The state

of crypto today
ACCORDING TO ASSET MANAGERS
The state of Crypto
today
The “crypto is like internet in the 90s” analogy

It is a common analogy to say that crypto today is like the internet of the 1990s.
Any person that does some research on the matter will sooner or later come
across some expert arguing that “investing in crypto today” is like investing in
Amazon or Microsoft in the early 90s, when it seemed a crazy experiment and
not everybody was sure if it was to succeed. What today seems inevitable,
might not have been seen as such many years ago.

In his article “Crypto Asset management after the crash: where are we heading
now?”, Philip Sandner explains that the internet was invented before the nine-
ties, but it wasn’t until the late eighties or early nineties that the invention started
having useful applications.
The same could be said about crypto: the Bitcoin whitepa-
per came out more than ten years ago, but there is still a long
way to go until crypto becomes massively adopted and we
start seeing widespread uses of blockchain in everyday life.
“If the analogy holds in the future, we can estimate that it
will take some more years before killer applications start to
scale and — even more important — until societies are ready
for them” 1, says Sandner, and it is clear to see that crypto and
blockchain technology has not acquired its final form yet.

Where are we now?

But where are we now then? What is the state of crypto

today? What will it take for crypto and blockchain to be-
come fully accepted in every-day life? We thought we would
ask asset managers some questions regarding the state of
crypto, and try to get some insights from them. After all, they
are always on the look-out for trends and opportunities, that
is their job. And the fact that they have to be extremely ac-
countable with their clients makes them especially reliable.

1 https://philippsandner.medium.com/crypto-asset-management-after-the-crash-where-are-we-heading-now-
7fdb856e9d5b
The best days of crypto
are still ahead

Crypto is a long term investment

While speaking to asset managers and their approach to crypto investing, what
we have found is that most of them consider it as a long-term investment. Most
of them are convinced that it is a very incipient industry that still has not seen its
best days.

For example, Santosh Naidoo, head of research at Cyber Capital, is one of the
asset managers that told us that their fund only looks into long-term invest-
ments. “Cyber is a pure long-only cryptocurrency fund. Using fundamental
analysis and taking a long term investment horizon, Cyber is able to select
winners that survive through volatile cycles. We do not invest in NFTs or equity.
Cyber concentrates on selecting liquid tokens with developed projects that
will form that basis on which we will use decentralized applications”. So, it is
basically the potential an
asset has to become useful
“Blockchain technology
is going to revolutionize
in the future what makes it
attractive. The development
of the asset into a valuable a multitude of industries
application is what allows and cryptocurrencies will
it to overcome the ups and play an important role in
downs of a volatile mar-
keeping the ecosystems
alive.”
ket like the crypto market.
Santosh says that Cyber
Capital, “believes that block- Santosh Naidoo,
chain technology is going to Cyber Capital
revolutionize a multitude of
industries and cryptocurrencies will play an important role in keeping the eco-
systems alive”.
Peter Habermacher, co-founder of Aaro Capital (London), told us that the firm’s
focus on crypto-assets “originates from a strong belief in the highly transforma-
tive potential of cryptoassets, Distributed Ledger Technology (DLT), associated
technologies and the unprecedented amount of long-term value creation that
would naturally follow their widescale adoption. We believe that the asset class
is still in its infancy with the majority of the value creation for investors still lying
ahead of us”.

It is clear that big investors in crypto are not looking into the shorter-term gains,
but rather, and according to the testimonies of asset managers, crypto invest-
ing is mostly done with a long term horizon in sight, given the early stages the
technology finds itself in.

Innovation is what gives crypto an edge

Also, according to Mauro Grandinetti, Hedge Fund Manager at Algo Capital

(Gibraltar), being an early investor is more interesting, and it is precisely the
innovative nature of crypto
and blockchain that might “In crypto, every week
represent an advantage for there is something new
more risk adverse investors. to study or a new thesis
“Crypto is where the next
technology revolution will be.
to develop. Traditional
No point in investing into ma-
assets are an already
ture asset classes. It is being mature asset class.”
at the frontier that gives us Mauro Grandinetti,
an edge”, he says. “Crypto is Algo Capital
interesting. Traditional assets
are boring. In crypto, every week there is something new to study or a new the-
sis to develop. Traditional assets are an already mature asset class”.

