Assets Under Management AUM

Investors move closer to cryptocurrency and digital asset melee

Historically, institutions have kept their distance from digital assets for a variety of reasons, including lack of custody capacity and issues of liquidity and volatility.

“Institutional investors understand that this is a more speculative investment,” said Christopher Levell, partner at consultant NEPC LLC In Boston. “It’s relatively easy to argue that bitcoin could be $ 1 million or zero. It has a ton of convexity.”

TOBAM, a Paris-based asset manager with $ 10.2 billion in assets under management, launched a bitcoin fund in 2017. Yves Choueifaty, president and chief investment officer of TOBAM, said bitcoin, the largest digital currency, can be a precarious investment in itself, but the risk of an asset should determine the size of the investment, not the investment case itself. He compared bitcoin to chlorine: as a “combat gas, it’s very dangerous, but if you put a drop of chlorine in the water, it’s drinkable.” If an investor puts 1% bitcoin in a 60% / 40% wallet, its volatility will not be felt, he said.

Akbar Thobhani, CEO and co-founder of San Francisco-based lead cryptocurrency broker-broker SFOX Inc., which provides its clients with cryptocurrency trading and custody options, said the learning curve for institutional investors was abrupt. “When you invest in traditional markets, the infrastructure is there, the rules and regulations are in place, and when it comes to crypto it’s like a whole new world,” he said.

While in years past, institutions were content to ask questions to try and understand what digital assets were, more and more people are now interested in learning the best ways to incorporate these assets into their portfolios, sources say. . “If you are a fiduciary, you cannot ignore the fact that the best performing asset of the last decade has been bitcoin,” said Matthew Le Merle, managing partner of Blockchain Coinvestors, a blockchain fund of funds based in San Francisco. “You might argue that this is not sustainable or inherently inappropriate, but at the end of the day your goal is to try and in a disciplined way to both protect and manage the assets you have under management and to make them. grow.”

As the digital asset market continues to mature, the barriers that prevent institutions from getting involved have dissipated, Mr. Jessop said, including past liquidity issues. “I think it’s a self-fulfilling prophecy, more investors entering the space attracts more liquidity, which increases the size of the liquidity pool, which attracts more traditional investors, and it has all been very. healthy, ”he said.

Earlier this month, the cryptocurrency’s market cap surpassed $ 2 trillion for the first time, according to the CoinGecko market monitor.

Perception of digital assets improved in 2020, with 58% of U.S. investors expressing a neutral or positive perception, up from 43% in 2019, according to a Fidelity Digital Assets survey released in June.

And sources expect that perception to continue to heat up after recent developments in space.

The price of bitcoin has jumped over $ 63,000, up from around $ 8,000 last April, and digital currency exchange Coinbase Global Inc. successfully IPO on April 14, with a market valuation of $ 86 billion. Additionally, Tesla Inc. announced in a February Securities and Exchange Commission filing that it had purchased $ 1.5 billion worth of bitcoin.

Also in February, Bank of New York Mellon Corp. announced the creation of a digital assets unit and is developing a multi-asset digital custody and administration platform for traditional and digital assets.

And Goldman Sachs Group Inc. is relaunching its cryptocurrency trading desk, Matthew McDermott, global head of digital assets for Goldman Sachs’ global markets division, said in a company podcast in March.

“There is a virtuous cycle here where these issues resolve themselves due to market demand,” Mr. Jessop said.

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