As Bitcoin and other cryptocurrencies crash, financial professionals might be wondering if investing in the asset is such a good idea.
Of course, that was the question even before Bitcoin crashed through $30,000 on Tuesday for the first time since January. So, advisors might be apt to back away from any curiosity they had for digital assets.
That is not the case for Onramp Invest, an integrated platform as a service that helps registered investment advisors to learn about and help clients invest in digital assets. The platform emerged from beta on May 25 and is ramping up its services – just as cryptocurrency prices are tanking.
But rather than repelling interest, the plummeting prices have more advisors knocking on Onramp’s door for a demo, said Tyrone Ross Jr., Onramp Invest CEO.
“We have more asking because the price is more where advisors want to trade – buy low, sell high,” said Ross, who is also an investment advisor. “I want to get my clients in at $30,000 as opposed to $65,000.”
Onramp has 85 advisors representing $200 billion of AUM on its waitlist, Ross said, adding that firms such as Ritholtz Wealth Management and Carson Group are either investing or participating.
Wouldn’t advisors and clients be a bit anxious right about now if they are holding digital assets?
“If the price is going up, they are worried, if it's going down they’re worried, and they’re worried if it's being stable,” Ross said. “They're worried because it's crypto.”
Onramp and other digital asset proponents do not suggest financial professionals recommend cryptocurrency for investing, but be able to guide clients knowledgeably when they ask about the asset and help them invest if they ask for assistance.
“On every webinar, every podcast, I’ve said it is not about getting your clients in Bitcoin,” Ross said. “It is making sure you don't lose the ones that you have, because they already own it. And they're going to ask you about it. And we are in a time where the clients are more about this than the advisors do, and it is not good.”
Where Is The Floor?
Buy the dip, they say. But what if the dip keeps dipping? For advisors such as Ross, it is not the most germane question because they take the long view, as advisors would with stocks.
One key difference is the New York Stock Exchange has more than a century of data to analyze, whereas Bitcoin has 12 years to look back on.
“The timeframe is long enough for you to understand there's some nasty drawdowns of Bitcoin,” Ross said. “Again, it's less about being the rah-rah person for this. But what you should be doing is helping the client understand the space, which means you need to understand it.”
Part of that understanding is recognizing that Bitcoin has had deep, sustained drops in price. The latest one lasted about 2½ years between the beginning of 2018 and March 2020, when it topped $19,650 on Dec. 15, 2017, stumbled for a year to a low of $3,183 on Dec. 14, 2018, and idled until 2020.
It was not the first crash. Bitcoin prices have plummeted 80% or more since 2012. Each time follows a similar pattern.
This crash has been attributed to China, which is the main thrust because of the roadblocks it has been erecting for mining and profiting off Bitcoin. It was the latest action that China has taken against Bitcoin for the past several years. That is a global issue because more than 60% of Bitcoin mining occurs in China.
But The Good News …
The good news is that mining in China tended to use dirty energy, such as outdated power plants. As mining moves elsewhere, including the United States, the hope is it will be connected to cleaner energy sources. El Salvador announced it will use Bitcoin as its legal tender and mine it with energy generated by a volcano.
Cleaner energy is the goal of Elon Musk, who triggered the downfall with a tweet. Musk hosted Saturday Night Live on May 8 and joked that Dogecoin was “a hustle,” which sent Doge from 69 cents on May 6 to 17 cents on Tuesday. A few days later, Musk announced that Tesla would no longer accept Bitcoin as payment because of the fossil fuel that miners use to produce it.
Bitcoin was at $58,900 on May 8.
Musk and others have announced cleaner energy initiatives since then, but China’s crackdowns added more downward pressure. In the middle of all that, Colonial Pipeline got hacked and paid the ransom in Bitcoin.
The most troubling aspect for cryptocurrency proponents was that the U.S. government was able to recover some of the Bitcoin. Although it was fortunate the money was recovered because of the hackers’ blunders, it was not so fortunate that government officials were able to crack some of the security, which is a key reason to hold cryptocurrency.
Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected]
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