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How advisers can protect clients from the volatile crypto markets

Clients are always asking about Bitcoin, especially during a price crash. In the past two months, Bitcoin’s price has halved. Just over the past week, Bitcoin fell 30%. Interaxis‘ Adam Blumberg spoke to Financial Planning on how advisers can protect clients from volatility.

For over a year, crypto prices have been very volatile. This has been accompanied by many big names praising and questioning Bitcoin. Michael Saylor and Microstrategy have bought and put Bitcoin on their balance sheet. Square, the company behind Twitter, purchased $50 million of Bitcoin last September. Tesla not only bought Bitcoin but started accepting it as payment. The electric vehicle maker then backtracked and stopped the ‘Bitcoin as a payment’ option. This was when Elon Musk called out Bitcoin mining for being over-reliant on non-renewable energy.

After the recent pullback, clients are second-guessing their decisions to invest in Bitcoin. After all, if an asset drops by 50% in two months, you would too. Financial advisers now have to deal with the crypto selling conversation. But have crypto prices crashed? And should advisers just tell their clients to exit crypto? Adam Blumberg doesn’t think so.
“Crypto is pretty volatile and still the subject of regulatory scrutiny here and internationally. Therefore, there is volatility, a pullback,” said Adam to Lilly Wolfson of Financial Planning.

Crypto in the overall portfolio

Investors should pay attention to their overall portfolio. The odd price crash always happens. If a large degree of a client’s funds are allocated to Bitcoin or other cryptos, then a part of this can be sold. This is should be based on their risk tolerance, and financial situation. “If they need the funds in the next few months, they should always be worried about the volatility since the value might be way down when they need to sell and use the money,” said Adam.

The context of the crash matters. If advisers know the reasons behind the crash, they can better handle the conversations with clients. And the decisions to sell or not. This begins with learning about cryptos, DeFi, stablecoins, and the digital assets market. “They can then help develop the overall investment strategies based on their risk, goals, and financial situations,” he says.

At the core of this conversation lies clients’ investment thesis. If they think Bitcoin will be an asset of the future, a pullback is of no concern. However, if they want to make price gains, then taking some of the profits off the table is worth it. But it all depends on what part Bitcoin and other cryptocurrencies play in one’s portfolio. “The key will be for advisors to understand some of the reasoning for the pullback, and be able to have conversations with clients about why it is happening, how it affects their portfolio and what they can do,” concludes Adam.

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