May 2021 | Cryptoassets are gaining in importance among institutional investors. We are not only talking about cryptocurrencies such as Bitcoin, but also tokenized assets such as security tokens. Their advantage: they correlate only slightly with classic investments such as shares and are therefore ideal for diversification alongside gold and commodities. Companies are now also turning to this asset class.
The news hit the press worldwide: In January 2021, Tesla had invested 1.15 million dollars in Bitcoin. Elon Musk had also announced that he wanted to offer Bitcoin as a means of payment in the future. The consequence: Within the next 14 days, the Bitcoin price rose by 20,000 US dollars. [Update 13.5.2021: The company has since backed away from the statement to offer Bitcoin for payment, as Musk announced on twitter].
As the Q1 quarterly report shows, which was released at the end of April, the investment has paid off: part of the stock (10 per cent) has already been sold again and has generated price gains of 101 million US dollars.
Cryptoassets as a investment strategy for companies
Tesla is not alone with this investment strategy, as a statistic from bitcointreasuries.org shows. The list includes more than 55 companies that together hold over 1.4 million bitcoin with a value of over 82.6 billion US dollars (as of 10 May 2021). Among them is also the software producer Microstrategy on a large scale. So crypto investments can certainly be an interesting corporate investment in some respects.
In his guest article in manager magazin, Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, however, explores the question of how sensible this is.
His conclusion:
In addition to cash, shares, bonds and gold, Bitcoin can certainly be held in reserve. But it should not be excessive – on the one hand due to the fact that reserves should also be available at short notice, which can be a risk given the high volatility of Bitcoin. But also because the true business model of a company can be called into question in this way. According to de la Rubia, many investors are likely to push for the surplus equity to either be used for the actual purpose of the company or to be distributed. He recommends such investments rather to appropriately oriented asset managers.
How do asset managers deal with cryptoassets?
Due to progressive regulation, large institutional investors can now also invest in the new asset class. Among them are asset managers, fund companies, banks, family offices, insurance companies and pension funds.
And they are doing so, as the report “Discovering Institutional Demand for Digital Assets in DACH Region” by Cointelegraph Research from 2020* shows. The survey incorporates the empirical data of 55 professional investors. The number may seem small at first, but their total assets under management amount to over €719 billion.
36 percent of these investors already have blockchain-based assets in their portfolio. These primarily include direct investments in cryptocurrencies such as Bitcoin (88 percent) and Ethereum (75 percent). Security tokens rank third with 31 percent.
Incidentally, these figures are in line with a survey by Greenwich Associates, which polled almost 800 investors in the USA and Europe in 2019/2020. Here, too, it was found that around a third are already invested in digital assets. There are definitely cultural differences: European investors showed a more progressive view of cryptoassets in the survey.
Chart: In which cryptoassets has your company already invested?
Source: Cointelegraph Research
Investments in funds or futures are also widespread. In total, more than six billion Euro in blockchain investments come together. That corresponds to about two percent of all digital assets.
But the remaining investors are by no means disinterested in digital assets. 39.3 of them are definitely planning a blockchain-based investment – 14 percent of them within the next twelve months.
Graph: Does your company plan to invest in digital assets?
Source: Cointelegraph Research
Security tokens are on the rise
The report also asks which digital assets the institutional investors are planning to invest in. Bitcoin is once again at the top of the list with 24 per cent. However, security tokens are on the same level, ahead of Ethereum and other cryptocurrencies. The reason could be the increasing regulation of security tokens.
Graphic: In which crypto assets are investments planned?
Source: Cointelegraph Research
The most actively involved are family offices and asset managers with assets under management of less than 100 million euros. Pension funds are the least involved. The report also provides a possible reason for this. They invest with a very long time horizon. This seems to be contradicted by the crypto world with “still short-term hypes, quick success stories, but also sudden loss stories”.
Graph: Share of segments of investors who have already invested or intend to invest in digital assets
Source: Cointelegraph Research
Banks’ interest in cryptoassets increases
One trend is clearly manifesting itself this year. Banks are recognizing the potential of digital assets. After all, since 2020 they have been allowed to enter the trading and custody of cryptocurrencies. Solarisbank in Berlin was one of the first banks to take advantage of this opportunity in Germany. Another 40 had applied for their interest in a custody licence with BaFin right at the beginning, including the Munich-based Bankhaus von der Heydt. The Hamburg bank M.M.Warburg & CO also attracted attention this year as an exclusive investor in the Security Token Offering (STO) of the residential construction group Vonovia.
The next piece of good news followed at the end of April. Deutsche Börse and Commerzbank AG are planning a marketplace for digital assets. FinTech 360X is on board. This is not about cryptocurrencies. Neither Deutsche Börse nor Commerzbank offer their customers direct access to Bitcoin & Co. Instead, explicitly tokenized assets are traded. BTC Echo quotes Deutsche Börse AG CEO Theodor Weimer:
“I am convinced that Deutsche Börse must venture into new asset classes. In the future, we will see a broad tokenization and digitisation of assets that are not tradable today.”
We share this conviction. And take it one step further: the measure will have a direct impact on Security Tokens, as liquidity will boost the German market for digital securities.
Would you like to learn more about Security Tokens?
Then get in touch with us. We look forward to discuss the development with you. Please write an e-mail or book an appointment.
* The survey was sent by email to all registered professional investors of BaFin (Germany), FMA (Austria), FINMA (Switzerland) and FMA (Liechtenstein) from June to September 2020. It contains the statements of 55 professional investors in German-speaking countries. Crypto funds were deliberately not included in the survey in order to estimate the demand for digital assets among traditional financial intermediaries.
