Expert: Bruce Keith, CEO of Bridgeweave Facilitator: Stephen Wall, Co-founder and Head of Marketplace and Content at The Wealth Mosaic
Overview:
The digital asset space, while still evolving, offers increased accessibility, liquidity, and investment opportunities, which include cryptocurrencies such as Bitcoin, Ethereum, Litecoin, digital tokens, digital securities, digital currencies issued by central banks (CBDCs), and other digital representations of value, all of which rely on Blockchain technology or other decentralised systems for their creation, ownership, and transfer.
While this empowers investors with greater access to investment opportunities, enhancing their ability to make informed decisions, manage risks, and achieve their financial goals.
Discussion:
Key to the digital assets space is understanding its component parts, how they work together, and for what purpose. Only then can an informed decision be made about how, why, and whether this is relevant to the wealth management space.
Nowhere is this more important than with cryptocurrencies. Much maligned, the key thing to remember is that crypto is a part of something bigger that includes Blockchain.
“If you can accept that a public Blockchain is better than a private because everyone can use it, then the next logical step is that you need a cryptocurrency as the oil that keeps the system going. But you can’t talk about Blockchain and crypto without discussing Web 3, which is much more about being tokenised for the individual. So, you start owning data and thinking about how to monetise it – which links back to the Blockchain and crypto.”
Moving all that one step along, the question is more about crypto’s value proposition and whether there is a business use case. Following that, as a wealth manager, a decision on whether this is an investment proposition, or not, can be taken. This is a very different conversation from those that say everyone needs to invest in crypto as it is the next big thing, only for it to see catastrophic drops.
A second sticking point is that the industry’s infrastructure is not yet at the point where people are comfortable with it. Thus, there is hesitancy around this whole area.
Hesitancy is not the same thing as interest, however. Participants noted healthy levels of interest from younger clients in particular; whether that translates into actual investment in the future remains to be seen.
“There is definitely a younger crowd who are interested. But at the moment, everyone seems to be listening and learning, and not actively engaged in anything.”
Another hindrance is the regulatory environment and a lack of coherence. It was thought that, as a rule, regulators are trying to approach crypto like anything else, albeit in a piecemeal fashion. But the US, in particular, is seen to be clamping down on crypto, and that is partially because crypto is decentralised and thus owned by many people, not one single organisation.
Indeed, this means that the regulator will need to impose rules and guidelines on the businesses that deal with crypto, as opposed to crypto itself.
Going forward, participants thought that having a big institutional name behind crypto would help. One talked about a crypto ETF:
“I think a big thing would be an established ETF in this country, a BlackRock type ETF coming in. We could then start slipping that into our discretionary portfolios as and when clients requested or asked us to look into it.”
But it is not mainstream yet, so if an adviser wants to go and find how to get money on or off the Blockchain into someone’s bank account, that is a bit of a mission.
As for tokenised assets, the participants thought that this becoming mainstream was far from even being a concept that is widely understood.
This is something that has been worked on in places, notably the Swiss Digital Exchange (SDX). One said that the tokenisation of things like artworks could be an obvious revenue opportunity for wealth managers and asset managers of different formats.
All participants agreed that the crypto industry is at the early stages of investment and that, at this point in time, the investment case is more akin to a gold rush. In the infrastructure sense, however, the case is clearer and easier to understand as the oil can move assets around on a Blockchain.
“Everything is a confidence game at the end of the day. Where are equity markets going to be this time in 12 months? Nobody actually knows, but with crypto, there is the additional fear that the bottom might drop out of it at any given moment.”
And the one thing that the wealth manager wants to avoid is a massive drop; indeed, their job is to preserve wealth. Thus, unless that client is in the Ultra-High-Net-Worth (UHNW) category and able to invest over the long term, then crypto is going to be deemed too risky at this point.
Key takeaways:
- Key to the digital assets space is understanding its component parts, how they work together, and for what purpose
- The massive (85%) drop in crypto’s value recently makes it a hard sell as part of a diversified portfolio
- Because crypto is owned by the community rather than an institution, the regulator will need to impose rules and guidelines on the businesses that deal with crypto, instead of crypto itself
- Participants thought that tokenised assets were far from being a concept that is widely understood
- The industry is at the early stages of crypto as an investment. And at this point in time the investment case is more akin to a gold rush
