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The Lede: How could the crypto crash affect private wealth?

In July’s edition of The Lede, Adam Gale takes a look at the recent crypto crash, and how the private wealth sector could be affected. Many in the sector have become involved with crypto in the past few years, with companies such as JP Morgan offering clients access to crypto funds. Clients should tread carefully in the space and make sure they fully understand it first.

Crypto trading on a laptop

This article is an extract from Transmission Private’s monthly newsletter, The Lede, which tracks the world of reputation management for private clients. You can sign up for the newsletter on our website via the tab at the bottom of this article or by completing the form here.

With all the recent hot weather, the idea of a ‘crypto winter’ sounds almost refreshing - so long as you don’t actually hold any cryptocurrencies. After a precipitous rise in 2021, which saw the price of Bitcoin increase 700% in 12 months, the whole thing seems to have collapsed in equally spectacular style. According to CoinMarketCap, digital assets globally have lost $2 trillion worth of value since their peak last year, with the Terra ‘stablecoin’ notably spiralling from $18 billion to utterly worthless over one week in May.

Why is this happening? That depends on who you ask. For ‘maxis’, crypto’s true believers, it’s a combination of geopolitical circumstances – tightening monetary policy, a Chinese crackdown and the Ukraine war – and newbie investors getting cold feet. For sceptics, it’s a Ponzi scheme that’s collapsed under its own weight.

How does this affect private clients? Crypto has long since ceased to be the preserve of hacker collectives and Silicon Valley libertarians. Its expansion has been startling, creating a whole new fintech ecosystem and entering the mainstream. JP Morgan for example started offering wealth management clients access to crypto funds last year. So as wealthy families have sought out higher returns in a low yield era, some of the more adventurous among them will have dabbled in crypto too.

What will happen next? That’s the $64,000 (or, as of writing, the 2.72 Bitcoin) question. Maxis say cryptocurrencies are inherently superior to fiat money and integral to the next era of the digital economy, and will therefore inevitably win out in the end. They also point to Bitcoin’s spectacular bounceback after losing 80% of its value in 2017-18, and to persistent interest from retail investors.

Not everyone shares that view I presume? No. Sceptics – again – say crypto’s rise was based on mania rather than inherent value, and that it is destructive to both financial stability and the environment. They see the crypto crash, and the news that regulators around the world are seeking to impose rules limiting its excesses, as the beginning of the end.

So what should I do? We’re not wealth managers. For what it’s worth, there is a reputational dimension that suggests caution. It was easy for figures like Matt Damon and Floyd Mayweather to lend their names to crypto when it was going up, but it’s not a good look for your credibility as an investor when the coin you boasted about sinking half your assets into no longer exists. If you want to be known as someone who understands the space, make sure you actually understand it first.

Takeaway... What goes up must come down, though maybe it will go back up again. Tread carefully and do your homework first.

Transmission Private publishes a monthly newsletter that tracks the future of reputation management for private clients.

Sign up to The Lede

Transmission Private publishes a monthly newsletter that tracks the future of reputation management for private clients.