Making the right call in investing sometimes requires you to look excruciatingly wrong for a while.
The investment advisers who declined to board the cryptocurrency hype train understand this well. Bitcoin and other cryptocurrencies took off in 2020 and didn’t peak until roughly 12 months ago. Anti-crypto advisers and money managers must have hated those days of saying no to something that made so much money for anyone bold enough to dive in.
They’re over it now, though. With cryptocurrency prices collapsing, everyone in the investment advice industry who declined to trust crypto with client money is vindicated. Kudos to all for being willing to look bad in the near term so they could be right later on about what’s good for investors.
Crypto is still in its infancy and may yet turn out to be a reliable financial asset we commonly invest in or use for making payments. What advisers got right was the idea of staying away during a speculative frenzy that could only end badly. The price of bitcoin, ethereum and other coins is down by half to two-thirds or more this year. FTX, a once-celebrated crypto exchange, has filed for bankruptcy protection with debts in the billions of dollars.
Advisers saw this coming, even while others in the investment industry viewed crypto as an opportunity. The investing app Wealthsimple Trade made crypto trading simple and accessible for individuals. A TSX-listed exchange-traded fund called the Purpose Bitcoin ETF (BTCC-T) was the first of its type in the world, and it sparked a bunch of competitors. The global giant Fidelity Investments added a tiny amount of crypto to its TSX-listed asset allocation ETFs, which are aimed at middle-of-the-road investors. The most shocking crypto foray by Canada’s investing establishment has to be an investment by the Ontario Teachers’ Pension Plan in FTX that will result in a US$95-million loss.
For the most part, though, crypto has mostly been a story of individual investors buying in on their own while advisers and money managers mainly watched from the sidelines. Back in March, 2021, I wrote a piece with the headline Why Your Investment Adviser Hates Bitcoin. I surveyed advisers on LinkedIn and found a stern resistance to incorporating it into client portfolios on the basis that it was hard to value and thus too risky.
There wasn’t even much take-up on an idea that seemed crafted specifically for advisers – that cryptocurrency would improve the diversification of portfolios by adding a component to complement stocks and bonds. In 2022, crypto’s the classic “diworsification” asset: However much your stocks and bonds are down, crypto is worse.
Resisting crypto at its peak took some conviction because prices were rising so fast. Bitcoin pretty much quadrupled from November, 2020, to the same month last year, and other cryptocurrencies soared as well. To stand against crypto as an adviser was to risk coming off like an apologist for an outdated and decaying financial system – just the sort of thing crypto investors saw themselves as rebelling against.
The pressure on advisers to accept crypto must have been intense, given how much faith individual Canadians put in the sector. “Polls seem to indicate that Canadians are more likely to be invested in crypto than American, Australian, or British households,” says a recent report from the independent analysis company Morningstar.
Recent analysis from TD Securities said the launch of crypto ETFs helped increase the level of retail investor trading in the non-core “alternative ETF” category to almost 80 per cent of total volumes from 40 per cent early last year.
The Purpose Bitcoin ETF hit $1-billion in assets in March, 2021, a phenomenal achievement for an investment product just one month old. The latest numbers show the fund lost about 70 per cent for the 12 months to Oct. 31, with assets down from March, 2021 levels by half. Thank an adviser today if they saved you from getting caught up in this decline.