Should Cryptoassets Feature in Your Wealth Plan? A Balanced Look for Personal and Professional Planners

Cryptocurrencies are headline-grabbing, high-risk, and highly debated. From Bitcoin to Ethereum, cryptoassets have sparked curiosity and controversy alike. If you’re a personal or professional financial planner wondering whether these digital assets deserve a place in your wealth strategy, this article aims to provide clarity.

Let’s unpack the current state of the crypto market, weigh the risks and potential returns, and highlight the considerations you’ll need to keep front of mind before diving into this volatile space.

The Current State of the Crypto Market

Cryptoassets are no longer niche. Today, millions globally hold some form of digital currency. In the UK alone, the Financial Conduct Authority (FCA) has observed a steady rise in crypto adoption, underscoring the need for regulatory oversight. While some see crypto as an exciting innovation and a hedge against traditional finance, others highlight its unpredictability and susceptibility to speculation.

The FCA is taking steps to regulate the sector, with a consultation paper out now and final rules expected to take effect in 2026. These rules aim to protect consumers, reduce fraud, and create a cleaner, more transparent market—all vital in addressing the current risks associated with cryptoassets.

Risks and Returns: High Stakes, Uncertain Rewards

High Risk, High Reward? Crypto’s appeal often lies in its potential for significant returns. Stories of investors turning modest sums into life-changing gains make for compelling headlines. Yet for every success story, there are countless tales of loss. Crypto prices are notoriously volatile, with values capable of swinging wildly in hours or even minutes.

Regulatory Uncertainty Until the FCA’s new rules take effect, crypto remains largely unregulated in the UK. This lack of safeguards leaves consumers exposed to risks like fraud, scams, and misleading marketing practices. For planners, this uncertainty makes incorporating crypto into wealth plans a cautious endeavour at best.

Zero-Sum Game Dynamics The crypto market operates much like a zero-sum game: gains for some are often losses for others. Unlike stocks or property, crypto doesn’t produce income or grow intrinsic value; its worth is driven by market sentiment and speculation. This dynamic highlights why careful consideration is vital.

The Influence of Social Media: A Double-Edged Sword

Social media amplifies the allure of crypto with tales of overnight riches. However, these platforms are often echo chambers for hype. Rarely do you hear from the many who have lost money, their voices drowned out by the few who’ve profited—for now.

As planners, it’s essential to guide clients away from making decisions based on fear of missing out (FOMO) and instead focus on grounded, informed strategies.

Balancing Crypto in a Wealth Plan

Diversification is Key Crypto’s speculative nature makes it unsuitable as a core holding in any portfolio. If clients are interested, consider allocating a small percentage of their total wealth to crypto—an amount they can afford to lose without compromising their broader financial goals.

Education First Before incorporating crypto into any wealth plan, ensure clients understand the risks. Highlight the lack of consumer protections, the potential for significant losses, and the importance of staying vigilant against scams.

Stay Updated on Regulation The FCA’s ongoing consultation and future rules will reshape the crypto landscape in the UK. Planners should follow these developments closely to ensure compliance and align strategies with regulatory requirements.

The Path Forward: An FCA-Regulated Market

The FCA’s proposed rules aim to:

• Provide clear and consistent regulations for firms and consumers.
• Require fair and transparent disclosures.
• Reduce fraud and market abuse through better oversight.

The regulator has called on the industry to contribute expertise and shape these rules, emphasising the need for collective action to bring about safer, more sustainable crypto markets.

Final Thoughts: Should Crypto Have a Place in Your Wealth Plan?

Cryptoassets can be exciting, but they’re not for everyone. Their high-risk, speculative nature makes them more suitable for informed, risk-tolerant individuals who see crypto as a complement, not a cornerstone, of their wealth strategy.

For planners, the priority is to guide clients with transparency and caution. Emphasise education, diversification, and regulatory awareness to ensure that any crypto investments align with long-term goals.

With the FCA’s consultation open until March 2025, now is the time to engage with these critical discussions. Together, we can help shape a future where crypto investments are safer and better understood.

Q&A: Key Insights for Planners

Q: Is crypto a safe investment? A: Not entirely. Cryptoassets are highly speculative and volatile. While they may offer high rewards, they also come with significant risks, including the potential for total loss.

Q: Should I include crypto in my portfolio? A: Consider it only as a small part of a diversified portfolio, and only if you’re comfortable with high risks. It’s best to allocate what you can afford to lose.

Q: How do I help clients avoid scams? A: Encourage clients to research thoroughly, avoid making decisions based on social media hype, and ensure they understand the lack of regulation in the current market.

Q: What’s the FCA doing to protect consumers? A: The FCA is working on regulations to reduce fraud, promote fair trading practices, and ensure consumers have access to clear, reliable information.

Q: Why is crypto called a zero-sum game? A: Gains in crypto often come at the expense of others. There’s no intrinsic value creation; instead, value shifts between participants based on market sentiment.

Glossary of Terms

Cryptoassets: Digital or virtual assets that use cryptography for security and operate on blockchain technology. Examples include Bitcoin and Ethereum.

Blockchain: A decentralised ledger technology that records all transactions across a network of computers.

Volatility: The rate at which the price of an asset increases or decreases for a given set of returns. High volatility means higher risk.

FOMO (Fear of Missing Out): The anxiety that an exciting or profitable opportunity might be missed, often driving impulsive investment decisions.

FCA (Financial Conduct Authority): The UK’s regulatory body overseeing financial markets to ensure fairness and protect consumers.

Zero-Sum Game: A situation where one participant’s gain is equivalent to another’s loss, resulting in a net change of zero across the market.

Diversification: A risk management strategy that mixes a wide variety of investments within a portfolio to reduce exposure to any single asset.

Want to stay updated on the latest developments in crypto regulation? Follow the FCA’s progress and share your thoughts by participating in their consultation.