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Portfolio > Alternative Investments > Cryptocurrencies

No Client Exodus From Crypto After FTX Collapse, Advisors Say

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What You Need to Know

  • Some clients understand crypto risk and seek to move to regulated custodians.
  • Those looking to exit realize crypto isn't stable or a good inflation hedge, one advisor said.
  • Some are asking about buying bitcoin on the dip, an advisor says.

Cryptocurrency investors aren’t all swearing off digital assets after the FTX cryptocurrency exchange’s massive and unexpected collapse last week, according to financial advisors.

FTX Group, which ran the world’s second-largest crypto exchange, filed for bankruptcy protection last week, and its founder, Sam Bankman-Fried, often described as a wunderkind, resigned as CEO.

The exchange faces multiple investigations amid rumors alleging it lent customer assets to Bankman-Fried’s crypto trading firm Alameda Research, according to news reports. The FTX earthquake shook confidence in a market already considered speculative, wiping out nearly $5 billion in crypto stock valuation, Bloomberg reported Friday.

As the FTX debacle unfolded last week, ThinkAdvisor asked financial advisors the following:

If you have clients invested in crypto, what’s happening with them this week, what are they doing with their crypto and what are they asking you now?

Some clients remain committed to investing in digital assets, some aim to move their holdings to a regulated custodian, and others appear to be done with crypto, according to advisors.

“Since inception, nearly all clients of Intentional Living FP have owned bitcoin, with many having allocated a substantial portion of their total investable assets to bitcoin,” Intentional Living FP founder and financial planner Jim Crider responded via email last week.

“Due to proper education about bitcoin, crypto and the vast differences between the two, our clients retain conviction about the long-term value of their bitcoin, are unscathed by the noise of the crypto space, and are continuing to add to their bitcoin stack,” he told ThinkAdvisor.

(Companies, media and grifters have hijacked the term crypto to allude to anything remotely related to a blockchain, he explained. “Bitcoin is cryptocurrency, but what society equates ‘crypto’ to is not bitcoin,” he added.)

“Our clients are continuing to do as we’ve done all along; buy bitcoin and move it to cold storage where they are not reliant on or placing undue trust in third parties,” Crider said. “Our clients are asking about how much more bitcoin they should be allocating while the price has dipped and in preparation for the next halving cycle that takes place in April of 2024.”

Nick Rygiel, financial advisor and Ironclad Financial LLC owner, indicated his clients hadn’t lost interest in crypto.

My clients that are involved with crypto were aware of the extreme volatility of digital assets upfront and practiced sound risk management, keeping their exposure to an appropriate level and realizing that another event similar to what occurred with Terra could happen again,” Rygiel said via email, referring to the Terra network’s TerraUSD stablecoin and LUNA companion token’s fall in May.

“They remain optimistic in the long term and realize high volatility may continue as counterparties associated with Alameda and FTX may begin to emerge over the next few weeks,” he added.

Clients are asking about self-custody, such as hardware wallets versus keeping assets on exchanges, and potential investment opportunities such as Coinbase stock, Rygiel said. Those with greater experience and who are accredited investors are involved with decentralized finance, or DeFi, such as Uniswap v3 liquidity pools (for example seeking alternative yield strategies using stablecoins) and the Aave and Curve platforms, he said.

Jeremy Bohne, Paceline Wealth Management founder and financial advisor, says that while he’s “not a fan” of crypto and doesn’t use it with clients, he gets a lot of questions from clients who invest in crypto on their own. He sees a mix of sentiments among those clients.

“Some are recognizing that crypto is neither stable nor an effective hedge against inflation. People in this camp are looking for an eventual exit,” he told ThinkAdvisor via email.

“Others remain committed to this asset class, and understand the risks involved, and these investors are looking for ways to have their holdings moved to a regulated custodian. Even in cases where people fully understand and can tolerate the level of investment risk involved, the idea that their money could go missing is totally unacceptable, nor should it be (acceptable),” he said.

“That’s why we’re seeing things treated differently where a qualified custodian is involved. News this week is a worst case scenario of the opposite of that,” he said last week. “Clients own this, and I get a lot of questions, but not something I’ve used with them, as I’m not a fan,” Bohne said.

Several people tweeted Friday that their FTX accounts showed zero balances, and early Saturday the general counsel for FTX US tweeted the platform was moving all digital assets to cold storage to mitigate damage from “unauthorized transactions.”


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