Cryptocurrency; Advisers wary but must evolve
Financial advisers are still wary of cryptocurrency investments but adviser experts are saying they are coming to grips with the evolving investment opportunity.
Wednesday, July 21st 2021, 6:00AM 
1 Comment
by Matthew Martin
Like it or not, cryptocurrency is here to stay and advisers need to be ahead of the game as their clients become more aware of changing investment trends.
Financial Services Council (FSC) chief executive Richard Klipin says the FSC's research, The Rise of the Digital Investor, released in mid-June, found that 38.2% of adult New Zealanders currently use or plan to use micro-investing or digital investment platforms.
Klipin says 21% of people are investing, or have invested in, cryptocurrencies – an increase of about 7% since March last year.
"It's not about if it will happen, it is happening and with most investment opportunities there are risks involved. What I would ask is 'do you understand what you are investing in?'
"There's a lot of hyperbole around crypto because of the alleged returns being talked about...but with most things in life, if you understand what you are investing in you go in with eyes wide open - the general guidance for any good investment."
Klipin says with the rising interest in cryptocurrencies, it is incumbent on the financial advice industry to understand it and what they are investing in.
"If they don't understand it, be very cautious. It is still new and in many ways needs to come with appropriate warnings, especially if people only focus on how wonderful these alleged returns are."
Financial Advice NZ chief executive Katrina Shanks says people from all walks of life are talking more about investing in general, whether it be in shares or cryptocurrency.
She says for many, the alternative to a savings account or term deposit is investing in something that will bring a better return than 1.2% or so, even if that investment comes with more risk.
"Crypto is a new asset class that's getting some momentum and interest.
"What we are seeing is experts in the marketplace giving commentary to our advisers. This is an evolving market and like any investment, it should be based on the goals, needs and risk tolerance our clients have."
Shanks says Financial Advice NZ has listened to its advisers and will be holding a webinar featuring cryptocurrency experts in mid-to-late August.
"The marketplace is always changing and this is a good example of that change. I know some advisers who are talking to their clients about it so there's obviously more and more interest in this type of investment.
"Some are looking at it because of the suggested returns, and then there's FOMO - the fear of missing out.
"Don’t get me wrong. Talking about investing is great but how many people understand how to read a company’s balance sheet or even understand the basics of cryptocurrency? Not many, I suggest."
She says there is no doubt investors have made significant gains using it.
"But they have also made significant losses. It’s human nature to want to get onto a winner and it’s difficult to ignore an asset that has gained more than 500,000% in just a few years."
Her advice is to tread carefully and be aware of the risks.
"Cryptocurrency supply is limited, it can be mined using only power-hungry computer systems that crunch algorithms, it’s not a store of stable value, it doesn’t accumulate interest, and governments are making its use more difficult and may move to regulate it.
"I’m a firm believer if you don’t fully understand something then you should seek advice."
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Except there's change afoot and it's not all good.
China's involvement in crypto, more specifically in shutting it down internally, and the various ructions in different areas means that it's not just a new asset class it is a whole new understanding required that has its own unique language.
Much of it is akin to the skills for investing in a company, which is the dangerous part, as at the same time the breadth of each coin means there's an unquantified risk from that activity. And the sentiment of some celebrity moving the market, not just a stock, suggests that treading carefully is critical. I think I'll stick to risk ;)