Advisors’ Crypto Concerns Return After Record $1.5B Heist

It was a crypto heist for the ages.

The Bybit breach last week became the largest crypto hack in history and reportedly netted a record $1.5 billion worth of ether for a cyberterrorist group in North Korea. Safe to say that rattled markets with the price of Bitcoin, which topped $105,000 at the end of January, cratering to just $85,000 a coin on Wednesday afternoon. It also dredged up familiar questions about suitability, just as financial advisors were warming to the idea of sinking client assets into crypto.

“Although Bybit has already replenished reserves, it brought negative attention to an asset class that is already viewed by many as risky,” said Roxanna Islam, VettaFi’s head of sector and industry research. 

Bye-Bye, Bybit

The most pressing concern for advisors is often legal liability. Some are concerned that by recommending crypto to clients, they may be leaving themselves open to potential lawsuits should the worst (say, a billion-plus-dollar heist) become a reality. “Crypto is a nascent asset class that is not only highly speculative, but also has a vague regulatory framework and has been commonly associated with fraud,” Islam told The Advisor Upside. 

Advisors are also struggling to gain access to those investments on behalf of their clients. While some brokerages opened up options last year, only about 35% of advisors said they are able to purchase crypto in client accounts in 2024, according to a January Bitwise survey. Researchers also found:

• About half of advisors cited regulatory uncertainty as the top obstacle to crypto investing last year.
• Just 1 in 5 advisors say they now use crypto in client accounts, up from 11% in 2023. 
• Still, a staggering 96% of advisors said they received questions about crypto from clients in 2024.

Can I Regulate You? The good news is that a more favorable regime at the Securities and Exchange Commission — one that works to help build legal and regulatory frameworks — is on the horizon. You can’t blame advisors for not viewing crypto as a legitimate investment if both industry brokerages and government agencies have deemed them “unsafe,” Islam said. 

For advisors that are allocating into crypto, explaining the asset class to clients thoroughly is necessary so they’re well aware of what they’re buying. “Make sure that clients understand the unique risks associated with Bitcoin,” Islam said. “While I don’t believe the Bybit hack will have long-term effects on crypto adoption, it doesn’t help advisors, or investors, who are already on the fence.”