Crypto sector to be rocked by bigger collapse than FTX in 2023, advisors say

(London, April 2023) More than a quarter of US advisors think the cryptocurrency sector will see a bigger collapse than FTX in the coming months, new research shows.

A CoreData Research study of 250 US financial advisors found seven in 10 (70%) are bracing for more cryptocurrency failures in 2023. Furthermore, over a quarter (26%) of respondents think there will be a cryptocurrency collapse on a greater scale than the FTX exchange this year.

The study, conducted in February, also shows how advised investors are shying away from digital currencies in the aftermath of the high-profile failure of FTX in November 2022. Only one in eight (12%) advisors say they are seeing increased client interest in cryptocurrencies. And critically, seven in 10 (69%) say the FTX collapse has reduced client demand for crypto. On average, advisors report that just 4% of their clients are currently invested in cryptocurrencies.
Amid expectations of more crypto turbulence, advisors have a bearish outlook on the sector.

Only 10% think cryptocurrencies will outperform the S&P 500 benchmark index in 2023. And less than one in 10 (8%) say the cryptocurrency downturn — or ‘crypto winter’ — that characterized much of 2022 is over. In addition, over a third (37%) of advisors say the crypto bull market of 2021 will never be repeated.

Advisor respondents also reject any notion that digital currencies will gain popular acceptance in the foreseeable future. Just 9% think cryptocurrencies will be mainstream in five years.

While advisors adopt a negative stance on crypto, they also question its function in portfolios. Just 6% agree that cryptocurrencies have a role to play in client portfolios. This compares to 68% who disagree. And only 5% agree cryptocurrencies act as an inflation hedge compared to 72% who disagree. Meanwhile, less than a fifth (18%) think cryptocurrencies will be more attractive when interest rates fall.

The regulatory environment is also deterring advisors from the space. Seven in 10 (70%) say they will not recommend cryptocurrencies to clients due to increased regulatory scrutiny.

Complexity poses another hurdle – more than a quarter (26%) of advisors say they don't understand cryptocurrencies.

“These findings show advisors are approaching cryptocurrencies with the utmost caution in the wake of the collapse of the FTX exchange and amid expectations of further failures,” said Andrew Inwood, founder and principal of CoreData. “The first few months of 2023 aptly illustrate the rollercoaster-like volatility of crypto and serve as a timely reminder that investing in the sector represents a high-risk bet.”

Advisors point to scams/fraud (31%) as the biggest risk of investing in crypto. And they see the biggest potential benefit as the prospect of high returns (37%).