Crypto Investment Products in TradFi and Banking

Transcript

thank you everyone so we have a diverse panel here of um asset managers banking from across Trad fine banking who um are working on crypto investment offerings for their clients and here we want to really dive into the the reasoning and the product offering um that you each um have on hand so if we could kick off by having you each uh please introduce yourselves and your firms hi so um my name is k rench I work for Bank seats uh you just heard from Charles our CIO we are a family run private bank with offices across Switzerland we've been focused on

Innovation new technologies and new ways to allocate Capital since we started back in the 1990s uh with a strong focus on hedge funds we were one of the first Swiss private Banks to offer trading in C C of um various crypto tokens we are now also um host of the first bank-backed fund of crypto hedge funds and we recently launched um a Bitcoin denominated version of that uh fund allowing you to um try and generate Capital returns uh in a Bitcoin framework hi I'm the VIN and I'm responsible for digital asset research at Wisdom Tree as Wisdom Tree we're we

are a global business and we issue exchang rated products and we have all asset classes from fixed income to equities to Commodities to crypto here in Europe our crypto portfolio is very curated and we have six single coin and four Crypt basket exchange traded products and the total AUM of approximately 1.5 billion across these five across eem products so my role is very much talking to traditional in institutional investors about the benefit of having crypto exposures within their portfolios and we run a lot of analysis and we target that analysis to client specific portfolios and show

that adding a small allocation to crypto actually improves the risk and return profile of those portfolios good morning everyone my name is Victor rato and I'm investor relator at Aradia uh Aradia is a digital asset digital advisory company based in Lugano so we're actually local here and it's very nice to have you here so thank you to the crypto Valley and also to the municipality for this organization of this event uh at Arcadia we develop we work into the digital Asset Management industry we develop active and multi strategy product uh in order to give access to the market but what we believe is key it's also to provide guidelines to to provide a risk framework so to control

also to try to uh control volatility uh the reduction of the draw down also which is very scary for investors and we work also as a PL plug andplay solution so for institution who wants to increase their product offering or wants to start to to uh propose product to to their clients then we can work together to develop which product suits best because we we can really do our strategy in a tailor way tailor made way and so we are happy to to hear from you guys thank you hello everyone I'm Carlos Martin donel so I'm responsible for digital asset at swissquote bank which is a leading Bank uh in Switzerland for for the retail Market uh we actually have probably the

most comprehensive and large offering in crypto uh for a Swiss licens bank we were the first for the retail side and among the first for uh digital asset offering as a whole uh we currently have around six billion of assets under custody we manage our own exchange for transactions which runs around 12 billion last year uh and we also offer uh staking among others now Switzerland overall has been a first mover in the crypto space and everyone on this panel also your institutions were all first movers Carlos as you mentioned you were the first bank to to actually offer crypto Services can you expand and also for those in the audience who might be from institutions who haven't yet um made the the leap into this asset class what was the the

driving force that initially LED you to be interested and open to the idea of crypto offerings so initially it was um a large internal drive that was uh that was responsible for this you need to keep in mind that swis has always been both of our co-founders were engineers and our most of our Workforce is related to engineering so it was very attractive in these First Years uh of popularization of the asset class especially 15617 it was very common among a techy uh audience to be close to this digital asset uh Concepts so this internal drive uh went up to uh the co-founders levels and in the end it was uh a large demand internal to launch this product it was not which is unusual to be honest but it

was not so much of an external demand but more of a statement now we're the first and leading digital Bank we must be also part of this digital asset or new asset class appearance and from there uh the difficulty was more on technical levels first so of course now every other company here and there including your Arcadia Etc you you've you everything works now so you can put some decimals in there uh you can do fancy things without requiring any development CLE as we say in French uh it was not the case before so for us the the bigger steps at the beginning were gathering liquidity and and and make the solutions run on our banking system that was really the challenge it's no longer

that now the challenge I think it's more about positioning know the asset classes that you want to bring inside of the crypto world the asset classes you want to get exposure to clients so for example we added recently mem coins which was you know a very uh in my opinion positive move politically speaking because you know we were policing for clients and now we're no longer so that was a huge change of policy internally uh and we but the the problem now you know is to keep up with this demand to list more assets to bring better the liquidity now challenges are more in the liquidity aspects and also safety than than technical implementations yeah I just want to say that actually I agree very much and also uh what they did in wi squat was

