Cryptocurrency has become the elephant in the room for many financial markets. There are those that have embraced its potential long-term opportunities, while others have remained sceptical or critical.
But is there a universal view on the case for crypto? Here, an array of Citywire’s international editors share their views on what has unfolded in their respective markets, how their readers are responding and what common threads can be found.
Patricia Valle, Editor, Citywire Brasil
Here in Brazil, we have some funds and some ETFs that invest directly into crypto markets. There are five crypto ETFs, and one of them ended up as the third biggest fund by flows for ETFs in Brazil last year. Hashdex, the asset manager behind the fund, has grown a lot in Brazil and partnered with American asset manager Victory Capital to launch the first ETF of a basket of cryptos in the US. They are waiting SEC approval.
Ashley Lowe, Editor, Citywire Canada
Canadian asset management firms are taking advantage of increased client demand for crypto and the regulators’ open-minded stance on digital assets. Ontario’s watchdog became the first in the world to approve the launch of a bitcoin ETF through Purpose Investments, and several other industry heavyweights have followed suit.
Most recently, CI launched its third crypto ETF, and shortly after took a minority stake in a digital asset trading platform. That firm, along with Mackenzie, Fidelity, and Evolve, have all been making moves into cryptocurrency.
This trend is somewhat unexpected for Canada, especially considering the volatility of cryptocurrencies. The Canadian market is known to be conservative, and often described as a decade behind the US when it comes to regulatory approval and financial sector innovation. However, those launching funds say these crypto products are filling the gap for investors who are interested in adding digital assets to their portfolio, but hesitant to venture into that world without professional guidance.
Patrick Cairns, Editor, Citywire South Africa
In South Africa, many advisers are facing a conundrum over crypto. Some compliance officers have advised that since these assets are unregulated, discussing them with clients at all could be a breach of regulations. Weary of finding themselves in a compliance nightmare, these advisers are avoiding talking about crypto at all, even when the clients bring it up themselves.
The risk in this approach is obvious. Whether advisers are involved in the decision or not, people are buying crypto. They may be withdrawing significant amounts of capital from traditional savings vehicles to do so. They may even be putting significant portions of their wealth into these assets.
Advisers should be the people moderating this behaviour. But if they won’t talk about crypto at all, their clients are making unguided, and unguarded decisions. It’s a no-win situation for advisers: do they protect their professional standing, without which they can help nobody? Or do they protect their clients and risk the compliance fall-out? Until the regulator provides more clarity, it’s a messy, fraught decision.
Camilla Giannoni, Editor, Citywire Switzerland
Home to the ‘Crypto Valley’ of Zug, Switzerland is seeing a rise in crypto-related activities. The number of companies specialising in blockchain increased from 919 in mid-2020 to 960 in February 2021, according to PwC in Switzerland and Liechtenstein.
Regulation is keeping pace with the industry’s growth. In 2019, the Swiss Financial Market Supervisory Authority (Finma), licensed two crypto banks: Seba in Zug and Sygnum in Zurich. In 2021 it approved its first Swiss crypto fund, the Crypto Market Index fund, for qualified investors.
Independent asset managers are also increasingly interested in this industry. In 2021, Belvoir Capital launched a DeFi income strategy, and VZ VermögensZentrum announced a partnership with Sygnum to offer the bank’s digital asset services to its clients.
But it is not just wealth managers who are drawn to crypto, some cantonal banks are too. At the end of 2021, head of markets at Banque Cantonale du Jura, Aurélien Michaud, said: ‘At the end of last year we started to have a small pocket of allocation to cryptocurrencies, which is roughly 1.5% in clients’ portfolios. We think it is a good way of optimising the risk/return profile of the portfolio.’
Europe (fund buyers)
Chris Sloley, Editor, Citywire Selector
The pan-European view is mixed. German fund buyer Thomas Romig previously likened bitcoin as being no more scientific than betting on professional football, while Finland-based Toni Iioven raised concerns about both the ethics and security around the concept of cryptocurrency.
