Crypto Millionaires: These New Fortunes to Guide

By Laurent Ovion, DLPK . Innovation Director

In France alone, they would be a few tens of thousands to show a crypto-currency heritage of more than a million euros. They are students, fathers, engineers or employees. These non-professional male or female investors all share a particular taste for risk-taking and a keen interest in new technologies, as well as a strong resistance to stress.

A very volatile market
And when it comes to crypto, this latter quality even turns out to be a decisive advantage, given the extreme volatility of these assets. It is this volatility that allowed them to generate capital gains reaching 100, 200 and up to over 1000 times their initial investment. But in this universe, the erratic evolution of cryptocurrencies can cause investors to see heavy capital losses.
Since its peak in November 2021, the flagship currency, Bitcoin, has lost two-thirds of its capitalization, from $68,000 to $22,000 in mid-June. In fact, it is the entire cryptocurrency ecosystem that, after a prosperous post-covid era, went from a valuation of over $3 trillion to less than $1 trillion in 6 months. The permanent and strong evolution of this asset class can lead investors to make wrong decisions under the influence of emotion.

Investors less sensitive to volatility and more experienced have been able to take and hold positions in crypto assets at the right time despite the vagaries of the markets. These crypto investors are now multimillionaires.

The economic context marked by a return of inflation, a slowdown in growth and the decline in the values ​​of US technology, which is dragging cryptos in its wake, is creating uncertainty about the future evolution of crypto assets. The recent fall of the Luna protocol and its algorithmic stablecoin UST should ensure parity with the destroyed dollar in just 4 days, nearly $60 billion. The crypto community has 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
With a crypto wallet, you can’t pay for everyday purchases or make real estate investments yet. Because, unlike traditional financial investments, crypto assets are currently only usable in the crypto universe, with few exceptions. For example, Tesla once offered its American customers the option to pay for their car in Bitcoins. To take advantage of their wealth, 2.0 millionaires need to convert their crypto assets into fiat currency. However, this operation entails the obligation to declare 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 cases, investors are subject to the flat tax. The ambiguity surrounding crypto-asset taxation legislation, crypto investors’ lack of tax knowledge and the value of their capital require expert advice. Only a tax lawyer can go into the details of each file while guaranteeing complete confidentiality.

At the same time, most banks are showing restraint and fear about the origins of the fate of crypto millionaires. Banks are required to ensure traceability of capital to comply with KYC requirements in the fight against money laundering and terrorist financing. A recent Reuters investigation implicating the Binance platform in possible money laundering operations in 2021 calls for greater transparency.

The tax lawyer and the asset advisor must, in consultation with their client, provide proof of the origin of the funds by means of tools and processes that banks do not always have available.

Diversify and secure their wealth
The asset manager turns out to be the most important discussion partner in this situation, he is increasingly asked by this new kind of millionaires who often have to deal with losses in tax and heritage issues. These fortunes, whether made quickly or the result of a long-term thoughtful investment, require all the expertise of this profession. The analysis of the client’s needs and projects will allow the wealth management advisor to determine the best allocation to diversify its assets on the one hand on more traditional investments, but also to secure and develop it in accordance with the risk profile and the investment horizon. Financial investments do not provide a capital guarantee, with the exception of Euro funds in life insurance, but their volatility is lower compared to cryptocurrencies, while offering high performance potential in the long run.

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

Should they lose interest in cryptos then? No, crypto millionaires are often convinced of the potential for further growth of their investment. Cryptos have become an asset class, certainly risky, but normalizing with the arrival of institutional investors. Although volatility has been on a downward trend in recent months, industry experts agree on one point: the crypto universe will continue to evolve and new projects with high multiples have yet to be conceived or discovered. Wealth management advisors can support investors in their new investment decisions in this universe that hasn’t surprised us yet.

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