actually very good we already worked together and uh in this sense the uh setup process sometimes is the real value because sometimes we think maybe okay the financial product itself is what what it's most important but actually I believe that's just the tip of the iceberg like what's the real value it's beneath so infrastructure how do you manage critical processes how do you do your situp how do you do your custody the security and so on and so far so um it's a comprehensive View and I fully agree so we as Wisdom Tree we were the first established ETP issuer to issue Bitcoin physical Bitcoin exchange Trader product here in Europe we did it back in 2019 and we have managed

to successfully maintain this product for more than five years so it has successful track record and this is primarily driven by us having institutional model which ensures that client Investments are held secure so when I talk about this what I mean is we for example have two custodian that hold Bitcoin physical Bitcoin in cold storage and that cold storage is in segregated wallets so if custodian gets hacked it does not necessarily mean that all the segregated wallets will get hacked and also the thing to highlight there was a lot of marketing noise when Bitcoin exchange Trad funds were launched in the US last year but I like

highlighting to clients that what we have in Europe is actually a better operation structure than what they have in the US because SEC for some reason it only allows cash creations and redemptions and in Europe we are able to have in kind creations and redemptions so when there is a subscription into crypto exchange traded product here in Europe authorized participant is the one who goes to crypto Market buys that crypto exposure and delivers it in kind to call Storage wallet at a custodian so the Bitcoin or ethereum or salano or any other ETP that you have in Europe it only ever has exposure to cryptocurrency

it does not have cash so it does not have cash drag because in volatile markets such as cryptocurrency is even a couple hours delay in getting cash and actually investing that cash in cryptocurrency can cause a lot of performance noise and of course that noise can be positive or negative but that's noise and also it avoids exchange rated product having any trading costs here all the trading costs that um are experienced by authorized participant are passed back to the investor who is trading in or out and also European products do not need to have hot wallets for trading the cryptocurrencies single coin crypto products can rely purely on cold wallets

which are more secure because they are not connected to Internet and hold the digital assets there securely yeah I'll just add one thing in in the question of whether it's internal or external forces uh I think this whole ecos Space has been more of a build it and they will come uh situation uh we've seen it even with the ETFs in the US we're talking about Mass adoptions from institutionalsales allocating massively uh or even you know when when we see the high level black rocks and Fidelity adding it to their asset allocation there are still ways to go so in in our perspective it was a question of being

able to stay at the Forefront of innovation being able to offer our clients um a broader access to uh to what we think is valuable financial markets um so yeah for for us it was again more internal than external and as soon as it's there you immediately see the interest um I think interest in this space is also very momentum based so if you if you try and follow the cycle and you keep getting topped and tailed it doesn't really help but building something you know we said we launched it just after FTX um and and yet we're extremely happy with it and we were very very committed to it and I think it's something that you you can feel in the interactions with our with our

clients fantastic okay I want to dive in uh a bit more onto the the ETP side because we we actually it's been 10 years now in 2015 we had the first Bitcoin ETP that was launched out of Sweden um you Wisdom Tree were the first um on the sort of institutional Asset Management side back in 2019 and we've heard a lot of talk last year of course with the the launch of the Bitcoin ETFs in the US where are we in terms of the product offering are we still uh at the spot ETF uh is that where we're seeing the most demand or or what else are are we off able to offer clients today and and what are they asking for brilliant question so we see a lot of difference across

different European countries so part of my job a very big part of my job is traveling across the whole Europe and talking to investors in different areas so some regions such as Switzerland they're very much ahead of other regions such as nordics so in the regions where investors have had an ability to have sport or physical Bitcoin exchange rated product in their multi-asset portfolios for the past few years and what they did this now they start looking for what else could I have within my portfolio is there an altcoin that could be a good complement to my Bitcoin exposure to have some

diversification in other regions such as Nordic where I think they are still way behind um few others people who did not go with Bitcoin from day one few years ago now they are no longer so sure whether they're going just with Bitcoin is the most sensible approach so they are very much looking for crypto basket exposure because they want to take the same approach for crypto as they have for equities so for example when most investors invest into Equity exposure they invest into let's say S&P 500 ETFs or index funds so now investors who recognize the value of having crypto

