Investing in crypto is often viewed as a high-risk, almost shady practise, but in truth it has never been more credible. SolutionsHub CEO Lee Hills looks at the evolution of crypto investing and the current climate in 2020…
The term “crypto investing” brings with it a large amount of stigma, particularly in the eyes of mainstream observers not au fait with the blockchain movement. More often than not, they deem any form of crypto investing as a scam, a fad that should not be touched with a barge pole.
By contrast, investing in the stock market is, more often than not, perceived as impressive and highly skilled.
In fairness, the stock market has been around a lot longer than crypto and crypto hasn’t done itself many favours with high-profile scandals including the hacking of exchanges and disreputable initial coin offerings (ICOs).
However, in 2020 crypto investing has never been more accessible and, if you go to the right places, it has never been more secure.
ICOs and beyond
ICOs were the first widely adopted vehicle for crypto investing and proved very popular. In 2017 966 ICOs were concluded, raising just over $10bn, while a year later 2,284 ICOs concluded, raising $11.4bn. But then the bubble burst. Regulators started taking an interest, deeming many tokensales illegal, indeed many were little more than scams, the community got spooked and investment dried up.
Next came Initial Exchange Offerings (IEOs). IEOs are somewhat similar to ICOs, except with the swap made on an exchange and the assurance of a market listing for said token.
And then we have Security Token Offerings (STOs). These are much more akin to an IPO than an ICO, as they often represent partial, or full shareholder rights. STOs are a natural evolution for a sector seeing the bottom fall out of tokens with commonly limited, or no, pegged value, but also with the steady influx of sophisticated and institutional investors engaging with blockchain startups.
Seeing the opportunity in blockchain technology, these investors are looking to support the right projects, but demand similar protections to those they are used to in traditional funding rounds.
In 2019 and 2020, we have seen some of the most reputable names in finance announce digital asset projects.
From Lloyd’s of London’s crypto insurance policy and Visa’s digital currency project to the People’s Bank of China’s Digital Currency, Electronic Payment (DCEP) initiative, any doubts that big financial institutions are taking crypto seriously have surely been demolished.
Any such move, where a world-renowned name from the world of traditional finance shows support for blockchain technology is welcome news for the crypto community, who have long banged the drum for the importance of digital currency. Of course, it is also good news for the world of crypto investment.
Ease of access
It has never been simpler to invest in crypto. While it’s true that some technical knowledge is required when buying some digital currencies, platforms such as eToro and major exchanges make buying tokens as straightforward as online banking. And why wouldn’t they? The simpler it is, the more customers they’ll attract.
Asset Management – new alternatives
Which brings us to security? While rarely a week goes by without another exchange hacking or some such scandal making headlines, in reality it has never been safer to invest in crypto.
Investors with a background of traditional finance are often deterred from the prospect of entering crypto markets due to concerns over security, volatility, or a general lack of understanding in the space.
One vehicle established to cater for this demographic is Block Asset Management.
Block Asset Management is the first Blockchain/Crypto focussed Alternative Investment Fund Manager (AIFM) registered with the regulator in Luxembourg (the CSSF).
Their diverse Fund of Fund has been designed to offer investors full access to the world’s fastest-growing asset class with the benefits of sound risk management and portfolio diversification to reduce volatility and risk
Kevin Ballard, Co-Founder and Head of Investor Relations at Block Asset Management, explains the company’s approach.
When we did our research in 2016/17 and started our journey into launching the world’s first digital assets focussed FoF (January 2018), we are aware that many investment professionals/qualified investors had the same concerns surrounding crypto investments:
- Fear of not quite understanding the asset class.
- Which is the right digital asset to invest in?
- Do the funds pass meaningful due diligence?
- Reputable counter parties such and administrator, custodian & auditor
- How can I achieve diversification within this new asset class?
- Fear of single and unknown manager risk
- Blockchain Strategies Fund was created to provide a solution to these problems. Block Asset Management acts as an institutional risk filter, selecting the most investable funds in the asset class and putting them into one diverse investment vehicle.
- Every year we are seeing great progress in the crypto space, with advancements in infrastructure and governance, regulation is coming country by country and this is most welcome.
Quite some time ago we saw Harvard and Yale endowments invest in crypto funds.
Then came the CME futures market, and big names such as Fidelity offering custody and clearing services. Coinbase has begun the process of going public, seeking to be listed on a US exchange.
Billionaire fund manager Paul Tudor Jones has put his weight behind Bitcoin, calling it “a great speculation” and advising clients that it is a hedge against inflation.
The world’s largest publicly traded business intelligence company MicroStrategy (Nasdaq: MSTR) has formally adopted Bitcoin as its primary reserve asset, confirming it had purchased 21,454 BTC for $250 million and finally PayPal and its subsidiary Venmo are following the likes of Square and reportedly gearing up to enable more than 300 million users to buy & sell digital assets directly from their platform.
All this points to the early stages of mass adoption. We are certainly a world away from the stigma that surrounded “crypto investing” just a few years ago, however, as with any new/emerging asset class with such intrinsic volatility, it remains high-risk.
There remains a lot of undesirable products and people in the space and due diligence and diversification is of utmost importance when looking to invest in this asset class.