Eric Ervin, CEO
December 7, 2022
I started my career in finance more than 25 years ago, well before Bitcoin or digital assets were on anyone’s radar. I’ve always rallied around the idea that technology can broaden access to wealth creation. In 2012, I started Reality Shares, an ETF company focused on delivering alternative investment products for individual investors. In 2016, I became fascinated by the potential for blockchain and decentralized finance (DeFi) to reinvent the way we imagined money and transactions. Shortly after, I started Onramp, a company that would become locked on the vision of eliminating barriers to economic opportunity through digital asset education, access, and empowerment.
After the recent turbulence of FTX’s collapse, on the heels of other industry missteps, I’m often asked if this might be the death knell for the cryptocurrency industry. It makes sense that people feel discouraged, especially when significant market turbulence and a prolonged ‘crypto winter’ has caused billions of asset losses to the 1 in 5 Americans invested in crypto. But I continue to be highly optimistic about the future of digital assets for two key reasons:
One, the recent calamities of FTX, Three Arrows Capital, and others were not a failure of DeFi technology or the currencies they’ve created. They were caused by human greed, over-leveraging, and judgment errors—not unlike what created huge losses for companies like Theranos, Lehman Brothers, and Enron. In 2008, when mortgage-backed securities failed, owning a home did not lose its fundamental value and purpose. The same can be said for digital assets following FTX.
Two, ironically, FTX’s failure proved the value and strength of DeFi technology and infrastructure, not its weakness. DeFi promises to eliminate the need for “middlemen” exchanges, banks, escrow agents, or lawyers for our investments, contracts, purchases, etc. With no middle entity, there’s no other person involved with the power to mismanage our assets and cause such failures. It’s like Satoshi Nakomoto said in the Bitcoin White Paper, this evolves us away from “the inherent weaknesses of the trust-based model” with “an electronic payment system based on cryptographic proof instead of trust,” Unfortunately, the digital asset arena is still nascent, and exchanges are necessary to scale transactions and maximize adoption.
Okay, so optimism aside: Where do we go from here? Do we sit on crypto assets and wait for the dust to settle on this? Do we add to our investments during this possibly opportune time like those who jumped into the market after events like Enron and the ‘08 crash? Or do we sell, take our losses, and revisit digital assets in the distant (1-year?) future? The answer is different for everyone based on your financial situation, risk tolerance, and goals. However, I do recommend these five steps before implementing your 2023 investment strategy, in crypto or otherwise:
Pause. The FTX events were traumatic for some, and while emotional investing is understandable, it can be detrimental. After an initial post-FTX drop, Bitcoin and other major currencies appear to have stabilized. They took a Mike Tyson-level punch and kept standing. There is no need for knee-jerk panic or sudden decisions to invest or divest.
Learn. More and more advisors are incredibly well-informed on digital asset investment and, through software platforms like Onramp, have the capabilities to manage crypto portfolios with the same insight and rigor with which they manage stocks and bonds. Over 80% of millennial investors would welcome professional guidance in digital assets if it were made available to them. With the appropriate knowledge, wealth advisors can ensure smart diversification and mitigate unnecessary risks and missteps clients may incur on their own. Onramp Academy offers a free library of educational resources for advisors, and Coindesk published a great roundup of certification programs, such as CDAA and InterAxis. If you’re an investor looking for a new financial advisor, don’t be afraid to ask what crypto certification programs they’ve completed.
Talk. Your clients need to hear a voice of reason, and that’s you. Remind them that market upheavals happen and savvy investors adapt and adjust. If they haven’t already, recommend they utilize reputed, compliant exchanges. You can check out this great article on points to consider when choosing a crypto exchange. Or they can take advantage of the security and privacy of DeFi by opting for a cold wallet solution that isn’t exchange-dependent or vulnerable to online fraud. CNBC recently published a piece on this. Keep in mind, however, that a detached, physical wallet is susceptible to user error. If your clients lose codes or damage their respective wallets, they may be unable to recover those funds.
Manage – Professional guidance and usage of SMA, TAMP, and modeling options can be a powerful ally, especially in a hawkish or volatile market. These options are now available in the digital asset space via research-driven companies like Wisdom Tree or via ETFs such ProShares Bitcoin ETF(BITO). Onramp is soon rolling out its own complete SMA solution and Model Marketplace. Just like in the traditional finance world, it’s important to become familiar with these managed solutions to offer clients the best possible chance of success. And regardless of your current views on digital assets, setting up the proper “rails” for crypto to empower you to seamlessly guide your clients when they are ready to invest is vital. A best-in-class advisor platform for crypto should be easy to use, compatible with the tech stack you already use, and provide you access to multiple qualified custodians and modeling options.
Think Big – Decentralized Finance is so much bigger than just crypto, and use cases for digital assets are growing by the day. Think of cryptocurrencies as a foundational layer for much larger innovation—like the iPhone before apps. While Bitcoin is still by far the most well-known and dominant cryptocurrency in the market, evolving base layer blockchain networks and tokens are supporting significant developments in innovation like digital applications (dApps), smart contracts, identity management and privacy, mathematics, engineering, and more. Beyond the tokens themselves, many companies are making significant advancements in blockchain and DeFi. Recently, San Francisco’s Figure Technology announced that Appolo and Hamilton Lane will be using their Provenance Blockchain to bring greater efficiency to private markets investing. And there are a variety of ETFs to bet on digital infrastructures such as VanEck’s Digital Transformation ETF or Bitwise’s BITQ, which seek to capitalize on the growth of the blockchain and digital economy without exposure to actual coins or tokens.
All that is to say: We are on the edge of something great. There is no excuse for the mismanagement we’ve seen at the hands of recent exchange CEOs, but these mistakes will bring forth more regulation, more structure, and more ways for investors to move forward into the financial future with security and confidence. The market is emerging from this stronger and smarter. Without these moments of failure, we may not know enough to support the exciting future digital assets can provide. We’re building something bigger than a stock or a share—we’re building tomorrow.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed do not express the views or opinions of Blockforce Capital or Onramp Invest.