While the dramatic story of the firm’s failure isn’t over yet, it’s a post-FTX era in crypto world, and the biggest takeaways for investors are already clear, according to financial advisors. First things first: do your homework on crypto and figure out if it aligns with your goals. If you decide to keep buying it after that, learn how to keep it secure. “Investors need to differentiate between blockchain technology and exchanges,” said Daren Blonski, managing principal at Sonoma Wealth Advisors. “Those two get melded into each other and that creates a lot of the issues.” Crypto skeptics have been jumping on the I-told-you-so train as cryptocurrency prices took another leg down in an already bad year while the saga unfolded, disproving arguments for its use as a store of value. Meanwhile, crypto believers are doubling down on bets that it’s the future of money and finance. There’s a vast grey area in between, however, of newcomers to the crypto market that bought into one crypto narrative or another wondering what to make of it now. Here’s what advisors say about it: Whatever you do, don’t leave your crypto on exchanges There’s a cutesy mantra in crypto: “Not your keys, not your coins.” It means that unless you hold the “private keys” – or the cryptographic passcode that allows someone to transact their crypto and prove their ownership of it – your crypto isn’t actually yours. “We’ve been pounding the table saying this to clients,” Blonski said. “I have money on exchanges, but I know that that money is always at risk. It’s a choice because it’s just more convenient on some levels, but I sure as heck don’t keep my bitcoin on exchanges.” Consumers often give up some security or privacy in exchange for convenience – this is broader than crypto and it’s one crux of the movement toward a decentralized Web 3 world. But as crypto becomes more popular and centralized companies provide easy onramps, advisors agree: it’s time investors learn to control their funds. Tyrone Ross Jr., president and founder of 401 Financial, told CNBC that colleagues in the advisor community have sought guidance from him on how to move their funds off exchanges. “What does it mean to hold your assets in a wallet yourself and protect them from theft?” Ross said. “If your stuff is in Coinbase, it’s kind of like the best house in a bad neighborhood. We’re trying to educate people and now the only way to help them now is getting them to hold their own crypto, which for most folks is the most difficult part.” FTX shouldn’t change your thesis However you value cryptocurrencies, the FTX debacle shouldn’t have changed it. Ross said that to him, bitcoin has always only had one “inarguable” use case that “keeps getting lost”: it serves those excluded from the formal financial system. “Every day that the Bitcoin blockchain survives, people globally have financial access, and by voting for the token, which you do by buying bitcoin, you’re putting your money behind a global monetary system where anyone anywhere can transact,” he said. Bitcoin was initially designed to be digital cash. Bulls have long believed that its best use is as a hedge against inflation or a safe-haven asset in times of uncertainty. This year, moves in bitcoin’s chart have been more in tune with the ups and downs of stocks. And as historically high inflation persisted, bitcoin continued to fall, and even touched a two-year low just last month. One of bitcoin’s most salient qualities is that different narratives serve different types of investors. And it’s OK if investors only see bitcoin as an investment, Ross said, likening the technology to airlines. “We need them, it’s the most incredible piece of technology,” he said. “People put money behind it. You buy airline tickets, people buy airline stocks, people invest in the snack providers and everything on the plane because we all use it, it’s a great piece of technology for civilization. Bitcoin is going to be the same way.” Wall Street seems to understand this well, too. Rather than forecasting the end of crypto, analysts are warning of a prolonged lull in trading volume and low prices, but ultimately see it “rhyming with the 1990s internet craze.” JPMorgan is even covering crypto cold storage stocks and predicting at least one will more than double in price after the FTX collapse. Last week several analysts came out warning that the near-term picture for cryptocurrency prices is bleak and will weigh on trading revenue and companies like Coinbase and Robinhood, not to mention the heightened regulatory scrutiny heading toward the industry. Stay away from derivatives This week the CFP Board warned advisors providing crypto-related advice to do so “with caution” as the young asset class presents “significant risks and uncertainties that warrant careful analysis.” When asked about it, the advisors who spoke to CNBC reiterated that crashes in the market this year (FTX now but the Terra project before it in the spring) stemmed from the security of the asset and not the value of it. “It’s on advisors to understand what happened before rendering some sort of judgment about it,” said Adam Blumberg, cofounder at Interaxis, a crypto education and training company for financial advisors. “If they’re a fiduciary, even if they hate crypto, it’s on them to understand what happened and explain to clients how it affected the price and why it changes their investment thesis – and not use this as an opportunity to go ‘see I told you.'” Although bitcoin has come a long way, the user experience isn’t easy yet, and often pushes investors to products that are more comfortable and convenient for them but higher risk. “I find it very difficult to involve many clients at all in cryptocurrencies on an investment level, a fiduciary level and an advice level – not because I don’t trust the blockchain but because any of the products that are easily accessible are fundamentally derivatives,” Sonoma’s Blonski said. Sonoma Wealth won’t touch derivatives, but hopes the SEC will soon give a “legitimate review” and approval of a spot bitcoin ETF, Blonski added. “Other than that: not your keys, not your bitcoin is our professional opinion,” he said. “The market is not mature enough, we don’t have the transparency and clarity and the SBF incident just proved that to us.”
