Published in: Institutional Money

Cryptocurrencies have seen a price rally in recent weeks. Performance with Bitcoin & Co. was significantly better than on the stock market, for example. “Many institutional investors have decided that now is the time for re-entry”, says Daniel Knoblach, Board Member at Fair Alpha. “The key is to reduce operational risks.”

Institutional investors are often subject to high requirements in relation to the transparency of their investments. “While simply buying and holding cryptocurrencies in a portfolio involves risks that may not be too high, they frequently turn out to be incalculable”, Knoblach points out. “And we’re not merely talking about price risks.” The bankruptcy of trading platforms such as FTX is one of the visible risks but the use of custodians and all steps along the settlement and reporting chain may equally be impacted by collapses.

“It is these operational risks that have long been a hurdle to major investments in cryptos”, Knoblach says. “But now an ecosystem has been established that allows for a highly regulated set-up, thus lowering operational risks to levels seen in traditional trading strategies.” For example, a Swiss crypto manager is currently issuing a crypto AMC as a Luxembourg compartment. “The custodian is regulated by the German Federal Financial Supervisory Authority, the Switzerland-based investment manager is subject to the high Swiss requirements, and the Luxembourg compartments – issued in accordance with the Luxembourg Securitisation Act – make it possible to implement all of this in securities that may be held in custody”, Knoblach highlights.

The risk from settlement and the associated partners has therefore reached the levels of traditional trading strategies such as with stocks. “We are also seeing this by receiving commitments and enquiries for the new crypto AMC from all over Europe and from Switzerland now”, Knoblach adds, “even from institutions that have been very reluctant to date.”

Timing for an entry seems favourable, as crypto prices have risen significantly in recent weeks after an extended period of decline. “Many institutional investors consider this an indication that at least no further crash is imminent, and they are now building up or expanding their positions”, Knoblach concludes.