Turbulent crypto assets, what you need to invest wisely | CoinDesk JAPAN | Coin Desk Japan

We continue to make history of crypto assets (virtual currencies). Regulators have been aggressively pushing big moves in the crypto space lately. All in all, recent developments give the industry an opportunity to engage in meaningful dialogue with the U.S. Securities and Exchange Commission (SEC) about the future of crypto assets. Courts are a forum for public debate and may be what the industry needs to move forward.

In a sense, it can be said that the development is as expected. 2022 has been a rough year for crypto investors. Faced with the inevitable growth pains of early-stage innovation, the unscrupulous opportunists that inevitably appear in emerging industries, many have been affected by poor asset management and elite malfeasance.

How do you survive uncertain times?

In the bankruptcy court, the screams of investors who entrusted all their assets to one exchange echoed, and millions of dollars were lost in crypto assets that were supposed to produce high yields that were deposited in one failed exchange. It became clear that While the industry appears to be on a solid footing, the SEC may learn from FTX and become more cautious to avoid repeating itself.

But questions remain about how investors should navigate these turbulent times. The SEC lawsuits against Binance and Coinbase do not appear to dampen investor interest in cryptocurrencies. Instead, traffic to DeFi (decentralized finance) protocols that support staking and decentralized trading is booming.

Unlike past turmoil where centralized exchanges have struggled, the outflow from exchanges like Coinbase seems to have subsided quickly, suggesting investors may stay put. . In that case, the strategy of what to do in the future will be more important than ever.

While it’s important to keep an eye on the ever-changing regulatory landscape, there are ways to be more cautious.

“Held-Away” and the Importance of Crypto Apps

One of the key benefits of blockchain is the autonomy that investors gain. The freedom to trade anytime, anywhere is a powerful tool for the democratization of investment, and while there are tradeoffs that come with the responsibilities involved, overall it is a positive step towards financial equality.

Professionals, such as financial advisors and investors, are familiar with these responsibilities, and while it is possible to let such professionals manage your crypto assets with the right tools, it is not possible to completely let go of the new agency. (No one can completely let go of this subjectivity in the first place.)

As investors learned last year, a completely unrestricted, do-it-yourself mobile investment app made professional advice seem unnecessary, but a series of disappointing outbursts made it seem otherwise. became very clear.

That’s where the “held-away” comes in. While leaving custody to a third party, this new hybrid-style investment management practice leverages tools that make “held-away” investment accounts (by Coinbase or Gemini) visible to financial advisors. , to make it possible to obtain the information necessary for investment at any time.

Qualified Multicustodial Approach

Another big lesson learned from last year’s experience, and the failures of many exchanges, is the importance of decentralization. Stories abound of investors who put all of their college dollars into one project for yield and fell victim to inadequate lending services.

It’s important to invest wisely and reduce risk by diversifying your holdings and leveraging tools that allow you to spread your investments across a variety of trusted platforms.

In addition, it is also important to know how the custodian (custody service) manages and stores the assets. Eligible custodians leverage hot and cold wallet technology and offer a number of vetted and secure forms of custody. It is very important to understand the custody instruments used by your exchange.

Maintain a Diverse Portfolio

Modern portfolio theory also applies to crypto assets. Investors who experienced heavy losses were not only betting everything on a particular app, but they were also betting everything on a particular cryptocurrency. The potentially high-return assets offered by exchanges have led many investors to pour large sums of money into a single token, such as Terra’s Luna. As in the early days of technology, it’s easy for investors to get carried away by the hype and buy risky, inflated assets.

That’s why doing your own research is so important in a rapidly evolving industry. Leveraging indices and models from experts in the cryptocurrency industry can be extremely beneficial. That way, you can diversify your investments across different digital assets, guided by market research and analysts.

Moreover, investment diversification need not be limited to crypto assets. We use the term “digital assets” for a reason, and that is because there are other ways to involve blockchains besides cryptoassets for decentralization.

Tokenized Real Assets (RWA) such as Private Equity, Real Estate and Art have the power to provide investors with access to investment products previously available to a limited population, broadening their digital asset exposure. give.

get an accurate picture of the situation

As regulation evolves, so must investors. Legislation evolves slowly and SEC lawsuits may take years to resolve, but opportunities for genuine dialogue can lead to joint problem solving and, ultimately, industry clarity. be. Pay close attention to asset classifications and key certifications to ensure you invest in the most compliant and smart way possible.

Investors understand the benefits of digital assets, and 50 million people have already invested in crypto assets. If you use experts such as investment advisors wisely, they will provide their knowledge, education and experience when you need them. Experts with the ability to unleash the full power of crypto can help realize its original purpose of making the financial system accessible to all.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: How Financial Advisors Can Navigate Crypto’s Turbulent Waters