The Independent Investment Management Initiative (IIMI), a think tank representing more than 40 boutique asset management firms, has called for “stringent oversight and regulation” of digital currencies.
Digital Assets: Boutiques Express Their Scepticism, a paper from the organisation published on 15 November, suggested 96% of the IIMI membership do not trade cryptocurrencies or other types of digital assets in any form, while four-fifths (83%) had no plans to do so in the future.
Charles Gubert, a consultant to the IIMI, argued the scepticism towards cryptocurrencies and digital assets was justified, adding: “The risks of cryptocurrencies have been extensively covered insofar as they are highly volatile, while the processes determining how they are priced and valued are not transparent.
“Previous arguments that cryptocurrencies are an effective inflation hedge have now been totally undone following the recent volatility, with analysts arguing that bitcoin trades are risk assets, which are increasingly correlated to equity market movements.”
A third (35%) of those consulted cited the “lack of fundamentals around their pricing and valuations” as a reason to steer clear of the assets, while a fifth (22%) regarded their “excessive volatility” as a red flag.
In addition, more than a quarter of the asset managers canvassed saw the questionable quality and veracity of crypto service providers, and the counterparty risk, as reasons not to invest.
While there was unity in calling for more regulation and stricter supervision of cryptocurrency, only 11% of the asset managers highlighted the lack of regulation as their primary concern.
There may be clear concern about cryptocurrencies among IIMI members but this does not appear to be shared by wealth managers and IFAs. According to research conducted by HanETF, an exchange-traded fund issuer, digital currency is set to become more popular among wealth managers and IFAs.
In the firm’s biannual Digital Assets & Crypto Review, released in September, HanETF found three-quarters of the 75 IFAs and wealth managers who took part in the survey expected to up their crypto weighting next year, with bitcoin the preferred route by a strong margin.
Lack of consensus
This lack of consensus demonstrates the divisiveness of digital assets, with IIMI members even uncertain about the concept of tokenisation which the paper defines as the process whereby a tangible or intangible asset is fractionalised and transacted on a blockchain.
While the paper did concede tokenisation technology could be attractive to retail investors, nearly two-thirds of IIMI members said they would not use it regardless of that benefit, and more than half expressed uncertainty about its prospects.
Hector McNeil, co-chief executive and co-founder of HanETF, said that investors are increasingly interested in cryptoassets, but clearer and firmer regulations are needed to bring greater stability to this notoriously volatile market.