With rising inflation, a cooling housing market and gold no longer the safe-haven it once was, clients are seeking new safe-havens. Despite the current dip, is crypto the answer?

Between rising inflation, the global energy crisis exacerbated by Russia’s invasion of Ukraine, and now growing murmurs of a looming recession in the U.S, clients are eager to diversify their portfolios and seek out a safe-haven for their investments. 

Traditionally, Australia’s thriving housing market has been a safe bet for clients, but with a recent analysis showing house prices could plunge up to 30% over the next four years, an increasing level of risk is creeping into this market, too. 

Even gold – widely considered the most air-tight investment during market turmoil – is becoming a less effective hedge against moves in equities and inflation, according to investment management giant BlackRock. 

Navigating clients to opportunity in times of crisis is intrinsic to your role as a financial adviser, and so it pays to know where those opportunities are. 

 

A changing landscape

Since 2009, crypto has offered clients a new and, one might argue, more accessible, medium of exchange. Cognisant that gold is no longer the ‘TINA’ (there is no alternative) safe-haven asset it once was, high-net-worth clients have flocked to crypto in extraordinary numbers (in November 2021, the crypto market was worth a staggering $2.9 trillion).

However, in the space of just seven months to June 2022, the crypto market has shed more than $1 trillion in value. According to crypto tracking site CoinGecko, this downturn has led the prices of 72 of the top 100 tokens to tumble by more than 90% from their all-time highs. 

Still, this isn’t the first big dip the crypto market has experienced, and there is every sign that digital currency is here to stay.

 

Key considerations for advisers

  • Buckle up: Clients must be made aware that crypto remains speculative and volatile, and that sudden changes in market sentiment can cause major fluctuations in this asset’s value. As such, it’s incumbent on advisers to encourage clients to do thorough research and develop a strong sense of how the digital currency world works before they invest.
  • It’s a jungle out there: While crypto is unregulated, making it free from the constraints of government oversight and influence, the exchanges that host these digital currencies can be susceptible to hacking, glitches and human error.
  • Spoilt for choice: As of 2022, there are 19,000 cryptocurrencies in existence. However, more than 1,700 have been discontinued and become ‘dead coins’. As Gavin Brown, Senior Lecturer of Finance at Manchester Metropolitan University points out: “Cryptocurrency developers have traditionally spent too little time designing the business-use case for their coins and tokens, then only realising after launch that their idea is yesterday’s news.” 
  • Benefits and opportunities: Aside from investing directly in crypto, clients can buy the stocks of companies with exposure to cryptocurrency – a less lucrative but generally safer investment. As crypto becomes more important to the organisations driving the modern economy, it’s entirely possible this medium of exchange could remain a safe haven for some time yet.

 

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