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A recent survey shows 13 per cent of retail investors in Canada are dabbling in bitcoin, ethereum or other digital currencies. That’s an almost three-fold increase from a 2018 study that found only 5 per cent of investors doing the same.DADO RUVIC/Reuters

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To hear Matt Damon tell it, people who don’t invest in bitcoin are cowards. That’s the core message behind his “Fortune favours the brave” advertising campaign for Crypto.com.

Another cinematic-style ad from competing crypto exchange FTX stars Larry David as a comically wrong perpetual naysayer. It warns people that they’ll look just as idiotic and foolish as the actor if they pass up on buying digital assets.

Similarly, Wealthsimple Inc.’s newest commercials ridicule crypto skeptics by portraying them as luddite Neanderthals incapable of seeing that “sometimes, the future’s right in front of you.”

All of which proves one thing: Crypto’s purveyors no longer trust “fear of missing out” to keep the bubble bubbling. They now feel compelled to mock and shame people.

Maybe that strategy is working. A recent KPMG LLP survey shows 13 per cent of retail investors in Canada are dabbling in bitcoin, ethereum or other digital currencies. That’s an almost three-fold increase from a 2018 Ontario Securities Commission study, which found only 5 per cent of investors doing the same. Furthermore, 21 per cent of those surveyed in the KPMG study who hadn’t invested in crypto say they intend to buy in.

That this expansion has occurred despite wild fluctuations in cryptocurrency prices and a drumbeat of reports about crypto frauds and thefts is noteworthy. Investors seem remarkably blasé about these risks. According to the KPMG survey’s results, that’s partly because widespread institutional adoption of crypto assets has lent comfort to many retail investors.

Another source of comfort, no doubt, is the regulatory community’s growing acceptance of crypto as a financial innovation. Yet, what an odd embrace that is.

Crypto is designed to be ungovernable by regulators, governments and central bank authorities – that’s its whole purpose. So, are regulators being naïve or dangerously overconfident in thinking they can tame crypto?

And if they actually could tame it, wouldn’t doing so turn crypto into a conventional cash equivalent that won’t appreciate stratospherically and therefore won’t meet investors’ expectations?

Nobody seems eager to answer those questions.

Meanwhile, if you’re an investment advisor, good luck guiding clients through this gauntlet of shaming and half-baked assurances. It can’t be easy keeping people focused on maintaining a sensible and suitable asset mix when they’re hearing authoritative sources say the following:

  • Crypto’s innovative and exactly what’s needed (public officials);
  • Even your pension fund’s investing in it (institutional investors);
  • We offer a full range of crypto asset services (financial services institutions);
  • Crypto’s an established, non-correlated asset class (licensed investment dealers).

Even clients who remain leery may find themselves, nonetheless, compelled to consider crypto. What other investment these days can turn into a house downpayment for a gig-employed millennial or Gen Xer, or retirement salvation for a baby boomer with modest net worth? Not a low-risk investment, nor even medium-high-risk ones given runaway housing prices and the cruel “risk” of longevity.

Still, the risk a client can least afford is having an advisor who isn’t completely honest or forthright. Advisors are duty-bound to portray each investment under consideration in a fair and balanced way, noting its pros and cons. Moreover, it’s crucial that the advisor’s professional opinion be presented resolutely ‒ even if it runs counter to what’s in vogue and might cause the client to seek advice elsewhere.

But the heaviest onus falls on advisors who believe crypto’s an astute investment. They need to tell clients plainly that cryptocurrencies haven’t found widespread utility outside the shadow economy. Clients also should be warned that crypto assets have proved highly vulnerable to theft and loss through fraud. Most important, there should be no obscuring the fact that crypto’s a volatile, highly speculative, high-risk play.

The crypto industry won’t be happy if these things are said. Some pushback is likely – indeed, any business that’s already bullying and shaming its own customers can be expected to get even more ugly with the hired help.

So, there’s no question crypto presents a slew of challenges for advisors. It places them in an awkward spot in which industry evangelism, regulatory idealism, and investor desperation and desire all converge. It will test advisors’ independence and their resolve. It will also measure their level of professionalism.

Neil Gross is president of Component Strategies, a capital markets policy consultancy in Toronto.

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