Digital assets
Also known as: crypto assets, virtual assets
Digital assets are assets that exist in electronic form and are recorded on a distributed ledger, such as cryptocurrencies, stablecoins, and non-fungible tokens (NFTs). They can be transferred, traded, or held as investments.
Digital assets are representations of value that exist only in electronic form, typically issued and transferred using blockchain or other distributed ledger technology. The category includes cryptocurrencies like Bitcoin and Ether, stablecoins pegged to a reference asset such as the U.S. dollar, and non-fungible tokens (NFTs) representing ownership of a unique digital item.
Ownership is controlled through cryptographic keys: a public address identifies where an asset is held, and a private key authorizes transfers. Transactions are validated by a decentralized network rather than a central bank or clearinghouse, which is why most digital assets are not legal tender and are not backed by any government. Investors can hold assets directly in digital wallets or gain indirect exposure through funds and other products.
For investment purposes, digital assets are treated as a speculative alternative asset class. Prices are highly volatile, regulation is still developing, custody arrangements introduce unique risks (a lost private key can mean a lost asset), and some tokens may be deemed securities depending on how they are offered. These features make suitability analysis especially important before recommending them to clients. For federal tax purposes, digital assets are generally treated as property, so selling or exchanging them can trigger capital gains or losses.
The Series 65 and Series 66 exams test the characteristics and suitability of digital assets as an investment vehicle, and the IRS Special Enrollment Examination (SEE) tests how digital asset transactions are reported and taxed. Know the risk profile, the custody considerations, and the property-based tax treatment.
Key takeaways
- Digital assets exist only electronically and are typically recorded on a blockchain or other distributed ledger.
- The category spans cryptocurrencies, stablecoins, and NFTs; most are not legal tender or government-backed.
- Key risks include extreme price volatility, evolving regulation, and custody of private keys.
- For U.S. tax purposes digital assets are generally treated as property, producing capital gains and losses on disposal.
- The Series 65, Series 66, and IRS SEE exams all test digital asset characteristics, suitability, or taxation.