Cryptocurrencies: Mining for digital gold
For many fund managers, investing in cryptocurrencies such as Bitcoin is still unchartered waters, but the asset class has recently seen a number of new developments.
Perceptions are changing over the role that these digital assets can play in portfolios, The Lens has learned.
A recent report suggested that pension funds, insurers and family offices will “dramatically” increase their allocations to cryptocurrencies over the next five years. Over 80% of institutional investors surveyed by crypto insurance firm Evertas said an improvement in regulatory infrastructure for the market is one reason behind this.
Whilst regulators are understandably cautious when it comes to cryptocurrencies – they are notoriously volatile – there are signs of progression.
In August, London-based firm Archax became the first digital securities exchange and custodian in the UK to be regulated by the Financial Conduct Authority.
One month earlier, Switzerland-based boutique Ficas launched what it claims is the first actively-managed cryptocurrency exchange-traded product.
And in December last year, Boston-headquartered Fidelity Investments launched an entity in Europe to serve institutions investing in digital assets, building on its existing US crypto business.
In a recent conversation, The Lens was told that crypto assets represent a wealth of untapped potential – a digital gold mine.
Bitcoin’s volatility becomes irrelevant when you look at how it has performed against traditional asset classes over time, according to one portfolio manager. The key, they said, is to embrace the volatility.
Crypto assets in the funds industry look set to become more mainstream. Advocates argue that they can be used as an alternative diversification tool in this environment of high stock valuations and low, or even negative, bond yields.
Whatever the future holds for cryptocurrencies in asset management, at The Lens we’re still kicking ourselves for not investing in Bitcoin at its inception.