Crypto adoption keeps growing

News of crypto adoption every day seem to reinforce this perspective. For
instance, Starbucks has recently announced that their loyalty program will offer
their clients NFT-based experiences, using the polygon network.2 Just to men-
2 https://www.coindesk.com/business/2022/09/12/starbucks-to-offer-nft-based-loyalty-program-alongside-polygon/
tion another recent example, GAP, one of the biggest fashion
retailers in the US, has launched an NFT design competition,
inviting artists to submit a re-design of their logo, as part of a
larger branding campaign.3 These are just two of a massive
flow of news that come up day after day, announcing crypto
adoption cases and businesses, big and small, including cryp-
to or blockchain technology in their businesses.
Not only crypto and NFT adoption are rapidly growing, but
also big institutional interest is growing by the day. One of the
latest examples is Blackstone, the investment management
behemoth based in New York City, which has hired Adam
White, Coinbase’s former VP, to work as a crypto investment
advisor for the firm. Also, in August this year, BlackRock has
offered to its clients the possibility of investing in Bitcoin. “De-
spite the steep downturn in the digital-asset market, we are
still seeing substantial interest from some institutional clients
in how to efficiently and cost-effectively access these assets
using our technology and product capabilities,” the compa-
ny said.4 These are just some of the latest out of hundreds of
news about crypto making huge strides in institutional and
retail adoption.

Also, KKR, the private equity giant, started taking steps to-
wards blockchain investments in September 2021.5 The firm
has created a work group focused on best uses for block-
chain technology, and in September 2022, it opened up part
of its $4 billion Health Care Strategic Growth Fund II (“HCSG
II”) to be tokenized on the Avalanche blockchain, granting
access to the asset class to investors with a fraction of the
wealth normally required. 6 Again, these cases are just the tip
of the iceberg, only the latest three institutions to have taken
significant moves towards crypto.

3 https://www.ledgerinsights.com/gap-crowdsources-nft-designs/
4 https://www.bloomberg.com/news/articles/2022-08-11/blackrock-offers-bitcoin-investing-to-big-institution-
al-clients
5 https://www.coindesk.com/business/2021/09/30/private-equity-giant-kkr-makes-first-blockchain-investment-
in-parafi-fund/
6 https://www.coindesk.com/business/2021/09/30/private-equity-giant-kkr-makes-first-blockchain-investment-
in-parafi-fund/
Bitcoin adoption and the FTX scandal

In November 2022 a major event in the crypto industry un-

folded: the overnight collapse of one of the biggest trading
platforms in the world, FTX. The fall of the company sent
shockwaves of fear and doubt throughout the cryptocur-
rency landscape, cementing long-standing prejudices in the
minds of crypto sceptics, while also testing the risk tolerance
of those commited to the adoption of the technology.

We reached out to Andy Mosson, head of sales at Bitpanda

Pro, for his insight regarding the FTX scandal and how he
thinks it would influence the standing of asset managers re-
garding crypto.

“The FTX and Alameda collapse is just one of several ‘black

swan’ events to beset the Crypto industry in 2022”, he says.
“No one can deny the impact at an individual investor level,
but it’s important that we don’t conflate potentially criminal
acts with structural deficiencies. In the overall crypto market,
2022 has been mainly about the former, not the latter. This is
one of the reasons that I believe we’re now in a net positive
situation in terms of institutional crypto adoption versus 2021”.

