Lessons from Beijing’s toothless crypto ban

It’s not often you see financial advisers in the U.S. strenuously agreeing with capital markets decisions from the Chinese Communist Party.

Like Halley’s Comet, this is an event that seldom comes around, and you want to drink in all the various points of view when it happens. Financial adviser crypto skeptics were crowing over the Beijing crypto ban, announced last week.

The immediate chatter underscored the desire among many financial advisers who are out of their comfort zone with this new asset class: the hope that Beijing’s action would be the first nail in the global cryptocurrency coffin.

No more crypto, no more worries.

But alas for the industry’s Henny Penny types, the sky is not falling for digital assets. After some initial buffeting last week, the value of crypto assets proved resilient, pronouncements from Beijing notwithstanding.

FOCUS ON PRACTICALITIES

For crypto skeptic advisers, the fact that Beijing’s moves proved to be a tempest in a teapot should be a wake-up call: Crypto as an asset class is here to stay. Instead of hoping crypto will somehow be regulated away — something that definitely is not going to happen — financial advisers should start adopting the same approaches to crypto as they would with any complex investment solution that clients increasingly want.

Over the years, mutual funds, ETFs, turnkey asset management programs and separately managed accounts have proven to be immeasurably helpful to advisers in aligning their clients with a variety of asset classes, without requiring the adviser to become an expert in every security held within these vehicles.

The crypto asset management space is developing very much along these same lines, and advisers who ignore this reality are doing their clients — and their businesses — a disservice.

After all, does it best serve clients for their financial advisers to spend hours upon hours building proprietary equity and fixed-income portfolios, and then constantly analyze every security within these portfolios? Or is it better to use customizable SMA portfolios so the adviser can maximize time on broader planning and strategic needs for clients?

Much the same thought process should be applied to crypto assets as well, in terms of exploring both SMA and TAMP structures that can align the financial adviser with digital asset management solutions that don’t require the adviser to be in the weeds all the time.

CAN'T GET OUT

Of course, there continues to be chatter as to whether it will take more time for the negative impact of Beijing’s crypto ban to fully impact the asset class.

Any such chatter ignores the fact that Beijing’s crypto ban was the inevitable outgrowth of the country’s authoritarian politics, and therefore not of any value in predicting the future of crypto asset management in the rest of the world, including America.

The Beijing crypto ban should come as little surprise to anybody who has followed the Chinese government’s general approach to the emerging asset.

Cryptocurrency exchanges were already officially banned in the country since 2019. And Beijing has repeatedly demonstrated paranoia about the need for state sector-controlled currencies while actively managing down any risks of capital flight from China.

Moreover, the People’s Bank of China is continuing to push full steam ahead with its own state-backed digital currency. Someday, this could potentially become China’s currency for international trade and just maybe its secret weapon against the global dominance of the U.S. dollar.

In short, the political and economic system of China makes it highly doubtful that any truly decentralized finance asset would ever have been allowed to flourish there. Beijing’s crypto ban simply doesn’t mean that much.

FUTURE OF CRYPTO

Now, let’s get serious about the future of crypto for the rest of the world: Does anybody in the financial adviser community actually believe that the governments of advanced and industrialized democracies intend to follow in China’s footsteps? 

Or that Beijing’s attempts to whisk the global crypto tide back with a broom will work over the long run?

Since last week, Bitcoin holders globally have provided technical support to price levels, and Chinese citizens never represented a large block of crypto asset holders in any event. Indeed, China’s decision to shut out its population from crypto brings to mind Beijing’s bans against Alphabet Inc., Facebook Inc. and Twitter Inc. In hindsight, Beijing’s policies hardly dented those companies’ prospects, and investors went on to enjoy windfall gains.

Meanwhile, in the U.S., more practical approaches hold sway. Rather than an outright ban on digital asset transactions, SEC Chair Gary Gensler has suggested that he wants crypto to succeed — and that the asset class is more likely to do so under clearer regulations that safeguard investors.

Simply put, the fact that our own regulators are taking notice of crypto — unlike what happened in Beijing — is not a threat to the existence of digital assets.

Rather, it is the clearest validation yet of crypto’s rising relevance to a broad range of investors and the professionals who serve them.

As such, financial advisers who embrace SMA and other portfolio management solutions with crypto assets will find themselves ahead of the digital assets curve, while die-hard crypto-skeptic advisers will find themselves in a tougher spot than ever.

Dan Eyre is chief executive of Blockchange Inc., a leader in digital asset investing for wealth managers and asset managers.