How We Position Ourselves for the Future
Dear Clients and Partners, For this update I have had a talk with Frank R. Suess who is the group Chairman of the BFI Capital Group, on the investment committee of and fellow investor in AltAlpha Digital. He was also the person who, 14 years ago, gave me a chance to build my career in finance and I’m happy to steer this ship together with him, Dirk Steinhoff and Marc P. Bernegger, with whom I have shared history for over a decade as well. Here’s a digested summary of the comments and views that Frank shared with me:
At BFI Consulting, the investment manager of the AltAlpha Digital fund of funds, we are increasingly focussing our business on the realm of alternatives, including the new and growing realm of digital asset investing. In our view, digital assets could become one of those rare “generational trades”. The investment in this new universe of assets offers a dynamic opportunity that does not exist, or is at least difficult to find, in traditional financial markets these days.
Of course, digital assets, including the various cryptocurrencies, tokens and new business models involved, are justifiably considered a new frontier, one that comes with heightened risks. But they also come with significant and asynchronous opportunities. This new investment universe is still in its infancy. It is picking up momentum rapidly, but there are still many regulatory and technological problems to be solved and battles to be won. Despite these challenges, we are positive about the long-term prospects. As digital asset investing increasingly penetrates the mainstream, we anticipate a continued expansion of product options and higher trading volumes. The use cases are moving beyond the mere “store of value” and “medium of exchange” functions of cryptocurrencies. They are instead increasingly moving toward a new way of investing altogether, creating a new financial industry aiming for enhanced transaction efficiency, security, and continuous product innovation. Blockchain technology, and a multitude of innovative business models that come with it, is here to stay. According to BofA Research, it’s estimated that 14% (21.2mn) of U.S. adults already own digital assets, and an additional 13% (19.3mn) plan to buy digital assets in 2022. Notably, the average age of these potential buyers is 44 and 53% of the potential buyers are female. The financial sector should not underestimate these developments, but rather embrace the challenges and opportunities of the coming digital transformation. Competition from cryptocurrency exchanges is growing quickly. As Coinbase has shown, they have the necessary funds in their war chests to develop and rapidly execute successful business models. Additionally, these platforms are quick to expand the offering of assets their clients have access to. As more and more traditional assets are digitized, DLT trading platforms will, aside from cryptocurrencies, begin offering digital stocks, tokenized real estate, art, and more to their users. Institutional and retail investors are likely to use whatever platform is offering the greatest variety of services and assets. Legacy financial service providers will therefore need to adjust to this new world fast, or risk becoming irrelevant. Have a great day and feel free to let us know if you have any questions. Marc, and your AltAlpha Digital Team