He claims that zooming out in this context is crucial to see

the broader picture. Andy fits the asset manager profile that
we’ve described so far: asset managers take a step back and
adopt a long-term view regarding crypto investing.
 Volatility

But being in the frontier of innovation is not precisely the safest place to be. Being an
early investor in a potentially revolutionary technology has many advantages, but it
also implies that risks and opportunities might be harder to asses. Peter Habermach,
from Aaro Capital, explains
that it is more difficult to “In cryptoassets, the amount
see what has real value in of speculation is higher and
crypto – given its volatility
actual fundamental value is
and the nascent nature of
the market. “Cryptoassets
harder to ascertain than in
are much more volatile than traditional assets investing.”
traditional assets and given
Peter Habermach,
the nascency of the industry Aaro Capital
and asset class, the amount
of speculation is higher and actual fundamental value is harder to ascertain than in
traditional assets investing”, he says.

Volatility puts off traditional investors and institutions

This leads us into what probably is the biggest disadvantage of crypto investing. When
talking to institutional investors, asset managers, and even retail investors, they all men-
tion volatility as a major drawback for crypto investing. Volatility is great for traders if
they are willing to take the huge risks that come with it. The huge price swings provide
great opportunities for short term speculative gains. But not everyone knows how to
make profits in a highly volatile market. It is only possible if you are a very experienced
trader. Most people are willing to take some risks, but excessive volatility actually puts
them off.

Sergii Piskun is a quantitative research analyst at Bankhaus Metzler, the oldest private
bank in Germany, founded over 345 years ago, currently based in Frankfurt. When
asked about crypto investments, Sergii said that it does not represent a safe investment
for their clients.
“High volatility makes it a risky asset. When you have these movements of 150%
or 200%, it is a high risk for institutional clients, of course, and they have their
own obligations, when you are talking of pension funds or insurance compa-
nies, for example, so the level of risk is unacceptable for them”.

Of course, a traditional investment fund like Bankhaus Metzler is not willing to

take the risk that high volatility implies. Their clients, such as pension funds or
insurance companies, demand not huge, but steady and reliable profits.

Santiago Rojas Quintero, quantitative analyst at Lupus Alpha Asset Manage-

ment (Frankfurt) says the company does not invest in crypto at all. He says
“investing in Crypto would be more of a “client” pull rather than a push”. They
will not take the initiative in crypto investing, at least, not until it becomes main-
stream, which is highly unlikely. The reason? “Volatility and the current macro
environment”, he says.
Regulation

The next milestone for crypto is regulation. Asset managers see this as probably
the biggest problem when it comes to crypto investing. Their clients do not want
to put their money in such unregulated assets.

Niccolò Bigalli, Quantitative Analyst at BNP Paribas (London), says crypto is too
risky for clients to invest in, specially due to the lack of regulation. “It is definitely
not safe for clients. Unless it gets some more regulations, won’t be touched by

“Unless crypto gets banks. This is also to avoid system-

ic risks. Think of collaterals using
some regulation, it cryptos or repo operations using
won’t be touched by crypto.It is just too dangerous and
banks. This is also to the risk for the system would be too

avoid systemic risks.” big. I don’t think crypto is something

that could be easily integrated or
Niccolò Bigalli,
compared with other asset classes
BNP Paribas
unless there’s proper regulation and
warranties for investors especially
while using derivatives or investing into any DeFi project”.

For some, regulation might be the single most important aspect to avoid big
risks. Even investments funds specialized in digital assets will admit that un-
regulated assets represent too much of a risk. Mauro Grandinetti, Hedge fund
manager at Algo Capital, a hedge-fund specialized in digital assets based in
Gibraltar, says: “we only invest in or via regulated products or providers. Risk
management is achieved through several layers of regulation. This has nothing
to do with performance risk”. So in his view, regulation is even more important
than volatility or even overall performance.

Markets in Crypto Assets (MiCA) law

So far, one of the most significant regulation efforts we have seen is the Mar-
kets in Crypto Assets (MiCA) law, proposed by the European commission in June
2022, with the objective of cleaning up “the Wild West of crypto assets and set
clear rules for a harmonized market that will provide legal certainty for cryp-
to asset issuers, guarantee equal rights for service providers and ensure high
standards for consumers and investors” 7, in the words of Stefan Berger, the
lawmaker who led negotiations on behalf of the European Parliament.