within their portfolios they're looking for SMP 500 of crypto and for example we at wisdom we have four crypto baskets and the most recent product that we launched is tracking coindesk 20 index which captures 90% of crypto market market cap crypto Market liquidity and this product is gaining a lot of traction from investors across Europe who do not want to have exposure to a single token that they're not convinced in and who do not have a digital asset researched person such as me who could review all the available tokens and identify the ones that they should be be holding within their portfolios this question of diversification is really interesting

and yeah I'd be interested if for for others how that's resonating or how you would even explain that at this point in time given the overall sort of volatility and shift and in what alts are available yeah I I I think it's a fascinating question and I I couldn't agree with you more but at the same time um there is no beta play in the in the crypto space yet there is no definition of an index there is no S&P 500 you talk about index someone else talks about another one one will take out meme coins one will take out this or that based on liquidity factors or availability and I think it's it's one of the key developments that we need as an industry uh to move forward is to to figure out some form of standard uh some form of

index that we can agree upon and I think at the moment there's still a lot of fight between these different index providers um which creates a lot of noise for investors and when I'm talking to clients um there's definitely this question of well should I really only have Bitcoin now and for us it's always very important for them to get um to understand the various constructions of these indices and it adds a layer of complexity whereas in equities you can just come in and say oh I want the SMI I want the S&P there is complexity lower down but it it's still for me not unified enough and it's something that I would I really hope that we can get to something you know by year end maybe next year maybe with us ETFs allowing

you know multi- tokens at the moment it's still a fight it's still hard to get uh further down the chain that bit than Bitcoin and ethereum maybe that will help but that would be my uh my wish for for the future is to have a unified and you know broadly agreed on index for the space inventoria you're taking an active management approach yeah I just wanted to to add something because I totally agree like well first of all right now the ETP offers is absolutely perfect like I would say the instrument etps the ETF are already like perfect so in this sense I would say like the market I would say it's very well covered and I totally agree with with Cola what you said it's like still the market is still very not mature like today we don't have such things as S&P

500 Index or something like this and that's why and this is also the mission of Arcadia that's why we believe like a passive approach and just get having the exposure to the sector it's it works good now it can work better when the market be more efficient where we'll be like uh with more playance and more volumes but we don't have we must not forget that this is like a new asset class a new ecosystem there are plenty of blockchain plenty of protocols project tools Bridges dexes wallet I mean there's a lot to do nfts a lot of technology and a lot of also possibility to grasp value from the you know the umus of the ecosystem so like getting the exposure on the token it's good absolutely but we believe we can go even further so that's why why we are

building already second generation investment product where we can actually go into the blockchain grasp the value from that and emphasize it of course everything as I said before with the risk management approach of course we are not like crypto naive we we go wherever uh but still very well regulated and very well concentrated approach well I want I tend to be a bit contrarian on on this conversations I think indexation something has to come because it's the most popular way of investing nowadays in traditional equities but I think there's a key difference that barely nobody talks about which is because you index things you standardize things and and that's a problem when we're talking about a high growth very immature Market uh that's why in Venture you rarely see people

talking about indexes and you see them more naming people and their funds as the index I think by Defence the index today in crypto is Bitcoin so what you do is you match any asset against Bitcoin and and that's a way of referencing the performance of the asset people know against the performance of the assets people don't know so I think that's one way of indexing in crypto is matching against Bitcoin and and I think it's barely valid but it's something at least for a reference uh as traditional markets are so used now to index benchmarks I need to compare especially on wealth management side for example I need to compare to something to show my clients I'm doing a good work here and there for the ETP issuers I need to Benchmark myself against the traditional