But, still they come. Many firms are testing the water with crypto products, while others are looking at crypto infrastructure or just semi-related areas, such as companies operating in wider areas of fintech which are promoted as being linked to the crypto boom.
A private banking chief I spoke to said the question is becoming more common among both clients and his own advisers, but there is a sense it is a ‘new and shiny’ idea that could come unstuck. ‘With everyone and their mother looking into crypto, it is hard not to have a view but if you do have one, I would suggest being agnostic,’ he said.
Charles Walmsley, Editor, New Model Adviser
If you want an insight into the rise of crypto investing in the UK just turn on Match of the Day on a Saturday evening. Barely a minute goes by on the BBC’s weekly Premier League highlights show without some form of cryptocurrency being promoted on players’ shirts or advertising hoardings around stadiums.
Check out any football star’s social media accounts and there is a good chance you will find links to non-fungible tokens (NFTs). Even those who do not follow the national game will see adverts promising great returns and commission free trades on public transport.
It is no wonder, then, that financial advisers are seeing more demand for crypto investments from clients. Plenty have told Citywire New Model Adviser that more and more clients want to put their money into things like bitcoin and bored apes. Few are happy to recommend such volatile investments though.
‘Cryptocurrency is hard to ignore as an asset class, but we’re going to have to because we’re not authorised to advise about it,’ Karen Barwick, an adviser based in Newcastle, recently told us. ‘We do have clients who hold it alongside their portfolios, but it frightens me to death, to be honest.’
The FCA has also started to clamp down on promotions. Tougher rules are due to come into place soon that will ban new joiner bonuses that are designed to attract new customers, and impose much tougher requirements on risk warnings in these investments.
Whether this will be enough to stem the tide of interest remains to be seen. Premier League clubs will soon be looking for new income streams as the government considers banning adverts from gambling companies. Some have suggested that cryptocurrency will seamlessly fill that gap, perhaps appropriately given the speculative nature of the asset.
Selin Bucak, alternatives correspondent
Turkey is going through one of its worst economic periods in recent history, with its currency swinging wildly and inflation reaching new heights, exacerbated by the president’s unusual economic policies, which include blaming high interest rates for rising inflation.
Inflation was reported to be nearly 50% by state sources, but according to the independent Inflation Research Group (ENAG), it is already north of 114%.
There has been a significant loss of confidence in the government’s ability to manage the country’s economy and the consistent volatility of the lira – the worst performing currency in the emerging markets in 2021 – has pushed many to keep their savings in international currencies, gold or even cryptocurrencies – which are viewed as less volatile than the lira.
According to a report from Chainalysis, Turkey had by far the highest transaction volume in the region at $132.4bn between July 2020 and June 2021.
One exchange, Paribu, where Turks can use their bank accounts to buy and sell crypto in Turkish lira, has grown its user base from 1.5m to 5m over the 12 months in 2021, with average daily trading volume reaching $500m by the end of the year.
In addition to Paribu, BTCTurk is a popular exchange, while Binance and Coinbase also have operations in the country. But the rising interest in crypto has brought with it government scrutiny as well as potentially fraudulent behaviour.
Last year two crypto exchanges collapsed, Vebitcoin and Thodex. The former’s chief executive was detained, while the founder of Thodex fled the country with some saying the users’ losses could be as high as $2bn.
The Turkish Central Bank banned the use of crypto currencies as a form of payment from 30 April 2021. It is legal to hold the asset, but a law proposal to regulate exchanges has been submitted to the parliament.
Tabea Schulz, Editor, Citywire Deutschland
There is the optimistic pro crypto side and the absolute pessimistic one – it feels like there are just very few people in between who don’t know what to think of it. It seems like an emotional topic, too.
You don’t get the German deliberate yes or no. It is mostly a ‘crypto is the future’ or ‘crypto is nonsense’. Some of the negative arguments are around the mistrust of the technical side and the idea that crypto might not meet ESG regulations.