The MiCA law aims to create a more unified business environment that would
be favorable for crypto innovation, since part of the reason that Europe is be-
hind the US in the crypto industry, lawmakers say, is the fragmentation of the
ecosystem in the continent.

Liechtenstein, crypto regulation pioneers

There are only a few examples of concentrated efforts on a global level to de-
sign crypto regulation. Some countries, like India, have amended existing laws
to include crypto, while others, like Liechtenstein, have created entirely new
laws.8

Liechtenstein is a great example of regulation. As early as 2019, the country’s

parliament had approved the “Blockchain Act”, which regulated many aspects
of the crypto economy. This provided asset and user protection, and provided
a legal framework to combat money-laundering. By defining minimum require-
ments for blockchain activities, and providing legal classification of new terms

7 https://www.cnbc.com/2022/06/30/eu-agrees-to-deal-on-landmark-mica-cryptocurrency-regulation.html
8 https://www.weforum.org/agenda/2022/03/where-is-cryptocurrency-regulation-heading/
like “token” and “digital asset”, the country’s regulation allows
investors to have certainty on what it is they are investing,
with the assurance that their property is protected, providing
users tools to avoid scams, punishing illicit activities, and over-
all creating a healthier ecosystem.9

Other countries, such as the U.S., still have a long way to go.
The latest Biden proposal for crypto regulation was met with
harsh criticism, with CoinDesk pointing out that the plan didn’t
answer “the single biggest U.S. question in crypto: what ac-
tually makes a crypto token a security and which should be
regulated as commodities”. The plan, instead, made it clear
that the U.S. government still sees crypto as a mostly risky
industry.10

The FTX collapse has made it urgent

It has never been more evident. The FTX scandal has made
clear that crypto regulation needs to be set in place as soon
as possible, if the industry expects to grow.

Andy Moson, from Bitpanda Pro, says it is highly important

for asset managers to have a regulatory framework to work
within.

“Whether leveraging existing TradFi regulation or through the

undoubted acceleration of crypto specific regulation, the
right environment is needed for Asset Managers to work with
crypto within a framework they can trust”.

9 http://www.liechtensteinusa.org/index.php/article/liechtensteins-parliament-approves-blockchain-act-unani-
mously
10 https://www.coindesk.com/policy/2022/09/16/bidens-executive-order-produces-few-answers-in-crypto-re-
ports-from-us-treasury/
How to mitigate risk

Evidently, high risk is still an unavoidable feature of crypto investing. Asset man-
agers and big investment funds have therefore come up with strategies to miti-
gate risk, and to make investing in crypto as safe as possible for their clients.

Funds-of-funds
Philip Sandner explains how we might be currently experiencing a rebirth of
“funds-of-funds” investing (that is, instead of investing in the cryptoasset direct-
ly, the investment is placed on a crypto fund, which in turn invests in different
assets). “While funds-of-funds have become increasingly unattractive in the
traditional space due to high costs and low added value, crypto funds-of-funds
have a unique selling point. By diversifying across different crypto funds with
different strategies (e.g., including market-neutral arbitrage strategies) , one can
greatly reduce the volatility and drawdowns of the asset class. Such effects
cannot be achieved by direct investments in several different crypto assets, as
there is still a high correlation within the universe. While one could also do the
necessary fund selection himself or herself, this would be very time and capi-
tal consuming. The investor would need to be quite knowledgeable on crypto
assets (e.g. issues of physical custody), and would require enough capital to
handle the minimum investment amounts (i.e., often over €500,000) of several
funds”, Sandner explains.11

Diversification
Investing in funds-of-funds is generally safer for one reason: diversification. Be-
ing exposed to different types of crypto-assets provides more chances of gains
for the investor, while also avoiding heavy losses if one of the assets should lose
value. Peter Habermacher explains how this strategy greatly serves his fund,
Aaro Capital, which diversifies its portfolio by investing not in crypto directly, but
in different asset management funds.