Benchmark to see if my track error is slightly better slightly worse or my risk ratio and and all of these Greek ratios as I say uh but for me for such a growth and and and high capacity Market I think it would be a mistake in the longer term to start today looking for indexation and putting the market on that I think there's no other way to doing so it's going to happen unfortunately but I think it will create uh a little bit what happens in the S&P 500 and Order indexes we will have companies no one know of they stayed in the index for 30 years they are raising capital uh passively without any kind of results given to investors but they are attracting passively money from all of these retail and also Sovereign wealth

funds but also wealth managers through these index funds so I think it's unfortunate that for a high growth uh um market like digital assets we start to index so fast I think it will be it will be a mistake but it will happen nevertheless so it's hopefully doesn't but it will so now let's dive into uh client customer demand uh I think for a number of you you mentioned that actually launching crypto products was internally LED um and also as first mover so you've had experience over multiple years um how has client demand been evolving and how have industry events sort of the FTX blow up or regulatory movements in in

the US now how how has this been affecting um what clients are are wanting and looking for I think as I mentioned earlier clients are very momentum based but what's interesting is um every time you know every time it goes up interest picks up every time it goes down it lowers but it settles at a higher base so I think overall we are in a very positive drift uh situation um but there was definitely way more questions um post election you know November December than there are now uh you feel that clients have this you know kind of urge to to see something move and they feel they're not into in it or not in the right one and so they come to you as their advisers and and they ask okay what should I do now I've missed

this and as soon as it's down you know 10 15 20% they kind of like uh I missed a I dodged a bullet and then you asked them okay do you want to buy now and they're like well you know it's down 25% so might be better off waiting um I think that's why we also focused on a combined offering of uh you can have your directional play through holding tokens um or you can benefit from the inefficiencies in the market through our fund of crypto hedge funds who is is uh mostly Market neutral and is trying to capture um performance without that volatility so it's not a crypto play but it's a way of leveraging the inefficiencies in the crypto Market to generate returns and for me most of the clients that I talked to institutional

clients they take their time to get all the sign offs get their compliance risk teams everybody comfortable with crypto but the key point that we are now discussing is looking at the market caps of the investment products that are easily accessible and tradable by those investors digital assets represent approximately one and a half% of the total investable market cap universe so for investors who want to have Market neutral exposure to equities fixed income crypto Alternatives having one and a half% allocation is a market neutral exposure for investors who have zero Expos exposure to cryptocurrencies

they're making an active decision to underweight this asset clause and of course most of the investors I talked to they get paid to make active decisions for their portfolios portfolios that they're responsible for and I say I will be more than happy to help them make that active decision not to have any exposure to crypto but for that work needs to be done you can't just ignore an asset clause which now represents approximately 1 and a half% of all investable universe yeah um also and doil mentioned before they are doing very good in wisdom Tre I believe also everyone here to also educate portfolio manager about the importance on having a small Port proportion for now of digital asset

which is very important and in the past two years when the market is growing it's very easy also to get this exposure and sometimes maybe even the portfolio managers avoid to ask themselves some question like what is this asset class how should I get exposal for hour long like what's the strategy what's like you know a bigger plan I would say uh and what we see for example in terms of client demand it's an help in doing this because for example also in the panel before last Mr Charles as well from s bank he was say he was saying brilliantly that Bitcoin doesn't have a COO doesn't have an Advisory Board it's just like an algorithm we can say it's just a software and so this is actually very good because it is strength but also it's very scary because there's no one you can rely on and so what we are

asked it's okay I want to get an exposure but please help me because I'm afraid so there is there is the need for someone with the hands on the wheel yeah and I think it's historical you know because why if I lose my money I don't care if somebody goes to the prison or not you know to some extent if the guy that make the decision and then in the end when okay it's it's the same I will not receive more money because he was a prisoner so in the end uh but yeah for us there's a huge split between retails and institutional so it's it's very huge retails of course were used to spot immediately they were extremely early exposed to and had the possibility to do so so they're used to spot uh then you have the investors that believe you know my Bitcoin can fly away or

something so ETFs popularization of them was was a very good point and for institutionalsales the market strategically but again with moderate 1 to 3% 5% for some corporates being an exception if you compare them to financial intermediaries but uh yeah no I think it's it's evolving in the right direction I hope it doesn't index size again but we will see I know we're out of time but just very quickly can you each give very briefly what your most excited about in terms of product road map for 2025 I can go ahead crypto baskets I

think that I know you are gains indexing but I think this is what investors want and I think this is the most sensible approach for the ones who do not have digital ACC expertise in the house okay Crypt baskets I'll say two uh I think uh stable coins and as I said earlier I I hope for some normalization around indices for me it's uh product that control volatility and mitigate the risk exactly the same funds that that can manage volatility and and get ahead from that yeah managing risk okay perfect thank you everyone thank you