For Gregory Mall of SEBA Bank, how to store and manage cryptocurrencies is also becoming a crucial issue for many investors.
Cryptocurrencies, as well as events related to decentralized finance and digital assets, took the lead during various panels organized as part of Finanz’22, this spring’s flagship financial meeting, which took place on Wednesday and Thursday in Zurich. Update on cryptocurrencies and related services from Gregory Mall, Head of Investment Solutions at SEBA Bank.
What cryptocurrencies are in the spotlight right now: are they still the best known ones, like Bitcoin and Ethereum, or are we moving towards greater diversification when it comes to investing in cryptocurrencies? What is SEBA Bank’s experience in this regard?
In terms of volume, it is clear that bitcoin is still dominant in this market. However, in recent years everything has changed a lot. There are now a host of other cryptocurrencies that are attracting increasing interest from many investors, sometimes including people who invest their money in a fairly traditional way.
“For those who want to access cryptocurrencies, it makes sense to invest through indices to reduce risk.”
Now bitcoin is a cryptocurrency that combines several characteristics that are not necessarily present in other of them. You can cite its use as a means of preserving value. There is also a shortage of bitcoins, which has a limit on the number of units and decreases over time, which is very typical for this currency. Added to this is its role of protection against inflation in certain portfolios. Other cryptocurrencies, such as Ethereum, in turn have other benefits for investors: it is valued for its specific technical characteristics, such as the “smart contract” function.
Apart from bitcoin, aren’t the cycles of popularity of other cryptocurrencies sometimes very short?
I think that in the rest of the non-bitcoin cryptocurrency universe, one can now distinguish, on the one hand, “meme tokens” that are purely due to the hype phenomenon, a bit like the price of Shiba Inu, which jumped. in the fall of 2021 – but then quickly lost popularity again. On the other hand, there are so-called “level 1 coins”, such as Ethereum, Solana or Cardano – these are currencies whose value also fluctuates, but which over time remain attractive to investors.
How do SEBA Bank customers today prefer to invest in cryptocurrencies: by betting on individual currencies or, rather, through a basket containing several cryptocurrencies?
For those who want to have access to cryptocurrencies, it makes sense to invest in indexes to reduce risks – we have our own index called SEBAX, which is the basis for various products listed on the SIX Swiss Exchange, Euronext Paris and Euronext Amsterdam. From the point of view of diversification, another interesting aspect to consider is that the inclusion of a small share of cryptocurrencies in a portfolio helps to increase its overall efficiency, as it is an asset class that correlates poorly with others. In fact, even if cryptocurrencies develop in an unstable way, they still help to improve the risk profile of the portfolio as a whole.
Who are your bank’s typical customers: do they match the clichés of young, technology-oriented investors, or are all profiles now in place?
The first category, which consists of what are sometimes called “kryptonatives”, of course, is still very important. And this is also an interesting clientele for us. In fact, even customers who have invested fully in cryptocurrencies in the past appreciate not having to worry about where their security keys are stored. In addition, this clientele also has the opportunity to take out loans guaranteed by the bitcoins they own.
“You will certainly be surprised at how many conservative investors are interested in cryptocurrencies.”
The second category of clients, which is also growing, consists of organizations such as independent asset managers, or “external asset managers” (EAM), or even family offices. For these companies, the initiative often comes from end customers who are interested in diversifying part of their money into cryptocurrencies. You will no doubt be surprised at how many conservative investors are interested in cryptocurrencies. EAM or family offices consider us as partners to ensure the security of their cryptocurrency investments.
How do you assess the interest of institutional investors in investing in cryptocurrencies – and in what form are they willing to do so?
At the moment, this is still a niche segment, which also means that we still have a lot of room for improvement. There are two types of investors: on the one hand, these are the above-mentioned structures, such as EAM, family offices or even certain funds, which are already partially entrenched in cryptocurrencies. On the other hand, there are traditional institutional players, such as insurance companies and pension funds, who are interested in this asset class but are still reluctant to invest in it because they do not want to play a pioneering role.
Thanks to tokenization, you can invest in any asset class – whether it is works of art or real estate. Is this an important topic for a bank like SEBA?
Theoretically, of course, you can tokenize any type of asset. In practice, this only applies to a very limited number of applications. For example, we offer SEBA Bank Gold Token, ie digital tokens secured by gold. This token is a new way to invest in refined physical gold in a cost-effective way. It is a digital asset in the form of a cryptographic token and corresponds to the direct possession of one gram of pure gold, which is securely stored in Switzerland.
In this regard, the issue of energy consumption by cryptocurrencies is the subject of regular discussion. How do you integrate this dimension into your offer of cryptocurrency services?
First of all, it should be noted that the mode of operation of bitcoin requires a very high energy consumption. And as Ethereum moves towards a bid verification mechanism, this will no longer be a problem for the second largest cryptocurrency. We may also notice that the bitcoin mining industry is becoming increasingly aware of this problem. There are always more “miners” who work with renewable energy. For most of the other most prominent cryptocurrencies, as mentioned at the beginning of the interview, the issue of energy consumption does not come to the fore.