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Saying no to cryptocurrency was a glorious moment for Canadian investment advisors

Saying no to cryptocurrency was a glorious moment for Canadian investment advisors

Making the right investment call sometimes requires looking wrong for a while.

This is well understood by investment advisors who have refused to jump on the cryptocurrency hype train. Bitcoin and other cryptocurrencies took off in 2020 and didn’t peak until about 12 months ago. Anti-crypto advisors and money managers must have hated to say no to anyone brave enough to take the plunge who was making so much money those days.

They’re over it now, though. With cryptocurrency prices plummeting, everyone in the investment advisory industry who refused to trust crypto with their client’s money is being vindicated. Kudos to everyone for being willing to look bad in the short term so they can see what’s good for investors later.

Crypto is in its infancy and can still be a reliable financial asset that we often use to make payments. What the advisers got right was the idea of ​​staying out in a frenzy of speculation that could only end badly. The price of bitcoin, ethereum and other coins has halved by two-thirds or more this year. FTX, the once celebrated crypto exchange, has filed for bankruptcy protection with billions of dollars in debt.

Advisors saw this coming, even as others in the investment industry saw crypto as an opportunity. The Wealthsimple Trade investing app made crypto trading easy and accessible for individuals. A TSX-listed exchange-traded fund called the Purpose Bitcoin ETF (BTCC-T) was the world’s first, sparking a flurry of competitors. Global giant Fidelity Investments added a small amount of cryptocurrencies to its TSX-listed asset allocation ETFs, which are aimed at middle-of-the-road investors. The most surprising crypto entry for the Canadian investment establishment has to be the Ontario Teachers’ Pension Plan’s investment in FTX, which will result in a loss of US$95 million.

For the most part, however, crypto has mostly been a story of individual investors buying on their own while advisors and money managers mostly watched from the sidelines. In March 2021, I wrote an article with the title Why your investment advisor hates Bitcoin. I surveyed advisors on LinkedIn and found strong resistance to getting into client portfolios because it was difficult to value and therefore too risky.

One idea that seemed particularly elaborate to advisers didn’t get much traction: It would improve the diversification of cryptocurrency portfolios by adding a component to complement stocks and bonds. In 2022, crypto is a classic “distortion” asset: while your stocks and bonds are down, crypto is worse.

Dealing with crypto at its peak took some convincing because prices were rising so fast. Bitcoin almost quadrupled from November 2020 to the same month last year, and other cryptocurrencies also rose. Opposing crypto as an advisor risked coming across as an apologist for an outdated and crumbling financial system – the kind that crypto investors were rebelling against.

The pressure on advisors to embrace crypto must be intense, given how much faith individuals in Canada have in the sector. “Surveys indicate that Canadians are more likely to invest in crypto than American, Australian or British households,” says a recent report by independent analysis firm Morningstar.

Recent analysis by TD Securities said the launch of crypto ETFs helped increase the level of trading by non-core investors in the “alternative ETF” category to 80 percent of total volume from 40 percent early last year.

The Purpose Bitcoin ETF hit $1 trillion in assets as of March 2021, an incredible achievement for an investment product that’s only a month old. The latest figures show the fund lost around 70 per cent in the 12 months to October 31, with assets halved since March 2021. Thank a counselor today if you’re not caught in this slump.

Did you roll the dice and invest in crypto during the pandemic? We want to hear how your thoughts on crypto have changed or stayed the same. Email Salmaan Farooqui to Globe reporter [email protected] to share your story.


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