Institutional investors are using funds to reduce risk of custody or money laundering, says Jan Brzezek, founder of Crypto Finance AG.
Cryptocurrencies are not known for their stability as an investment, yet growing numbers of institutional investors are diversifying their portfolios with digital assets, according to a survey by Fidelity Investments.
The survey found 47% of institutional investors saw cryptocurrencies as suitable to add to their investment portfolios, and the same percentage of respondents appreciated the innovation behind the digital assets.
Institutional investors are using funds to invest in cryptocurrency and “get exposure without [risk], as it is a cash settlement so you don’t have any custody risk, nor do you have any [money laundering risk with] tainted coins. These are issues you have all the time otherwise,” said Jan Brzezek, founder and CEO of Crypto Finance AG.
Crypto Finance is a crypto asset management, brokerage and storage platform that aims to mitigate the risk involved in investing in various cryptocurrencies. Despite the volatility of cryptocurrencies such as bitcoin, a growing number of investors are experimenting with them as an asset class.
Earlier this month, the New York State Department of Financial Services granted a license to Fidelity Digital Assets, a cryptocurrency branch of Boston-based Fidelity Investments.
Tom Jessop, President of Fidelity Digital Assets, told Reuters that demand for digital currencies has been changing, and that they are “Seeing strong demand and greater diversity of client types … there are more traditional investors. When we started it was crypto funds and hedge funds.”
Nonetheless, Bitcoin prices have recently dropped nearly 50% in value from their highest point in 2019, and is trading at around USD$7,000, according to CoinDesk.
One reason why investors may be seeking out cryptocurrencies is global economic instability affecting traditional assets amid an ongoing trade war between China and the U.S. Moreover, 46% of respondents to Fidelity’s survey said that they found digital assets’ low correlation to other assets as a positive factor.
Hong Kong may become a testing ground for the use of digital assets as a financial instrument as the city’s Securities and Futures Commission (SFC) recently announced a new regulatory framework for virtual asset trading platforms.
SFC CEO Ashley Alder said at Hong Kong FinTech Week that the new rules will cover aspects of financial security including custody, know-your-customer requirements, anti money laundering rules and market manipulation.
A lack of regulation for cryptocurrency in numerous countries has been one aspect hindering wider adoption from traditional investors, and observers will watch to see how the legitimacy of obtaining an SFC license will affect the industry.
Other financial organizations experimenting with cryptocurrency include the owner of the New York Stock Exchange, Intercontinental Exchange Inc., and CME Group Inc.
Forkast.News Senior Editor Sam Reynolds spoke with Brzezek on the sidelines of Hong Kong FinTech Week to find out how traditional investors are starting to adopt cryptocurrencies.Read more