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Winter Is Coming, but Cryptocurrency Isn’t Going Anywhere

In this special two-part episode of Big Picture in Practice, Julie Willoughby and Syl Flood discuss the impact of cryptocurrency and digital financial assets on advice. First, they interview Morningstar Research Services analyst Madeline Hume on the current cryptocurrency landscape. Next, they interview Hashim Mitha, CEO of MeetAmi, on the challenges and opportunities that cryptocurrency provides for advisors.

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In This Episode, You’ll Hear...

0:38 The Lay of the Digital Financial Assets Landscape

The cryptocurrency market peaked around November 2021, followed by a sustained drawdown. Russia’s invasion of Ukraine sapped investor confidence across the market and affected the crypto market in unique ways. Traditional players entered the cryptocurrency space as firms took stock of the retail interest in digital financial assets. In addition, the market experienced a crypto winter—a season where the market focuses on other topics, such as energy or inflation, leaving room in the cryptocurrency space for more technological innovation.

4:14 The Unique Risks of Cryptocurrency

Cryptocurrency’s financial infrastructure was built by technological entrepreneurs in a short time period, and it’s an exciting and innovative space. However, it isn’t backed by the robust infrastructure of the traditional financial markets, which can lead to vulnerabilities. For example, because crypto is still an immature space, academically substantiated valuation metrics aren’t available yet.

7:03 Cryptocurrency as a Portfolio Diversifier

While past performance is never an indicator of future results, crypto has been fairly diversifying for retail portfolios. Cryptocurrencies increasingly correlate with other high-risk assets like tech stocks. However, when there’s greater liquidity in the market, the performance of cryptocurrencies starts to diverge from that of equities, making them an interesting diversifier.

9:19 The Future of Cryptocurrency

Exciting technological innovation has emerged amid this crypto winter. One example is how Ethereum has significantly reduced the amount of energy it consumes when approving transactions to the ledger. This work was done by diverse programming communities who were able to come together in a decentralized way, and their success bodes well for the crypto ecosystem. Another exciting concept is the potential for a fundamental valuation for cryptocurrencies. As more research and frameworks around digital financial assets emerge, it’s possible to curb volatility in this space and increase its utility.

12:08 Regulation as a Hurdle for Crypto

The current regulatory environment has hampered most crypto native and financial investment product specialists and providers. However, many firms are encouraging greater presence of regulators and greater clarity in the digital assets space to foster innovation.

16:00 The Importance of Crypto Education for Advisors

One of Hashim’s goals is to educate advisors interested in cryptocurrency. As investors grow in their knowledge of NFTs, Bitcoin, and other cryptocurrencies, advisors need information that isn’t overly technical or biased. Hashim’s three key pillars to learning are to simplify, focus on storytelling, and provide content for a continuous learning journey. His perspective is that cryptocurrency is an ongoing, evolving asset class that advisors need to engage with so they can make appropriate decisions for their clients.

18:46 Introducing MeetAmi

MeetAmi offers AmiPro, a wealth management platform, and AmiLearn, a learning platform. For advisors to succeed in cryptocurrency, it is helpful to have a common glossary of terms, access to experts, and a record of learning to help compliance officers understand how educated their advisors are in this space.

21:01 Crypto Challenges and Wins for Advisors

According to Hashim, firms recognize that crypto is an asset class that isn’t going away. As a technology, digital assets are accelerating faster than the adoption of the internet, so firms are incentivized to engage and learn. Traditional finance is also starting to enter the crypto space, as firms like Morningstar offer education series and technologies around digital assets. Their presence will bring a sense of compliance, support, and client protection as the market matures.

23:30 Comparing Crypto in the United States vs. Canada

MeetAmi serves clients in both Canada and the U.S. While the Canadian market is incrementally more developed when it comes to crypto ETFs, regulations in Canada are much slower to evolve than those in the United States.

25:29 Engaging With Regulators

The need for education also applies to regulators, who are faced with the challenge of registrants applying to offer digital assets. Hashim’s perspective is that it’s important to apply existing traditional finance frameworks to the digital asset space.

27:35 From Crypto to Tokenization

According to Hashim, MeetAmi isn't just focused on cryptocurrencies. He sees Bitcoin as the starting point to the world of tokenization. He sees the future as being digital, and firmly believes that digital assets aren’t going away.

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