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Day trader Zac Hartley, in his office in Calgary, is treadling lightly with his crypto investments. Although he is optimistic about the future of digital assets, he says he only invests money he can stomach losing to market volatility.Todd Korol/The Globe and Mail

It has been roughly a year since Evan Parubets has heard a client say the words “crypto” or “bitcoin.”

As an investment planning adviser with Steadyhand Investment Funds in Vancouver, he fielded questions from a handful of clients during bitcoin’s bull run in early 2021. They were wondering whether they should take part in the frenzy.

His advice then was the same as it would be now that crypto valuations have plummeted: tread very carefully, because it’s a speculative asset class and we just don’t know what it will do.

These days, when he brings up cryptocurrency at all, it’s as an example of the kind of asset to be wary of.

Cryptocurrencies were flying high during the first two years of the pandemic. But now the price of a bitcoin has dropped 73 per cent from its $85,000 peak, reached near the end of 2021. Ether, the second most popular cryptocurrency after bitcoin, plummeted 71 per cent from its $6,056 peak, to just over $1,700. Smaller coins saw even more dramatic drops. One of them, Solana, lost 94 per cent of its value in just 10 months.

Cryptocurrencies at crossroads after annus horribilis

Despite those massive drops in value, the attitudes of market watchers haven’t actually changed much. Traditional advisers, such as Mr. Parubets, see the downturn as further proof the crypto boom was a speculative mania. And believers in crypto see the current cycle as just another rocky period for a fundamentally sound technology that has weathered previous market swings.

One of the latter group is Nick Kuriya, head of crypto at Purpose Unlimited. He sees the current period as another “crypto winter” – a cycle in which assets like bitcoin experience drops of around 70 per cent from their peak values before eventually recovering and peaking higher. This pattern has already repeated itself three or four times, he said.

Purpose Unlimited owns Purpose Investments, which launched the world’s first bitcoin exchange-traded fund for retail investors. Mr. Kuriya pointed out that the company saw less than a 0.38-per-cent drop in the value of its bitcoin holdings in the past month, even as the bankruptcy of the crypto trading platform FTX deepened the hole crypto valuations are falling into. (The value of the fund’s assets has dropped by half since March, 2021, when bitcoin’s price began to tumble.)

Mr. Kuriya said there hasn’t been an exodus of investors from Purpose’s bitcoin ETF, and that this is proof that people believe in the long-term value of cryptocurrencies and their underlying blockchain technology.

He said the failure of FTX is an example of bad actors exploiting the system, rather than evidence of a fault with cryptocurrencies. Such missteps are natural for new markets and technologies, he added.

But he expects crypto’s rough year to have at least one lingering downside: slower adoption from traditional investment companies and financial advisers.

“These bitcoin ETFs are not approved for sale at every brokerage right now. ... I think this has certainly extended the timelines,” he said.

Mr. Kuriya said he believes crypto assets will come back stronger, the same way companies like Amazon did after their stock values plummeted by more than 90 per cent when the dot-com bubble burst in the early 2000s.

“Had you bought bitcoin before the pandemic happened, you’d be up two or three times your investment,” he said.

“So I find it interesting that someone can come out and say, ‘Hey, look I told you so.’ It’s still quite a strong-performing asset class if you look at longer timeframes.”

And yet there are many first-time investors who lost most of their investments after hopping on the bandwagon at the wrong times. One of them is Garrett Verbakel, a 36-year-old real estate agent in Cambridge, Ont.

The crypto market crashed. They’re still buying bitcoin

Before he tried out bitcoin, Mr. Verbakel’s only form of investment was a retirement account handled through his workplace. After some convincing from a friend, and after watching videos on YouTube investment channels, he put money into bitcoin in 2021. After some attempts to “buy the dip” as values dropped, he had invested a total of roughly $3,000.

As of early December, his investment was worth just $680, a drop of nearly 80 per cent.

Mr. Verbakel said the loss doesn’t sting that terribly, because he put in only the amount of money he was willing to part with. He now sees the experience as a valuable lesson for when he starts taking a more active approach toward investing for his retirement.

“I’ll be investing in other forms, certainly not this one I think,” he said. He plans to hold off putting money in equities and ETFs for now, considering the uncertainty in the global economy.

Even some bullish crypto investors are treading lightly. Zac Hartley, a 28-year-old in Calgary who manages his money full time and makes TikTok videos on investing, started buying bitcoin in 2016 and made $15,000 during the recent bull run.

Mr. Hartley said cryptocurrencies make up only between 10 per cent and 15 per cent of his portfolio. Although he is still optimistic about the future of digital assets, he said wouldn’t allocate more than that. He is only investing money he can stomach losing to market volatility, he added.

“I’m more than comfortable with the risk compared to the average person, because it’s pretty much my full-time job to manage my money and make content about it,” Mr. Hartley said.

“For the average person, you should have 10 per cent or less of your net worth in cryptocurrencies, and you should be ready for a roller-coaster ride.”

In his opinion, the cryptocurrency crash was fallout from inflated demand during the pandemic, when people were able to throw money into investments because they had little else to spend it on. He said he ended up selling 80 per cent of his bitcoin and ether around Christmas, 2021, before prices crashed. He considers himself lucky.

He recently started repurchasing bitcoin and ether, and now has about $12,000 invested in the two assets, he said.

Mr. Parubets still chooses to avoid cryptocurrencies. He said it could take many years to find out if certain digital assets are fads, or if the entire system is.

He pointed out that Nortel, the classic case of a Canadian company that plummeted in value after its stock soared to incredible levels, didn’t die immediately after it crashed in 2002. It filed for bankruptcy in 2009, seven years after its stock hit the floor. Many investors also tried to “buy the dip” with Nortel.

“It went through a really long protracted death, and there was always this hope that it’d go back up, so the story didn’t necessarily go away,” Mr. Parubets said.

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