diff --git a/CHANGELOG.md b/CHANGELOG.md
index 1003e6bd0..fd6ba83dd 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -60,6 +60,7 @@ Ref: https://keepachangelog.com/en/1.0.0/
 ### Bug Fixes
 
 * (kvstore) [\#7415](https://github.com/cosmos/cosmos-sdk/pull/7415) Allow new stores to be registered during on-chain upgrades.
+* (client) [\#7699](https://github.com/cosmos/cosmos-sdk/pull/7699) Fix panic in context when setting invalid nodeURI. `WithNodeURI` does not set the `Client` in the context.
 
 
 ## [v0.40.0-rc0](https://github.com/cosmos/cosmos-sdk/releases/tag/v0.40.0-rc0) - 2020-10-13
diff --git a/client/cmd.go b/client/cmd.go
index 712a79274..8395fb49b 100644
--- a/client/cmd.go
+++ b/client/cmd.go
@@ -8,6 +8,7 @@ import (
 	"github.com/spf13/cobra"
 	"github.com/spf13/pflag"
 	"github.com/tendermint/tendermint/libs/cli"
+	rpchttp "github.com/tendermint/tendermint/rpc/client/http"
 
 	"github.com/cosmos/cosmos-sdk/client/flags"
 	sdk "github.com/cosmos/cosmos-sdk/types"
@@ -131,6 +132,13 @@ func ReadPersistentCommandFlags(clientCtx Context, flagSet *pflag.FlagSet) (Cont
 		rpcURI, _ := flagSet.GetString(flags.FlagNode)
 		if rpcURI != "" {
 			clientCtx = clientCtx.WithNodeURI(rpcURI)
+
+			client, err := rpchttp.New(rpcURI, "/websocket")
+			if err != nil {
+				return clientCtx, err
+			}
+
+			clientCtx = clientCtx.WithClient(client)
 		}
 	}
 
diff --git a/client/context.go b/client/context.go
index 96c909478..7afddcf43 100644
--- a/client/context.go
+++ b/client/context.go
@@ -10,7 +10,6 @@ import (
 	"github.com/gogo/protobuf/proto"
 	"github.com/pkg/errors"
 	rpcclient "github.com/tendermint/tendermint/rpc/client"
-	rpchttp "github.com/tendermint/tendermint/rpc/client/http"
 
 	"github.com/cosmos/cosmos-sdk/codec"
 	codectypes "github.com/cosmos/cosmos-sdk/codec/types"
@@ -95,12 +94,6 @@ func (ctx Context) WithOutputFormat(format string) Context {
 // WithNodeURI returns a copy of the context with an updated node URI.
 func (ctx Context) WithNodeURI(nodeURI string) Context {
 	ctx.NodeURI = nodeURI
-	client, err := rpchttp.New(nodeURI, "/websocket")
-	if err != nil {
-		panic(err)
-	}
-
-	ctx.Client = client
 	return ctx
 }