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Private banks on cryptocurrency: the future or uninvestable?

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Private banks hold a range of opinions on cryptocurrency, from those that think cryptocurrencies are the future, to those that dismiss them as uninvestable.

Take for example, Julius Baer. In July, the Swiss pure play announced the expansion of its crypto services to Dubai. The bank will apply for a “digital assets licence variation” to supplement its existing regulatory permission in the emirate. Julius Baer has provided digital asset services since the start of 2020.

Bhaskar Laxminarayan, Julius Baer

“[The] digital asset class is a key focus for us as a business overall. So as a bank strategy, we will continue to focus on rolling out, enhancing and building on what we have on digital assets. From overall, I think the space is going to see a lot of changes and a lot of development over the coming years,” Bhaskar Laxminarayan, CIO Asia of Julius Baer, shared with Asian Private Banker.

“We do believe there is an active place for this in the future. And digital assets will be a key part of any wealth manager, any asset manager’s future growth,” he added.

Back in 2021, DBS Private Bank launched Asia’s first bank-backed crypto trust service, which enables its clients to integrate cryptocurrencies into their wealth succession plans. Joseph Poon, head of DBS Private Bank, explained the move was to cater to clients’ increasing interest in digital assets and the bank expected cryptocurrencies to become more mainstream.

“Cryptocurrencies haven’t been sufficiently time tested to represent a new investable asset class” — Pictet

On the other end of the spectrum is Pictet. The Swiss pure play said in an April 2022 white paper: “The long-term sustainability of cryptocurrencies will depend on several factors such as their resilience to a changing monetary environment, to increased regulatory scrutiny and to the risks inherent in blockchain technology itself.”

“As an asset class, cryptocurrencies have appealing characteristics (low correlation with other assets, attractive risk/return profile). But we at Pictet take a long-term view of investing, and, as they stand, cryptocurrencies haven’t been sufficiently time tested to represent a new investable asset class,” Pictet pointed out.

Hong Kong’s push into digital assets

In November 2022, the Hong Kong government announced that the city intends to position itself as a world-leading hub for digital assets. John Lee, Hong Kong’s chief executive, described at an April event this year that the development of Web3 is at a “golden starting point.” In June, the government launched policies to allow retail trading of cryptocurrencies as soon as the second half of 2023.

King Leung, head of Fintech of InvestHK, the business development department of the Hong Kong government, said that the promotion of digital assets will transform the city’s financial services sector, including lowering fundraising costs and opening up new fundraising channels while nurturing new businesses.

King Leung, InvestHK

“For Hong Kong government, particularly the regulator, the Securities and Futures Commission, they’ve always been sticking to the principle of protecting the investors,” Leung told Asian Private Banker in March.

“InvestHK, as an example, we have to also work closely with the private sector, to manage expectations,” he said. “Being able to work with the private sector, almost like a step-by-step along the way, while managing the expectation, particularly in the case of all these new rules, new policies, coming to align. That’s very important.”

Revo Digital Family Office, launched in October 2022 and backed by Raffles Family Office, has become Asia’s first digital-assets-focused multi-family office. In May, Ray Tam, CEO of Revo Digital Family Office, commented that “the developments in Hong Kong mark a crucial step in crypto’s journey towards wider acceptance, and reflects the growing maturity of the crypto market, signalling that cryptocurrencies are becoming an integral part of the global financial system.”

Regulatory development

With any financial asset class, there is a ‘push’ and ‘pull’ dynamic between regulators, industry participants and end customers to define a workable regulatory framework, Rezwan Shafique, partner of financial services consultancy Capco APAC, told APB.

Rezwan Shafique, Capco

“When it comes to recognising crypto as a permissible asset… some regulators will be able to move forward in that journey, and some would be more reticent. But either way, I think that we can all now agree that crypto as an asset class is here to stay, and we must learn how to manage it and protect the end customers,” Shafique said.

“This is great that we have incumbent financial institutions providing digital asset custodial services, because it provides a protective safeguard for end customers. We can’t wait for regulation to mitigate all risks for crypto trading, however, established market participants can play a pivotal role in creating the ecosystem needed to safeguard exposure for the end consumer,” Shafique added.

“I think the best learning is to read as much as you can, but with a sceptical or hyper-rational eye, to question things that don’t have straight answers” — Eugene Lim, Matrixport

From a wealth perspective, Shafique believes the best advice from wealth managers is predicated on being able to see the full picture. “To that end, I would like to see an increased ability for incumbent wealth management firms to incorporate digital assets (crypto, NFTs etc) into their asset class coverage,” he said.

“Regarding FTX, the people who lost money on the sudden downfall of FTX were the ones who held their assets at the Exchange. If you had a trusted custody service provided by an incumbent (and well-regulated) bank where customers moved their positions to post-trade, then the impact of FTX’s demise would have been limited. I believe Standard Chartered’s recent MoU announcement with the Dubai International Financial Centre to launch a digital asset custody is a great example of bridging the digital versus the fiat worlds,” Shafique noted.

Former CEO of FTX Sam Bankman-Fried leaves the Federal Court in New York on 3 January 2022 after pleading not guilty on charges related to the collapse of his company. The collapse of cryptocurrency exchange FTX serves as a warning to digital asset investors.

Bear market

With crypto currently in a bear market, industry players are trying to position themselves for the next bull market.

“In Web3, everyone says, cycles do move much faster than in traditional finance,” Eugene Lim, head of private wealth, at digital asset firm Matrixport, told APB. He joined Matrixport two years ago after years of experience with private banks including Julius Baer, JP Morgan, LGT and Merrill Lynch.

Eugene Lim, Matrixport

“When I first joined, many people said, keep up on Twitter, Discord, YouTube videos. But if you filter with experienced eyes, those [are] exactly where scams can happen. I think the best learning is to read as much as you can, but with a sceptical or hyper-rational eye, to question things that don’t have straight answers,” Lim said.

“Of course, in a bull market, there are people who make the same mistakes. They repeat what we saw in the earlier financial crisis, i.e. Lehman’s, Euro debt crisis. There will always be volatility, some products are suitable for volatile markets. Even in periods of low volatility, there are a range of accrual products that generate returns. So these are the principles that haven’t changed,” Lim commented.

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