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Cryptocurrency has been the focus of the news recently with the collapse of FTX and billions lost for investors. Government agencies in the U.S. and across the pond are calling for more regulation, as well as oversight committees.
Ryan Firth, who established Mercer Street, a financial planning and investment advisory firm based in Houston in a phone interview with the Houston Daily, gave his take on the industry, its risks and the future of crypto.
Mercer Street was founded with the belief that "there's an under-served market out there looking for sound, objective advice from a qualified professional who isn't looking to sell a financial product or will only work with folks based on how much money they have to invest," according to its website. Firth is passionate about blockchain technology such as cryptocurrencies and has been closely following the space since 2015, which has allowed him to accumulate a wealth of knowledge to share with the public.
"I've got prospective clients and clients who come to me usually with crypto holdings, and so we work...figuring [it] out," Firth said. "They usually are just looking for advice on how they should manage the crypto, what they should be doing. Usually, they have a high-risk tolerance and understand kind of what they're getting into. But I have others who have no idea what they're what they've gotten themselves into. And so, helping educate them early on--the benefits, the pros and cons of owning the volatile asset class like crypto," Firth said.
When asked how the collapse of FTX has impacted the industry as a whole, Firth said for the people he works with he has not seen "any immediate impact."
He did point out that before FTX's collapse there was a chain of events with Three Arrows Capita, Terra Luna, and Genesis.
"It all kind of started with Terra Luna, when the market was really hot and then people go burned by that," Firth said.
While many investors lost billions in the FTX collapse, Firth said he had nobody who came to him and said they had exposure there.
When asked what he sees as the fallout as a result of FTX and what he anticipates on the horizon for crypto, Firth said, "I think that we've seen individuals who use exchanges or just in general, the industry is trying to shine a light into, how do these exchanges operate. And so, for the individual consumer who is a crypto holder, they are thinking more about, okay, I've got my crypto on this exchange, maybe, I should self-custody. So maybe I should take the crypto, take the private keys, move it from one mall address to another, or to a wallet address where I control the the crypto keys and to take it offline basically in cold storage."
Firth said he thinks those who are technologically savvy and know the nuances, "that's probably what they're doing. For others, it's thinking about diversification, I guess, of who the exchange providers are. So, if they've got something on one exchange, maybe they move some of it to another exchange. So, there's some of that going on, I think."
When asked if he thinks legislators are going to step in and regulate crypto, Firth said, "Yeah. I mean, there's been a lot of talk of that." He said he does not have a lot of insight into what is occurring in D.C. but from his perspective as an investment advisor and financial planner, he thinks it could occur.
'But yes, I know from what I've read and seen in the news, there are those who feel like this. This industry needs to be more closely regulated. And right now it just kind of falls off the cracks." He added that he thinks regulation would be "welcome" and the industry "would welcome that.
As for Binance, he said he is not sure how transparent it has been.
"They were doing the proof of reserves, but that's just one side of the balance sheet. I don't know what their liability side looks like. I know that they've pulled back on their operations in the U.S.," Firth said. "So, I don't know how transparent they've been. They're kind of similar to an FTX where they've got, this downturn and they [are] out there promoting these companies and promoting crypto." He said while he guesses "they're still solvent," he thinks "there are still a lot of questions as to how much."
He questioned how does one know if it's a stable exchange. "I don't have many clients that I know of who have any crypto holdings on Binance, but I would be, I think, a little bit cautious about that now."
In the next year, he said he believes Binance is "going to pull out more in the U.S." He added that regulators have tried to crack down on their operations in the past. He said he does not think "they're in the good graces of the regulators here in the U.S." and they were fined for not doing KYC--Know Your Customer and money laundering.
But Binance indicates it is focused on stability and sustainability within the cryptocurrency sector. According to a pinned post on the Binance blog that outlines the "Principles" of Canadian founder and CEO CZ, he values being fair and ethical, avoiding relationships with unethical people, taking responsibility for both successes and failures, learning constantly, and prioritizing user experience. CZ wrote, "Never cross ethical boundaries. It always comes back and bites you. In dealing with users, always do the right thing, not the easiest thing."
In the wake of crypto exchange FTX's bankruptcy filing in November, Blockworks published a report titled "Thanks, Binance: Crypto Liquidity Shows Signs of Recovery," which cited a recent study by Kaiko which found that out of the 5 largest crypto exchanges, Binance's market depth, a measure of liquidity, was performing the best by a significant margin. Binance maintained a weekly trading volume of more than $80 billion, which analysts attributed to its drastic fee reductions.
When asked how outsiders should view the crypto space, he said, "it's the same advice I give anyone. Just don't put more in than you're willing to lose."
In a world where Cryptocurrency and Non-fungible Tokens (NFTs) are making headway across the financial board, Mercer Street Financial believes that the two should be considered as an additional alternative investment opportunity and offers the options to its clients, according to the firm's website.
"We've got to understand that this is a very risky asset class, not just from the volatility aspect, but now from depending on where you hold your crypto," Firth said. "...there are a lot of a lot of things to consider there."
"You know, you can lose everything you invest. I think a sort of rule of thumb is not to invest more than 5% of your investable assets in something so, as not to be too concentrated in any one asset. And so, I think that kind of holds with crypto. If it makes it easy to see the ups and downs of the price, then, maybe keep that on the lower end of 1% of investable assets...just be very cautious," Firth said.
According to Firth, crypto is "kind of Wild West right now...it is maturing, but it's very slow to mature it feels like...again, there's not a whole lot of regulatory oversight...it's still developing, so, yeah, [there's] definitely a lot growing pains, and I think that'll continue."
"You'd hope it that it would grow up and move to a point where there's less of this reputational risk and collapses that we've seen," Firth said.
Binance is not well-positioned in the U.S., according to Firth.
"But that's just my gut feeling, just based on what I've seen and how they've run afoul of the regulators in the past and they seem like they're pulling back their operations here in the U.S. But that's an outsider's perspective. So, again, I'm not intimately familiar with what's going on in Binance," Firth said.
It remains to be seen if crypto will be more regulated in the future.
Following the collapse of FTX, financial industry leaders have called for increased regulations in the crypto sector to protect investors, Reuters reported. Laura Cha, chairman of Hong Kong Exchanges and Clearing, said at the Reuters NEXT Conference, which took place in late November and early December, “The collapse of something as major as FTX just illustrates the importance of transparency, importance of appropriate regulatory protection, regulatory requirements for all financial activities.” Lynn Martin, president of the New York Stock Exchange, said that more transparency and clear rules in the crypto industry would help institutional investors embrace crypto. She said at the conference, "There was no regulatory framework, and an institutional investor is not going to really dip their toe in a meaningful way in a market unless they understand what the regulatory framework is.”