Advisors expect more crypto problems after FTX meltdown

Most financial advisors see the recent FTX implosion of a sign of more problems to come in the crypto world, and many are hesitant to recommend cryptocurrencies to clients.

Seventy percent of 250 U.S. advisors surveyed in February by CoreData Research said that they expect more cryptocurrency-related failures this year. More than a quarter of them (26%) also said there will likely be a collapse in 2023 that is even more impactful than FTX’s.

Further, 69% report that the exchange’s failure has led to less interest in crypto among their clients. Seventy percent also said they're not making recommendations around crypto as a result of regulatory scrutiny, according to CoreData.

Those findings come as bitcoin in particular is having a good year, with the price of a single unit up 83% year to date. However, at roughly $30,000 per bitcoin, the current price is nonetheless down considerably from its peak in 2021 of around $65,000.

“The first few months of 2023 aptly illustrate the rollercoaster-like volatility of crypto and serve as a timely reminder that investing in the sector represents a high-risk bet,” CoreData principal Andrew Inwood said in the firm’s announcement of its findings.

But another recent report from Bitwise and VettaFi found a slightly warmer outlook among U.S. advisors for crypto. Those firms, which surveyed nearly 500 advisors between November and January, found that about 60% of advisors have positive expectations about price increases for cryptocurrencies over a five-year time horizon.

While 37% of advisors said they include crypto in their personal portfolios, down from 47% a year prior, just 15% make crypto allocations on behalf of their clients, compared with 16% in 2021.

Conversely, the recent survey from CoreData shows only 4% of advisors making crypto allocations for their clients.

For 2023, 10% of respondents to the CoreData survey said they think cryptocurrencies will outperform the S&P 500, and 37% expect the 2021 bitcoin bull market to be a one-off event. Nearly one in five (18%) indicated that crypto will be more alluring when interest rates go down.

However, 26% also said they don’t understand cryptocurrencies.

The top risk they see for crypto investing is fraud, which was cited by 31%.