How advisors are helping clients navigate crypto volatility

As cryptoassets face severe volatility, some advisors have had to adjust their approaches, especially with client conversations.

Bitcoin has declined more than 65% since the beginning of November, when the price was US$60,954.50, and declines have accelerated over the past month. On June 18, Bitcoin plummeted below US$20,000, hitting its lowest level since December 2020.

Steve Willems, a wealth advisor with Willems Wealth Planning Group, CI Assante Wealth Management, in Abbotsford, B.C., said this volatility can be a buying opportunity for the right clients.

Willems added $5,000 to a couple’s crypto allocation earlier this month. The clients are in their 60s and have an asset mix of about 59% equities, 35% fixed income, 5% cash and 1% in crypto investments (held within a crypto ETF in a fund wrapper). The top-up brought their crypto holdings to about $30,000.

The clients and Willems had initially talked about crypto investments last summer. The clients were “conversationally fluent” about crypto because their kids, in their 20s and 30s, would discuss it with them over dinners.

“They were open and receptive to adding a small allocation to their portfolio,” Willems said.

Other advisors have stayed away from crypto.

Valerie Wowryk, portfolio manager and investment advisor at Richardson Wealth in Winnipeg, said she doesn’t invest in “esoteric” investments like crypto.

“[Crypto’s] biggest flaw was it didn’t live up to the promise of what it was. It was supposed to be an asset that hedged against central bank policies, and it blew up that promise,” she said.

Wowryk said cryptoassets are largely correlated with other interest-sensitive or risk assets.

“It’s abundantly clear that anything that falls over [60%] is not a hedge at all,” she said.

Willems said his retired clients’ financial plans and investments usually consist of a long-term strategy, an “explore” strategy (consisting of more volatile investments like crypto) and a future income stream to fund their retirements (e.g., growth investments and cash).

“They felt comfortable with this allocation as a part of their strategy. By nature of its weighting, this small allocation has no bearing on how these clients go about living their lives today or how well they sleep at night,” Willems said.

“When sentiment is low and negativity roars, those historically are the times that you want to bring a steady hand to the table and remove that negative emotion. The best opportunities tend to be found in the midst of that peak uncertainty,” he said about the markets in general.

Michael Zagari, associate portfolio manager with Mandeville Private Client Inc., said that fixating on volatility can lead to missed opportunities.

“If you focus solely on the volatility, or the price of Bitcoin and Ethereum, you’re going to spook yourself out of something that could be potentially as powerful as what the internet brought forth for humanity,” Zagari said.

Zagari predicts that Bitcoin and Ethereum will be around for decades, explaining that they are the “mega caps” of the crypto space. Bitcoin also has a fixed supply, as no more than 21 million can ever be mined.

“There are many governments in the world that are inflating their [currency], and people are more aware of it than ever before,” he said. “Therefore, a decentralized network [and] a limited money supply … is attractive.”

Furthermore, a hard cap creates scarcity. “When you have scarcity, you have storage of value,” Zagari said.

Zagari, therefore, suggests investors adopt a long-term mindset when owning crypto. “If you’re trading, then you’re just taking on a lot more risk. You have to get it right twice — you have to buy right, and you have to execute a sell at the right time. And, as we all know, right now, the price stability is not there yet,” he said.