Three things crypto investors need to know in a post-FTX world, according to financial advisors
While the dramatic story of the company’s failure is not over yet, this is a post-FTX era in the crypto world, and the biggest takeaways for investors are already clear, according to financial advisers. First, do your homework on crypto and figure out if it fits your goals. If you decide to keep buying it after that, learn how to keep it safe. “Investors need to differentiate between blockchain technology and exchanges,” said Daren Blonski, managing director at Sonoma Wealth Advisors. “These two blend into each other and that creates a lot of problems.” Crypto skeptics jumped on the I told you so bandwagon as cryptocurrency prices fell further in an already bad year as the saga unfolded, disproving arguments for its use as store of value. Meanwhile, crypto believers are doubling down on their bets that this is the future of money and finance. There is, however, a vast gray area between newcomers to the crypto market who have joined one crypto narrative or another wondering what to do with it now. Here’s what advisors are saying: Whatever you do, don’t leave your crypto on exchanges. There’s a cute mantra in crypto: “Not your keys, not your coins.” This means that unless you hold the “private keys” – or the cryptographic access code that allows someone to transact on their crypto and prove ownership – your crypto is not not really yours. “We hammered the table telling customers that,” Blonski said. “I have money on exchanges, but I know that money is always at risk. It’s a choice because it’s just more convenient on some levels, but I’m sure I don’t keep my bitcoin on exchanges.” Consumers often give up some security or privacy in exchange for convenience – this is broader than crypto and is one of the nodes in the movement towards a decentralized Web 3 world. But as crypto becomes more popular and centralized firms offer easy on-ramps, advisers agree: It’s time investors learned to control their funds. Tyrone Ross Jr., chairman and founder of 401 Financial, told CNBC that colleagues in the advisory community have sought his advice on how to withdraw their funds from exchanges. “What does it mean to hold your assets yourself in a wallet and protect them from theft?” said Ross. “If your stuff is in Coinbase, it’s kind of like the best house in a bad neighborhood. We’re trying to educate people and now the only way to help them now is to get them to hold their own crypto, which for most people is the hardest part.” FTX Shouldn’t Change Your Thesis Whatever value you place on cryptocurrencies, the FTX debacle shouldn’t have changed it. Ross said that for him, bitcoin has always had only one “undeniable” use case that “keeps getting lost”: it serves those excluded from the formal financial system. “Every day the Bitcoin blockchain survives, people around the world have financial access, and by voting for the token, which you do by buying bitcoin, you are putting your money behind a global monetary system where anyone, anywhere, can transact,” he said. Bitcoin was originally designed to be digital cash. Bulls have long believed its best use was as an inflation hedge or as a safe haven asset in times of uncertainty. This year, bitcoin’s chart movements have been more in line with the ups and downs of stocks. And while historically high inflation persisted, bitcoin continued to slide and even hit a two-year low last month. One of the most salient qualities of bitcoin is that different narratives serve different types of investors. And it’s okay if investors only see bitcoin as an investment, Ross said, comparing the technology to airlines. “We need it, it’s the most amazing technology,” he said. “People put money behind it. You buy plane tickets, people buy airline stocks, people invest in snack suppliers and everything on the plane because we all use it, it’s is a great technology for civilization. Bitcoin is going to be the same way.” Wall Street also seems to understand this well. Rather than predicting the end of crypto, analysts are warning of a prolonged lull in trading volume and low prices, but ultimately see it “rhyming with the internet craze of the 1990s.” JPMorgan even covers crypto cold storage stocks and predicts that at least one will more than double in price after FTX crashes. Last week, several analysts warned that the near-term cryptocurrency price picture is bleak and will weigh on trading revenue and companies like Coinbase and Robinhood, not to mention increased regulatory scrutiny of cryptocurrency. industry. Stay away from derivatives This week, the CFP Board warned advisers providing crypto-related advice to do so “with caution” as the young asset class presents “significant risks and uncertainties that warrant careful analysis.” “. Asked about this, advisers who spoke to CNBC reiterated that the market crashes this year (FTX now but the Terra project before it in the spring) stemmed from the security of the asset, not its value. “It’s up to advisors to understand what happened before they pass judgment on it,” said Adam Blumberg, co-founder of Interaxis, a crypto education and training company for financial advisors. “If they are fiduciary, even if they hate crypto, it’s up to them to understand what happened and explain to clients how it affected the price and why it changes their investment thesis – and not to use this as an opportunity to go ‘see me’ I told you.” “Although bitcoin has come a long way, the user experience is still not easy and often pushes investors towards products that are more comfortable and convenient for them, but at higher risk.” I find it very difficult to involve many customers in cryptocurrencies at the investment level, at the fiat level and at the level advice – not because I don’t trust the blockchain but because all readily available products are fundamentally derivatives,” Sonoma’s Blonski said. Sonoma Wealth won’t touch derivatives, but hopes the SEC will give soon a “legitimate review” and the appro bation of a spot bitcoin ETF, Blonski added. “Other than that: not your keys, not your bitcoin is our professional opinion,” he said. “The market is not mature enough, we don’t have the transparency and clarity and the SBF incident has just proven that to us.”
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