Some cryptocurrency interest among tech-savvy, but many HNW investors staying away

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The shine is off cryptocurrency as it continues its volatile ride that started last fall, with Bitcoin – the most well-known cryptocurrency – sitting at about US$20,000, a drop of almost 70 per cent from its US$68,000 value last November.

While those who manage wealth for high-net-worth clients are seeing some movement in the crypto space, it is from the more tech-savvy clients, who are few and far between, as established family offices are still looking at this asset as something to avoid.

Victor Godinho, managing partner and wealth advisor at Kismet Wealth Group, advises several high-net worth individuals as part of his practice and says there is definitely some interest in cryptocurrency among a specific group of his clients: mainly the younger or more tech-savvy.

But he adds that there isn’t anyone who is allocating “more than 5 per cent of their total wealth in crypto.”

For those who are interested, Godinho and his team have specific advice when it comes to dipping their toe into the volatile cryptocurrency world.

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“What we advise our clients is the allocation should be an amount of money you’re willing to lose, and if you lose, you lose,” he says. “It also has to be money you also don’t want to touch for as long as you can possibly hold it and think about it as a wealth creator for another generation and not yours.”

Godinho has some clients who have actually made their wealth in cryptocurrency and they are the ones who are taking larger risks within the space. This includes NFTs, which stand for non-fungible tokens, which have also experienced significant volatility in the past year. For example, an NFT of Twitter founder Jack Dorsey’s first-ever tweet was sold last year to crypto entrepreneur Sina Estavi for US$2.9 million. Earlier this year, Estani listed it for US$48 million, but interest was so low, it was thought it could sell for less than US$7000 and swung as low as US$30.

But these kinds of investors are not in anything for the long term and are definitely not passive investors. They are active investors who are tied into this world and have a deep understanding where the value in these intangible assets comes from.

For instance, one of Godinho’s clients bought several VeeFriends, an NFT collection created by social media entrepreneur Gary Vaynerchuck (known as Gary Vee), “and made 25 times his money on it as he was able to flip them prior to the crash,” says Godinho.

“But, in theory, he believes, once again, through his research, that the VeeFriends, because they’re tied to certain events and things that Gary Vee does, and Gary Vee is a popular person in the culture, that it has a value that he can keep it for a longer term and keep growing it,” he says.

Family offices and cryptocurrency

Statistics regarding family office involvement in cryptocurrencies and other digital assets may give the impression that this group has an impressive level of involvement in the space, but some experts working with family offices say this isn’t what they’re seeing.

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A particularly attention-grabbing report was a survey published last year by BNY Mellon Wealth Management that reported 77 per cent of family offices have some level of interest in digital assets.

“But that’s not really what we’re seeing at all,” says Paul Westall, co-founder of Agreus Group, a consultancy firm that deals in resourcing and recruitment for family offices around the world.

“We’re placing analysts into family offices around the world, in Canada, in America, in Europe, and obviously that’s a good driver to see what sort of people they need and what sort of assets they invest in and it’s very, very, very rare that we ever get asked to find someone that understands crypto from the investment perspective.”

He says that family offices, just by their nature, wouldn’t be jumping at the chance to get into the digital asset space as, “the common trend is that they are about wealth preservation for the next generation. … And that means diversifying assets across a range of assets, and usually in ones that are less risky.”

While Westall says there are exceptions to every rule, and he has seen some exceptions in the case of family office interest in cryptocurrency, “from what we’ve seen, if it’s more than 1 per cent of their investment allocation, I would be surprised.”

He agrees that there are family offices that have made their wealth in digital currency and “then made their family office off the backs of that,” but once they have established themselves as a family office they look to diversify into the more traditional investments, maintaining that driver of wealth preservation.

Westall adds that this move to dilute equity in a particular holding and diversify investments would be the same for any family office that made its money in a specific area, like healthcare or apparel.

“Because if something happens to that one asset, that’s where they could lose all of their wealth.”