stored in other digital wallets. There can be no assurance the Digital Assets storage process will not be compromised.

THIS IS NOT A COMPLETE SET OF RISKS.

The risks disclosed therein may not be inclusive of all risks that may occur since there are other risks associated with the purchase of Digital Assets that Ritholtz Wealth Management is unable to anticipate. Such risks may further materialize as unanticipated variations or combinations of the risks discussed in this document.