The traditional investment world will benefit from blockchain technology. (Picture: Shutterstock.com (dencg)
Skeptics may have elicited a satisfied smile from the price slump of Bitcoin. You can congratulate yourself for correctly assessing the reviews, at least until now. “You are right that exuberance is dangerous. Throughout history, this has become clear all too often,” says Peter Harrison, CEO of Schroders. However, the emergence of cryptocurrencies and their unprecedented increase in popularity raises another question: is the investment industry running out of arguments for traditional investments? Is she missing something right now?
Untested, unregulated and highly volatile
According to an industry estimate, about 300 million people hold cryptocurrencies. In emerging markets, investors even often hold more cryptocurrencies than stocks. Accessibility is a decisive factor. “These dramatic figures reflect what we observe in everyday life – during conversations in pubs, on social media or in the back seats of taxis. Many people were inspired to bet on an untested, unregulated and highly volatile new asset,” Harrison said. For some, this had disastrous consequences, especially if they bought at the peak.
If cryptocurrencies and digital assets sell so well despite these obvious disadvantages, asset managers could learn a lot from this. Ironically, it is precisely the blockchain, the technology that underlies cryptocurrencies, that could provide the impetus for change in the traditional investment industry. In the coming decades, new types of tailored investment products could become more common than the mutual funds and open-ended investment companies that dominate today.
Blockchain technology will help to give investors access to more exciting, tangible assets. A new type of asset management company with a broad offering will make it easy to invest in the immediate area. For example, a shopping center could be divided up and sold in the form of shares to local investors, possibly to the same people who shop there. The ledger technology would capture the property and effectively form a trading platform.
“Buying and selling is simple and transparent, and the asset is tangible. Such investments could be added to a portfolio to ensure some diversification and achieve the best result for the investor,” Harrison believes.
Increased demand for disruptive technologies
The tangibility is an important factor, as it establishes the relationship to the underlying investments. This was evidenced by the popularity of crowdfunding and the demand for shares related to disruptive technologies. Investors want to know the story behind their investments and make sure that they match their own values. You want your portfolio to be tailored to you personally, says the CEO. The use of blockchain technology could contribute to this.
The traditional investment world will also benefit from blockchain technologies. The efficiency of back-office activities could change drastically. Transferring ownership of an asset by a simple click is preferable over the current 17-step trading process, according to Harrison.
Investors should benefit from this wave of democratization: assets that were previously absolutely inaccessible could be tokenized, easily accessible and affordable.
The digital wallet is rising
“In the not too distant future, investors will probably have more investments in their digital wallet than in funds. This could become a reality in my professional career,” says Harrison. In this democratized world, the need for asset managers who actively manage assets will increase. The diversity of new investment opportunities must be analysed in order to assess their potential and impact. Portfolios would have to become more balanced and structured in order to achieve the goals of their owners.
“The only question is whether the industry can tackle this challenge. Not every company is ready for this. Some will not go this way. Companies that already combine public and private markets on their platforms will be best positioned,” Harrison is convinced.
The decisive factor is a good relationship with companies that are already deeply immersed in the world of cryptocurrencies. The crypto industry is in a similar situation to the hedge fund industry 20 or 30 years ago. Although it is still unregulated, some platforms are trying to take advantage of the extreme volatility to get more predictable returns.
A lot of investors have bet on cryptocurrencies. Others chose to crowdfund companies they believe in. The industry can meet this need for personalization and a wide range of choices by relying on the blockchain and opening up opportunities to use new asset classes in portfolios. “If we fail in these endeavors, even more investors will succumb to the allure of tomorrow’s unorthodox and untested investments, whatever they may look like,” Harrison concludes.
This article was written by cash Investrends.ch made available.
Don’t miss any news on current topics from the fund and asset management industry. Investrends.ch provides you with the summary of the news twice a week in the newsletter and informs you about chair changes and important events. Subscribe here