This analysis is prepared by Paulius Stankevicius who is the CEO and Founder of Stankevicius Group. Stankevicius Group is deeply analyzing the digital asset market as the group is launching their own digital asset bank in 2021.
As investors begin to dig deeper into the world of cryptocurrencies and digital assets, it becomes increasingly apparent that by its very nature, Bitcoin and other currencies are difficult to manage. This of course does not mean it is difficult to buy and sell cryptocurrencies, but their inherently volatile nature can lead to wild price swings in either direction. So how does an investment management company deal with allocating cryptocurrencies into a fund like they would with stocks? It begs the question of there can ever be a successful BlackRock type entity in the digital currency market. Equities come with built-in hedges in the form of investing instruments like options, ETFs, or index funds. But with each type of cryptocurrency operating on their own accord, it becomes a difficult task to accumulate and manage these assets in a profitable way, other than to buy and hold or hold if you will.
This digital way of investing has already proven that it can be disruptive to traditional financial systems, as investors have flocked to cryptocurrencies as a source of stored value during the recent volatility of the stock market. Crypto enthusiasts love the fact that Bitcoin has a finite amount of satoshis, which should inherently drive up the price as demand surges and the supply of available Bitcoin diminishes. Several large banks around the world have already started to accept Bitcoin as an asset, but not as a currency. For it to ever be universally accepted as a currency, there are near endless technological and regulatory hurdles that must be accounted for.
But back to digital asset management and how the practice of accepting cryptocurrencies could change the financial system forever. Many people believe that cryptos are less safe and because they are digital, can easily be hacked. Fortunately for investors, this isn’t entirely accurate. The blockchain acts as a digital ledger that keeps track of every transaction that is made. Bitcoin was designed like this so that it could have a built-in security function. Instituting blockchain technology into banking systems could wipe out the need for much of a bank’s day to day tracking, and make transactions, including investments, transparent and public.
If digital asset management is indeed the future, there needs to be universal acceptance of cryptocurrencies as digital assets. How would a firm like BlackRock even diversify its crypto portfolio, other than buying a lot of Bitcoin, and then a scattering of others? There are currently more than 4,000 different cryptocurrencies that can be invested in, and a vast majority of them have little to no actual value. It is hard to imagine a strategic fund that is able to target specific cryptocurrencies as growth opportunities while labeling others as a waste of time. For the traditional financial sector to truly be disrupted by digital assets, we need wider spread acceptance. The blockchain can manage itself with time, it is more a matter of convincing Wall Street and the financial world that a volatile asset can be used as an investment vehicle as well as a currency.