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November 27, 2018updated 06 Dec 2018 11:03am

Bitcoin, blockchain and HNWs: Are family offices still ‘wanting to learn more’?

By David Dawkins

Senior Researcher David Dawkins tests the sentiment of blockchain ‘solutions’ ten years on from Satoshi Nakamoto’s Bitcoin whitepaper

A true tabloid story, a decade in the making. Ten years on from the now infamous ‘Bitcoin: A Peer to Peer Electronic Cash System’ whitepaper that changed it all, the initial optimism surrounding bitcoin is seemingly fading fast. With the price plummeting over the weekend to $3,905 – a total loss of over 70 per cent so far this year – the idea of cryptocurrencies as a store of value (‘digital gold’), or as a means of payment fit for the 21st century has lost traction. Behind closed doors, HNWs are increasingly confident that their initial scepticism was well-placed.

Bitcoin - dollars
Photo by Dave McBee

Where to start with bitcoin’s bad news? Price volatility is one thing, but signs of regret from capital market professionals who left good jobs to work with bitcoin are worrying for those emotionally and financially invested. Last week, the FT reported on Mike Novogratz, a former Goldman Sachs partner and Fortress hedge fund manager who aims to create ‘Goldman Sachs of crypto’, in short, ‘a merchant bank that will entice institutional money into the uncharted territory of digital money’. Mr Novogratz told the pink paper, ‘2017 was just fun, it was almost stupid. This year has been challenging. It sucks to build a business in a bear market.’

Like every true tabloid story, you build them up to knock them back down. Bitcoin’s price and the positive sentiment around its future use are often knitted together, however, the negativity doesn’t tell the full story. Bitcoin’s much-hyped blockchain technology remains slowly and steadily moving forward.

With the first ten years now behind us, Spear’s gathered insight from four firms hoping to build a business in a bear market, tapping into issues surrounding the next ten years, and what they hold for HNWs and the private client world.

Bitcoin - wealth management
Photo by Worldspectrum

Gianluca Massini Rosati, CEO and co-founder of financial accounting solution XRIBA:

‘I’m not a wizard nor a futurist. I think the future’s not something to be predicted—it’s something to be achieved. I personally think, 10 years from now, most governments around the world will create or adopt some form of virtual currency. The government currency of the future is inevitably crypto.

‘Compared to the traditional fiat alternative, cryptocurrency is more efficient, provides reduced settlement times, and offers increased traceability. Cryptocurrency can also be backed by real assets, similar to how it used to be fiat currency in the past granting its actual, real value.

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‘Next generation blockchain technology will resolve many current limitations, such as scalability, privacy controls, toolset maturity, and interoperability.

‘With companies like Uber and AirBnB flourishing, the sharing economy is already a proven success. But our current economic system is also built on trust. This system needs a third party to implement economic activities. These third parties can be costly, untrustworthy and can suffer security issues (like data leaks). This is where Blockchain comes in. It can basically solve all three issues the economic system encounters. Blockchain can be inexpensive, trustless and secure. Currently, in fact, we rely on an intermediary (like Uber, AirBnB etc). By enabling peer-to-peer payments, the blockchain opens the door to direct interaction between parties — a truly decentralised sharing economy results.

‘Just as few people in the mid-1990s could predict the later emergence of Google, Facebook, and Uber, we can’t predict what blockchain-based applications will emerge to dominate the decentralised future, but surely they will be aimed at disrupting many of the gatekeeping institutions that currently dominate our centralised economy.

‘Grab your popcorn, it’s going to be interesting.’

James McManus investment manager, head of ETF research at Nutmeg tells Spear’s that his clients have generally shown ‘limited interest in cryptocurrencies’, even he adds, ‘during the period of “Bitcoin mania” last year.’

He said: ‘I think that there remains an interest in the potential future applications for a de-centralised currency, but that issues with market infrastructure, the proliferation of cryptocurrencies, and the hugely volatile market environment for major cryptocurrency assets are front and centre of investors’ minds when assessing the risk-reward dynamics.’

‘I don’t think that regulatory clarity is the panacea for cryptocurrency. Whilst there is much interest in the technological aspects of decentralised currencies, there remain many issues with market infrastructure (notably custody), liquidity and fraud.

‘Cryptocurrencies remain in their infancy, and in the near-term, we expect most investors will continue to discount the value of their potential future applications by the level of uncertainty and risk that remains in the asset class.’

Dr. Elad Harison, Chief Architect and COO of IAGON tell Spear’s that the Blockchain emerged as a technology that enabled an alternative investment channel and produced numerous projects, both on the technological and financial domains. However, many projects either disappeared or failed to present a value to their investors.

In the future, ‘blockchain is probably going to be adopted by governments for the secure confirmation of documents, transactions and financial data (such as real estate ownership). Other uses beyond the financial industry will include homeland security and personal identity verification, authentication of art, supply chain technologies and more’.

By Adam Dant
Art by Adam Dant

Iqbal V Gandham, UK Managing Director of eToro tells Spear’s that regulatory clarity is crucial as family offices and wealth managers approach crypto.

‘Today, while many high-net-worth investors increasingly recognise the value in blockchain – the technology that underpins cryptoassets – and are interested in the opportunity crypto may offer to diversify their portfolio, a number of barriers remain. These include the unregulated nature of cryptoassets, as well as a lack of long-term track record. This is why crypto is not yet part of the standard range of assets advisers discuss with their clients.

‘However, this may be starting to change and we see more examples of family offices and wealth managers wanting to learn more about crypto. With regulatory clarity on the horizon, we believe that we will see growing interest from high-net-worth investors.

‘The last barrier is the question of custodianship. In our view, this will be resolved in 2019 and we will see a significant wave of investment in the sector. I think we will see more partnerships that address this problem by providing combined custody and storage solutions, which could take the form of partnerships between exchanges and investment advisers.

‘On Wednesday 31st October, [celebrated] ten years since the still unidentified Satoshi Nakamoto published the Bitcoin white paper. A decade on, it’s appropriate to recognise the disruptive impact of this paper.’


Main photo credit – Icons8_team


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