Crypto-millionaires: these new fortunes must accompany

By Laurent Ovion, Innovation Director at DLPK

In France alone, they would be a few tens of thousands to show a legacy in cryptocurrencies of more than a million euros. They are students, fathers, engineers or employees. These investors, men or women, non-professionals all share a certain taste for risk-taking and a pronounced interest in new technologies as well as a strong resistance to stress.

A very volatile market
And when it comes to crypto, this last quality even proves to be a crucial advantage given the extreme volatility of these assets. It is this volatility that enabled them to generate capital gains of 100, 200 and up to more than 1000 times their initial investment. But in this universe, the irregular development of cryptocurrencies can cause investors to see huge capital losses.
Since its peak in November 2021, the flagship currency, Bitcoin, has lost two-thirds of its capitalization, falling from $ 68,000 to $ 22,000 in mid-June. It is even the entire cryptocurrency ecosystem that, after a prosperous post-covid era, went from a valuation of more than $ 3,000 billion to less than $ 1,000 billion in 6 months. The permanent and strong development of this asset class can cause investors to make bad decisions under the influence of emotions.

Investors who are less sensitive to volatility and more experienced have been able to take positions in cryptocurrencies at the right time and maintain them despite market sentiments. These crypto investors are now multi-millionaires.

The economic context, which is characterized by a return of inflation, a slowdown in growth and the decline in the values ​​of US technology that pulls cryptos in the wake, creates uncertainty about the future development of crypto assets. The recent fall of the Luna Protocol and its algorithmic stablecoin UST was supposed to ensure parity with the dollar destroyed in just 4 days nearly $ 60 billion. The crypto community experienced this event as a real earthquake. Therefore, these digital millionaires need to secure and diversify their wealth but also take advantage of it.

Support crypto-millionaires
A crypto wallet does not yet allow you to pay for daily purchases or make real estate investments. Because unlike traditional financial investments, cryptocurrencies are currently only usable in the cryptocurrency universe with few exceptions. Tesla, for example, once offered its US customers the option to pay for their car in Bitcoins. To take advantage of their wealth, Millionaires 2.0 must convert their cryptocurrencies into fiat currency. However, this operation triggers the obligation to state the realized capital gains and ultimately the payment of the tax. It will also be necessary to trace the origin of the funds and guarantee their authenticity.

In most situations, investors are subject to the flat tax. The ambiguity surrounding the legislation on the taxation of cryptocurrencies, the lack of tax knowledge of crypto investors and the value of their capital require the advice of an expert. Only a tax lawyer has the ability to respond to the specific circumstances of each file while ensuring total confidentiality.

At the same time, most banks show reluctance and fear for the origins of crypto-millionaires’ fortunes. Banks have an obligation to ensure traceability of capital in order to meet KYC requirements in the fight against money laundering and terrorist financing. A recent Reuters survey implicating the Binance platform on possible money laundering operations during 2021 calls for increased transparency.

The tax lawyer and the asset management adviser must, in consultation with their client, prove the origin of the funds through tools and processes that the banks do not always have available.

Diversify and secure their wealth
The wealth management consultant turns out to be the most important interlocutor in this situation, he is increasingly encouraged by these new kinds of millionaires who are often at a loss when faced with tax and inheritance issues. These fortunes, whether made quickly or the result of a well-thought-out long-term investment, require the expertise of all of this profession. The analysis of the client’s needs and projects will give the asset management consultant the opportunity to define the best allocation to, on the one hand, diversify his wealth on more traditional investments, but also to secure and develop it according to the risk profile and investment horizon. Financial investments do not guarantee capital with the exception of Eurofunds in life insurance, but their volatility is lower compared to cryptocurrencies, while offering a high long-term performance potential.

Building a portfolio with a diversified allocation in different asset classes remains the best solution to protect and develop the assets of these new millionaires. The conversion of part of the wealth into euros also makes it possible to bring a little more comfort to one’s everyday life, especially by investing in real estate and rental properties.

Should they then lose interest in cryptocurrencies? No, cryptomillionaires are often convinced of the potential for further growth in their investment. Cryptos have become an asset class, certainly risky, but which tends to normalize with the arrival of institutional investors. While volatility has been declining in recent months, industry experts agree on one point: the crypto universe will continue to evolve, and new projects with high multiples must be imagined or discovered. Wealth management advisors can support investors in their new investment decisions in this universe that is not done surprising us.

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