‘It is just a temporary trend,’ is a regular refrain. Our poll on crypto being the new gold got a lot of responses but ended 50% yes and 50% no. In addition, it seems like a fight between generations, as many younger investors or managers think positively about crypto, while older ones are more negative.
Maddalena Liccione, Editor, Citywire Espana
In Spain, the interest shown by investors is increasingly growing. According to a study by eToro and EFPA Spain, Spanish investors in crypto assets have risen from 9% to 33% in one year. A survey by WisdomTree showed that nine out of 10 Spanish financial advisers have spoken to clients about investing in cryptocurrencies.
However, the complexity of cryptocurrencies and the lack of regulation surrounding this type of investment have led supervisors to issue severe warnings about investment by non-professional investors. The CNMV and the Bank of Spain have warned of the ‘extreme volatility, complexity and lack of transparency’ of cryptocurrencies.
A few days ago, the CNMV published the first European circular regulating the advertising of cryptocurrencies. There is a hedge fund with Spanish capital, Protein Capital, registered in Luxembourg, which invests in crypto and it is only for professional investors.
UK (wealth managers)
Dylan Lobo, Editor, Citywire Wealth Manager
Bitcoin? Thanks, but no chance. You would have to hunt far and wide to find a UK wealth manager (who admits) to being a bitcoin bull. Yet they are not exactly ignoring it; they all have a view. Their kids and their clients’ kids all seem to be talking about it, so it requires some articulation and whatever understanding they can muster to rationalise the ills of crypto, especially as the next generation works its way through the client pecking order.
A survey held at a Citywire Wealth Manager event in London last autumn offered a good sense of what the professional community thinks. One in five delegates admitted to being at least crypto curious and would consider buying a regulated product based on real or synthetic exposure. Around 10% said they still need convincing, but the overwhelming majority said there as ‘no chance’ they’d be investing in crypto anytime soon.
The minority who may have considered investing in crypto last autumn may have been dissuaded by the regulatory clampdown seen this year, which included banning misleading promotion, wherein lies the major issue.
The market remains largely unregulated to the level required for significant allocation by investment managers. The risk of investing in something that is going to be hit hard with a regulatory hammer in the future creates the prospect of major reputational damage.
Once the regulatory picture clears, this may change, but with the FCA itself grappling with how to police this wild market, we expect that picture to remain murky for the foreseeable future. A wealth manager I was speaking to recently is perhaps a good barometer of the wider sentiment right now. ‘The likes of bitcoin and ethereum is a currency for criminals. These are also geared plays on liquidity. I think that bitcoin goes to zero at some point,’ he said.
Jeremy Gordon, Editor, Funds Insider
Among retail investors in the UK, crypto remains the preserve of millennials and Gen Z but the sheer level of interest makes it hard to dismiss. A recent Boring Money survey found 12% of those under 45 own crypto assets, double a year ago.
There is some interest in long-term shifts for money and payments, but the clear draw remains the massive price spikes for bitcoin et al, first in late 2017 and then during the pandemic. Anecdotally, many people aged 30 and under know of someone who’s made a comical amount of money from crypto (perhaps enough for a deposit on a house). Whether they’ve actually held onto that is another matter…
For most, these ‘investments’ are just dabbling, but I can’t see that popular upswing just ebbing away short of a total clampdown by regulators. Obviously, giant financial institutions are also muscling in, with all the accompanying analyst chatter about correlation to other assets and so forth. For me, that misses some of the point. When my stepmother is also asking if she should buy bitcoin, something else is going on.
Freelance reporter in Uruguay writing for Citywire Americas
LatAm high-net-worth individuals are showing interest and some are investing in crypto assets through funds, or in companies dedicated to trading crypto assets as a way of having exposure, but still in much lower percentages: between 2% and 3% of the portfolio.
They are using it as an alternative to traditional markets. Some clients are asking for crypto, but it is not yet a big thing and most firms aren’t actively offering it to clients. Generally, those clients who want exposure to crypto assets want it because they previously invested on their own in bitcoin or ethereum. They believe that as the SEC approves more futures or ETFs, appetite for this type of investment may start to build.