As regulation of digital assets looks set to begin in earnest, our panel of industry experts discusses its potential impact on investment and more.
Laurent Marochini (Head of innovation, Societe Generale)
Chris Brodersen (Global head of digital assets, Apex Group)
Adam Belding (Chief technology officer, Calastone)
Darren Wolfberg (Founder, chairman and CEO, Blockchain Triangle)
Funds Europe – The term ‘digital assets’ covers a range of asset classes with extreme variations in risk and return, so how can the investment world better educate investors to distinguish between these and identify suitable long-term investments?
Laurent Marochini, Societe Generale – Education is crucial, not only asset management but for all the value chain shareholders. Since the inception of bitcoin, we now have more than 20,000 cryptocurrencies around the world, we witnessed a big volatility in the different digital assets, and for me it’s very, very important and key to understand.
Firstly, digital currencies have suffered from bad press since the beginning. Just remember one of the biggest CEOs in the world in 2016 said: “Bitcoin is a fraud,” while others said bitcoin was used for bad reasons. Maybe they did not or do not want to understand the rationale behind digital currencies. Misunderstanding the digital world is very dangerous and the way we manage the digital assets in a digital world is totally different to conventional assets.
Finally, all digital currencies are different with different business values. If I want to be an asset manager in the digital currency world, I really need to understand what protocol is behind the currency and what the business value is. I need to do my own risk assessment. Take the collapse of Terra Luna, a stablecoin which is not stable anymore. A stablecoin with a performance of 20% is not possible without considerable risk. So, to do your risk assessment you need to clearly understand the digital assets or currencies involved.
Chris Brodersen, Apex Group – The biggest challenge right now is educating people on what’s an investable asset versus what’s speculation. I see a lot of confusion in the market, especially when you start talking about things like non-fungible tokens (NFTs). An investor may say that they want to invest in an NFT fund, but what they’re actually describing is a security token or a utility token. So, the first thing to understand is what we are buying. For example, if one were to tokenise a piece of real estate, that’s not fungible. But even though it’s technically a non-fungible token, it is probably more a security token. You could call it an NFT, but it’s not [comparable to] a [well-known NFT collection such as] Bored Ape.
Adam Belding, Calastone – Digital asset is such a corrupted term. It means so many different things to so many different people and a lot of the terms are conflated. Until you can untangle all of that, you can’t really give sensible advice to anyone about any of these topics. If you were just investing yourself as an investor, to what your original question is, you are basically looking at investing yourself. It’s not dissimilar to me deciding to invest in global equity markets because I think I can make a good return on it, but the chances are you can’t, you’re not going to beat the market and you’re not going to be as capable at investing as professionals who are in the space. To be honest, there’s no difference, to my mind, between that and anything that’s cryptocurrency or a genuine token that’s not backed by something in the real world, because it’s very hard to ascribe value to that and there’s not decades of history of how markets go up and down and so on. There are tokens that are linked to underlying assets that are freeing up liquidity in those asset classes versus tokens that are actually entitlements to something virtual. There’s pretty much nothing there and the only reason people pay for it is because they believe that somehow there’s value there.
Darren Wolfberg, Blockchain Triangle – There needs to be better education but also continued follow-through on regulation, because I think regulation will bring education. And people need to move away from the ‘move fast and break something’ mentality because it is detrimental to the industry. People need to take responsibility for their actions as well.