The value of advice to die-hard crypto fanatics

The collapse of crypto giant FTX has renewed calls for greater regulation of digital assets and the role of financial advice.

But there is also value in educating crypto fans about the more traditional asset classes they may have overlooked.

Crypto is becoming a major blind spot for financial advisers. A recent YouGov survey found that 29% of Australians have invested in crypto and 26% consider themselves likely to buy some in the next 12 months. This is despite the onset of the so-called ‘crypto winter’, which has seen values plummet.

While there is little professional advice being provided around this mysterious yet increasingly popular asset class, BTC Markets chief executive, Caroline Bowler, says financial advisers are keen to advise their clients on digital assets like Bitcoin.

“In private conversations with financial advisors, they tell us that they want to be able to advise clients on these assets,” she said.

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“Financial advisers need specific training in crypto assets and strategies but until the regulation catches up with the technology and growing consumer demand, their hands are tied.”

Egor Sidelska, co-founder of Sydney-based crypto fund manager Magnet Capital, sees the value of advice for crypto investors.

“Financial advisers have an incredible opportunity to be the educators in the room. Historically, they have been justly cautious in providing advice in this new and novel market, and the regulatory situation remains a challenge for advisers,” he said.

“Unfortunately, this drives their customers towards seeking self-service solutions like FTX. Advisers can be the voice of reason in the room educating their clients on sensible and smart ways to get exposure to this asset class.”

OSL global head of SaaS distribution, Mark Hiriart, said that in Australia, like many parts of the world, participants are waiting for more comprehensive regulation so that they are aware of the parameters within which they are able to operate.

“This is the newest asset class in many years hence things are moving at lightspeed which can be quite confusing for many,” he said.

But clarity could be coming sooner than previously thought. The collapse of FTX, which was valued at US$32 billion, trading an average of US$8.8 billion a day, has caught the attention of regulators across the globe.

“In the medium to longer term there is definitely going to be an acceleration of the global regulators to implement frameworks that support and cater to this nascent asset class, as well as best practices from traditional financial markets becoming the de facto way to do business,” Hiriart said.

One major opportunity for financial advisers is to educate younger, tech-savvy crypto fans about the broader investment universe.

While advice around crypto is yet to take off, there is nothing preventing advisers educating crypto investors about the benefits of diversification. Particularly as research from the Australian Securities and Investments Commission (ASIC) found that one in four Australian crypto investors only invest in crypto.  

“It has attracted a younger demographic who are more familiar with using technology, whether that be via smartphones, laptops or desktops,” Hiriart said.

“It has become a cultural phenomenon for the younger generation as crypto touches many different aspects of society including finance, technology, social media and gaming,” he said.

“Many of the current adopters might be very familiar with trading on a crypto exchange but may have never purchased a share or ETF.”

As a new generation of self-directed crypto fanatics loses money on now-defunct exchanges likes FTX, the value of professional investment advice has never been greater.