After Crypto’s Dizzying Drop, Traditional Retail Investors Are Satisfied With Their Cautiousness, While Believers Step Up

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Day trader Zac Hartley, in his Calgary office, is moving slightly ahead with his crypto investments. Although he’s optimistic about the future of digital assets, he says he only invests money he can afford to lose due to market volatility.Todd Korol/The Globe and Mail

It’s been about a year since Evan Parubets last heard a customer say the words crypto or bitcoin.

As an investment planning advisor at Steadyhand Investment Funds in Vancouver, he fielded questions from a handful of clients during the bitcoin bull run in early 2021. They wondered if they should join the frenzy.

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

These days, when he brings up cryptocurrency, he’s an example of the type of asset to be wary of.

Cryptocurrencies flew high for the first two years of the pandemic. But now the price of a bitcoin has fallen 73% from its peak of $85,000, reached towards the end of 2021. Ether, the second most popular cryptocurrency after bitcoin, has fallen 71% from its high of $6,056, to just over $1,700. Small parts saw even more dramatic declines. One of them, Solana, lost 94% of its value in just 10 months.

Cryptocurrencies at a crossroads after the annus horribilis

Despite these massive declines in value, the attitudes of market watchers haven’t actually changed much. Traditional advisers, such as Mr. Parubets, see the slowdown as further evidence that the crypto boom was a speculative mania. And crypto believers see the current cycle as just another tough time for a fundamentally sound technology that has weathered previous market swings.

Nick Kuriya, head of crypto at Purpose Unlimited, is among the latter group. He sees the current period as another crypto winter, a cycle in which assets like bitcoin experience drops of around 70% from their peak values ​​before eventually recovering and peaking higher. This pattern has repeated itself three or four times already, 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 had seen a decline of less than 0.38% in the value of its bitcoin holdings over the past month, even as the bankruptcy of crypto trading platform FTX deepened the hole. in which crypto valuations fall. (The value of the fund’s assets has halved since March 2021, when the price of bitcoin began to fall.)

Mr Kuriya said there has been no exodus of investors from Purposes bitcoin ETFs, and this is proof that people believe in the long-term value of cryptocurrencies and their technology. underlying blockchain.

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

But he expects crypto’s tough year to have at least one lingering downside: slower adoption by traditional investment firms and financial advisors.

These Bitcoin ETFs are not approved for sale at all brokerages at this time. … I think it 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 ​​fell more than 90% when the dotcom bubble burst. at the beginning of the 2000’s.

If you had bought bitcoin before the pandemic hit, you would have increased your investment by two or three times, he said.

So I find it interesting that someone can come out and say, look, I told you so. It’s still a pretty good performing asset class if you look at longer timeframes.

And yet, many newbie investors have lost most of their investments after jumping on the bandwagon at the wrong time. One of them is Garrett Verbakel, a 36-year-old real estate agent in Cambridge, Ontario.

The crypto market has collapsed. They are still buying bitcoin

Before trying bitcoin, Verbakels’ only form of investment was a retirement account run by his workplace. After being convinced by a friend and after watching videos on YouTube investment channels, he put money into bitcoin in 2021. After a few attempts to buy the dip as values ​​fell, he had invested a total of about $3,000.

In early December, his investment was worth just $680, a drop of almost 80%.

Mr. Verbakel said the loss didn’t hurt that much because he had only invested the amount of money he was willing to part with. He now sees the experience as a valuable lesson as he begins to take a more active approach to investing for his retirement.

I will invest in other forms, certainly not this one, I think, he said. He plans not to invest in stocks and ETFs at this time, given the uncertainty in the global economy.

Even some optimistic crypto investors are getting ahead slightly. Zac Hartley, a 28-year-old Calgary man who manages his money full-time and makes TikTok videos about investing, started buying bitcoin in 2016 and made $15,000 in the recent bull run.

Mr. Hartley said cryptocurrencies only make up between 10 and 15% of his portfolio. While still optimistic about the future of digital assets, he said he wouldn’t allocate more than that. He only invests money he can afford to lose due 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 out of it, Hartley said.

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

In his view, the cryptocurrency crash was the result of inflated demand during the pandemic, when people were able to invest money because they didn’t have much else to spend it on. . He said he ended up selling 80% of his bitcoins and ethers around Christmas 2021, before prices crashed. He considers himself lucky.

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

Mr. Parubets always chooses to avoid cryptocurrencies. He said it could take many years to find out if certain digital assets are trending or if the whole system is.

He pointed out that Nortel, the classic case of a Canadian company whose value plummeted after its stock soared to incredible levels, did not die immediately after its collapse in 2002. It filed for bankruptcy in 2009, seven years after its action hit the ground running. Many investors also attempted to buy the dip with Nortel.

He went through a very long and protracted death, and there was always this hope that he would come back up, so the story didn’t necessarily go away, Mr Parubets said.

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