Asset Management
Crypto stocks are «coming of age» - and thus attractive for portfolios

Crypto assets are digital equivalents of real assets, technically managed via blockchain or distributed ledger. This class of assets is young, making it correspondingly difficult to forecast its development. But it is already clear today: crypto-assets have a future!

June 11, 2021

Probably the best-known crypto-value is Bitcoin. At its naissance in 2008, it was practically worthless. In April 2021, one Bitcoin cost almost 60,000 francs. However, the price is extremely volatile. At this very moment, the value is just under 35,000 francs. Nevertheless, it is not least this price development that has brought crypto stocks as a whole into the focus of investors and financial service providers.

Today there are thousands of crypto stocks. As a class, they have reached the threshold of market liquidity, regulatory scrutiny and institutional acceptance. One reason is that conventionally managing cash, stocks, bonds and achieving portfolio diversification with acceptable returns is becoming increasingly difficult.

Tokenisation of assets

Investors and financial services providers are taking advantage of the potential offered by the technologies underlying crypto-assets - such as blockchain or distributed dledger technology (DLT). The possibilities are not limited to "digitalmoney", i.e. Bitcoin & Co. Through so-called tokenisation, virtually any asset or right can be brought onto a blockchain or a corresponding protocol as a token.

A distinction is made between exchangeable and non-exchangeable tokens (fungible vs. non fungible). The former fulfills the function of payment tokens (Bitcoin & Co), for example. Non fungible tokens (NFT) link a blockchain (or another protocol) with an individual, digital and non-replicable asset. This allows rights to be represented digitally and traded more easily. Examples include rights to intellectual property, to art, to various debt instruments, to a wide variety of derivatives, funds, commodities, to the use of services - in fact, to anything that makes sense. In individual cases, the distinction between fungible and non-fungible may be difficult. But tokens (in whatever form) are an essential part of the future of finance.

Switzerland as a crypto location

The crypto market is young, practically less than ten years old. Today, neither all tax, legal and regulatory questions regarding crypto assets have been asked or answered; let alone, all ambiguities have already been decided. But progress is being made - slowly.

Switzerland is an international pioneer in the regulation of crypto-assets. With the DLT bill, federal laws have been adapted so that Switzerland can develop as a leading location in the area of blockchain/DLT. In practical terms, this means that trading, custody and settlement of digitised assets are defined by law. Service providers can include crypto assets in their strategy like any other asset class within the regulated financial sector. Some financial service providers and investment advisors have, meanwhile, developed corresponding service offerings.

Professional support for crypto investments

Assessing the crypto market is sometimes a challenge even for professionals. This is not only due to the volume and volatility of cryptocurrencies, but also due to Innovative crypto solutions and products that come into the market every day It is not always easy to decide which of them are any good.

Adventurers and scammers alike cavort in this market. Therefore, a good knowledge of the trading centres in terms of their reliability and security is a prerequisite for success. Technical know-how is also necessary. Private crypto investors in particular have sunk millions upon millions just by being careless with their "private key", a computer-generated password for the coins on the blockchain. This is due to  loss of the "private key”, everything within the given account becomes irretrievable.

Anyone who seriously wants to invest in crypto assets should therefore use expert knowledge, such as that of specialised and regulated financial service providers. For example, the financial service provider develops the investment strategy, agrees on the risk profile with the customer, diversifies the portfolio, selects suitable products (funds, certificates with crypto assets in the investment mix, etc.), takes care of sales and acquisitions, legal and tax issues or securely manages the "private key". The latter is particularly interesting with regards to succession arrangements. Only the owner of the private key has access to the digital asset on the blockchain. If the "private key" is missing, even inheritance is of no use.

Published June 11 2021, Fokus Finanzen in Tages-Anzeiger, page 6 (german only)

This article is aimed at providing a general overview and summary of the issue. It is non-binding, and does not and should not be taken to constitute legal advice.

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