The emergence of the Crypto asset class has been largely driven by the increasing awareness amongst investors that Crypto assets are indeed a credible alternative to fiat currencies, as they allow for more efficient payments at virtually no cost but also create significant operational cost savings and efficiencies for ownership updates and verification purposes.
While doubts clearly arose earlier this year due to the collapse of crypto asset prices, the confirmation that several high profile projects would be implemented by leading banks such as JP Morgan or social network giants such as Facebook (and many others) confirmed the view that cryptos are here to stay, and are going to become the back-bone of the financial and e-commerce sectors, thus favouring a major adoption from market participants over the next couple of years.
The emergence of crypto asset class is not a random event.
It is the result, in Block Asset Management’s opinion, of global imbalances building-up and accelerating since the last financial crisis. Global Private debt has sky-rocketed while the major Central banks have been happy to keep interest rates at generational lows, supporting the expansion of monetary basis aggregates way beyond economic output. Such a behaviour has no precedent, at least at this scale. As a consequence, Global market debt has grown over 250 trillions, setting global debt/GDP ratio at levels above 300%, a threshold which is clearly not sustainable in the long run. “It is therefore likely that existing debts will never be paid back or paid in worthless fiat currency, which in the end is equivalent to a significant loss of value (lower purchasing power). Countries such as Argentina provide a clear roadmap of what follows next: investors are harmed, savings are lost, the economy is disrupted, and capital controls are implemented. In this environment, alternative investments such as Gold or Silver tend to outperform,” they mention.
Do Precious metals really provide an effective hedge in this environment?
Precious metals tend to benefit from market/economic shocks, since they have tangible value and a limited output as well. However, they cannot be used for payments, leaving them highly vulnerable to any lasting liquidity event. Precious metals are not cash. You cannot pay for services in Gold or Silver. The cost of holding Precious Metals is high too. While clearly able to capitalize on a liquidity crisis in its early stages, Precious metals do not prove to be a reliable safe-haven during lasting a liquidity crisis. Indeed, they might be the last investments to be sold to raise cash. This is exactly what happened during the last crisis.
During liquidity crisis, cash is king… but Cash loses real value in the long term or when central banks step in to increase liquidity. And monetization destroys cash value’s in the long run.
That is where Crypto assets are unique and enhance a portfolio risk/return profile. They combine safe haven benefits (like Precious Metals) but also provide its users with liquidity. Contrary to Precious Metals, Crypto assets can be used to purchase real good and services or proceed with transfers of money at laser speed. And Crypto assets’ trend has been positive in the long run (due to crypto assets adoption
Therefore, how to get a smart exposure to Crypto assets?
While some investors might just find it convenient to use crypto exchanges to invest directly in single crypto assets, the amount lost on several platforms (due to cryptos being hacked an stolen) or the disappearance of several cryptos suggests that a single investment is very risky compared to investments in more traditional asset classes. In other words, aiming at reducing tail risk (in case of liquidity crisis) while having its capital at risk does not make sense.
For those reasons, Block Asset Management has created several investment eligible solutions for investors willing to build exposure and diversifying into crypto, but wary of losing their capital (crypto assets being hacked or a single crypto asset/fund manager going bust).
Block Asset Management is now managing several investment products that address those concerns. The flagship Blockchain Strategies Fund offers exposure to the world’ s first fund of funds. The Block Asset Management Actively managed certificate offers simple and direct exposure to the Blockchain Strategies Fund through a note that can be purchased more easily via a brokerage account.