BlackRock may spur wealthy to make crypto leap

BlackRock

• New bitcoin private trust for institutional clients
• Reports confirm investor reluctance to engage with crypto
• Central banks digital currency plans could further derail move

Institutional investors and high net worth individuals have traditionally shunned cryptocurrencies as volatile and untrustworthy.

The ongoing turbulence in the market, with the value of bitcoin dropping by nearly half so far this year, has not helped sentiment but there are signs this is changing.

BlackRock, which has $8.49 trillion of assets under management, yesterday announced the launch of a bitcoin private trust for institutional clients based in the US.

• Crypto is ‘more like a Rolex than currency’
• Crypto crisis will weed out the Gulf’s weak players, say analysts

“Despite the steep downturn in the digital asset market we are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets,” the company said.

The announcement comes just a week after the world’s largest asset manager said it was partnering with cryptocurrency exchange Coinbase Global to provide its institutional clients with access to crypto services.

This represents a u-turn for legendary BlackRock CEO Larry Fink, who four years ago said he had seen zero interest from his clients for exposure to crypto investments.

“There is definitely a shift in the demographic of investors in regard to cryptocurrencies,” said Dr Naveen Singh, CEO of Inery Blockchain.

“More and more investors, even from wealthy communities are inclined not only toward cryptocurrencies but toward blockchain technology.”

Two major reports out in recent months identified the reluctance of older, wealthier investors to engage with cryptocurrencies.

Swiss wealth manager UBS surveyed 221 family offices around the world, which collectively oversee wealth of $493 billion and have average assets under management of $2.2 billion.

Although it found that a third of respondents in the Middle East and Africa have, or intend to, invest in cryptocurrencies, Josef Stadler, executive vice chairman of UBS Global Wealth Management, who manages some of the bank’s wealthiest billionaire clients, said interest was limited.

“Everybody talks about it, but the family offices we surveyed showed limited commitment – they’re investing to learn rather than earn,” he said.

Invesco, which surveyed the views of executives at 81 sovereign wealth funds (SWFs) and 58 central banks, who together manage $23 trillion in assets, found a similar sentiment: only seven percent of Invesco respondents said they had invested in digital assets.

While 55 percent said they may in the future, 38 percent said they had no interest in ever doing so.

“SWFs are by nature long-term investors, and take time to evaluate all and every new investment opportunity – irrespective of what it is or how it is performing,” said London-based Rod Ringrow, Invesco’s head of official institutions.

“Of course, the current volatility of crypto markets means that SWFs are particularly hesitant to move quickly, but that is to be expected.”

Crypto is for younger players

Even those within the sector itself acknowledge that crypto is for younger, more risk-driven players.

“The fundamental attributes of crypto are very different from those of the traditional asset classes that older investors are used to,” said Lennix Lai, director of financial markets at OKX, a global crypto exchange which trades more than $1.5 billion per day and last month secured a licence in Dubai.

“Most crypto assets are still unproven emerging concepts, and their prices are still very volatile, which makes them less attractive to more conservative investors. I don’t think this situation is likely to change easily.”

Recent market volatility, with losses amounting to more than $2 trillion since November, has not helped.

Research by Wealth-X showed that the average billionaire in the Gulf is aged 65 years old.

“At the crypto market peak, investments in cryptos were being seriously considered as part of various portfolios by investment bankers and wealth managers and there were recommendations to allocate up to two percent of a portfolio in cryptos,” said Maeen Shaban, director of research and analytics at Wealth-X.

“No doubt the recent collapse of crypto prices has impacted the opinion of many wealthy individuals and investors. It has changed the way they view cryptos.”

The move by BlackRock this month may prove to be the catalyst to change opinion among the super-rich and usher them into the crypto arena.

Christian Borel, CEO of SEBA Bank in Abu Dhabi, said the UAE has rapidly embraced digital assets and a raft of new legislation and strategy announcements, which has seen the UAE ranked fourth most crypto-ready country in the world, could help fuel confidence.

“In the medium-long term, I expect engagement with crypto to accelerate, prompted by a clearer regulatory environment,” he said, while acknowledging that markets remain volatile in the near term.

A trend which may derail wealthy investors making the leap of faith for cryptos is the growth of central bank digital currencies.

Roughly 90 percent of monetary authorities are exploring this as an option, according to the Bank for International Settlements, the global umbrella body for central banks.

“Right now, central bank digital currencies are being heavily researched by sovereigns, and with so many banks exploring how this technology could work in practice, their emergence could be seen as a potential threat to the long term viability of existing cryptocurrencies,” said Invesco’s Ringrow.

“This is a fascinating dynamic that obviously adds an additional layer of caution for SWFs when assessing today’s crypto markets.”