A significant portion of today’s cryptocurrency investors have already felt the sting of steep losses. According to a recent survey of financial advisors, roughly half of clients with crypto exposure have experienced meaningful declines in their holdings. Until recently, those losses rarely led to tense discussions, largely because most advisors had not actively recommended digital assets.
That dynamic is now shifting.
Major financial institutions are beginning to formally integrate cryptocurrencies into client portfolios. Bank of America recently announced that starting in January, Merrill and Private Bank clients will be encouraged to allocate a small portion of their investments—up to 4%—to crypto. Similar steps have already been taken by JPMorgan, Morgan Stanley, Charles Schwab, and Fidelity. Even Vanguard, long known for its cautious approach, has opened its platform to cryptocurrency mutual funds and exchange-traded funds.
While crypto advocates see this as validation, a critical question remains: how should investors respond when the next crypto downturn hits?
Why financial advisors are warming to crypto
For years, many advisors avoided cryptocurrencies, citing regulatory uncertainty and extreme volatility. According to Rob Burgess, a reporter for Financial Planning, shifting political and regulatory signals are changing that stance. A more crypto-friendly environment in Washington, combined with leadership roles focused on digital assets, has increased confidence across the industry.
Another major turning point was the regulatory approval of bitcoin and ethereum ETFs roughly 18 months ago. That move, Burgess notes, gave cryptocurrencies a level of legitimacy that made advisors more comfortable offering limited exposure to clients.
Preparing for extreme crypto volatility
History shows that crypto markets are no strangers to severe downturns. Since bitcoin’s launch in 2009, there have been multiple prolonged sell-offs, often referred to as “crypto winters.” Morningstar data highlights three major declines: a 75% drop between 2013 and 2015, an 83% fall during the 2018 crash, and a 73% decline from late 2021 to late 2022.
Despite these collapses, long-term performance has drawn renewed interest. Bitcoin traded for just hundreds of dollars less than a decade ago and reached six-figure levels earlier this year. However, a sharp pullback toward the end of November erased much of the year’s gains, underscoring how quickly sentiment can shift.
Analysts note that psychological price levels—such as $100,000 per bitcoin—can trigger fear-driven selling when breached. Still, unlike traditional assets, cryptocurrencies lack intrinsic value metrics, making it difficult to identify a clear price floor.
What experts recommend for crypto investors
Most investment firms continue to advise restraint. Morningstar does not issue formal ratings on cryptocurrencies and generally supports only small allocations for investors who fully understand the risks. Portfolio strategists emphasize that bitcoin, while volatile, is still considered less risky than many smaller digital assets.
Experts consistently describe crypto investing as speculative. Investors should expect dramatic price swings and be emotionally prepared for drawdowns of 50% or more. The prevailing guidance is not to overreact to short-term losses, but to size positions conservatively and commit only capital that can withstand prolonged volatility.
For those who choose to invest, patience is essential. In crypto markets, the ability to endure sharp downturns—and remain invested despite uncertainty—often matters more than trying to time the next rally.
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