“We believe that diversifying across many managers is one of the safest ways
to deploy capital in the space. We delegate asset selection, portfolio and risk

11 https://philippsandner.medium.com/crypto-asset-management-after-the-crash-where-are-we-heading-now-7fd-
b856e9d5b
management activities and decisions to experienced professionals who are ex-
perts in their respective fields and are constantly and continually assessing the
market, their portfolio and their risks. Portfolio diversification across asset class,
style, strategy and fund structure, can provide an effective balance between
risk and reward.

A key investment objective of the strategies managed by Aaro is to protect

against the inherent (downside) volatility that characterizes the market. This is
achieved by optimizing for liquidity and the risk of our underlying investments,
through careful consideration of portfolio construction and strategy diversifi-
cation as well as continuous assessment and monitoring of key portfolio and
fund-specific risks. Individually, funds and investment strategies offer exposure
to various subsets of the market, but in combination they form a more balanced
approach”.

Token analysts
Like Habermacher explains, portfolio building requires a lot of knowledge, risk
assessment and decision making that is very time consuming. But it is absolute-
ly essential to assess the market to strike a proper balance between risk and
reward. However, the highly technical, time consuming and knowledge inten-
sive nature of this job creates the necessity for qualified analysts. This is why Tim
Grant, Head of EMEA at Galaxy Capital (London), explained at the European
Blockchain Convention 2022, how we will start seeing Token Analyst job post-
ings in the very near future.

“What’s really exciting to me, is seeing some of the big investors, big hedge
funds, talking about the idea of a token analyst”, he said. “We’ve got fixed in-
come analysts, we’ve got securities analysts, why wouldn’t we have token an-
alysts? And I think that the smarter guys in the room are realizing that in order
for us to have a view on a project or the economic viability of a company In the
DeFi space, they need to develop a new set of tools to establish the valuation
mechanism which is really not obvious to a traditional frame of reference. To-
kens are a new asset class that demands you look at it with a level of rigor that
big institutions will not invest without it”.

There are a few main ideas we can extract from our conversations with asset
managers.
Conclusions

On the one hand we see that crypto is still in its infancy. The drawbacks de-
scribed and objections raised against crypto and DLTs are characteristic of the
early stage in which the technology finds itself. Whether it be the lack of regula-
tion, or the wildly volatile nature of the assets, both are consequence of the fact
that crypto has not been yet adopted widely. The famous internet saying “you
are still early” holds true. It is still early for blockchain, and that makes some asset
managers and big funds reticent.

On the other hand, asset managers that are crypto enthusiasts see an advan-
tage in the fact that blockchain is still not fully developed. Crypto is here to stay,
they say, so we better jump on the train while we still can. They will admit that
the technology is in its infancy, and most importantly, they don’t lose sight of the
big risks. That is why investments are mostly aimed to the long term. In their view,
right now, volatility is an issue, regulation is also an issue, and the technology still
has to grow, but in the future, all these problems will be solved and crypto will
succeed.

In the meantime, the main strategies that asset managers are taking to mitigate
risks are funds-of-funds investing, which leads to portfolio diversification, and
will soon require qualified token analysts to do the job.

There is an urgent need for developing a reliable framework to analyze cryp-

to assets, which consequently translates in the need for a new type of analyst,
namely, the token analyst position. Just like there are equity, debt, private equity
analysts (the list goes on), the crypto industry needs a particular type of analyst
that applies a specialized methodology, uniquely tailored to crypto assets.

With thousands of tokens to go around in the blockchain landscape, it can get

very tricky to differentiate good from bad products. It is, therefore, necessary
to have a specialized professional that has the tool set, the knowledge and the
insight to analyze each product, each token, and be able to report reliably the
particularities of each token.
Crypto and blockchain detractors stay firmly attached to the immediate re-
sults. Today, crypto is too risky, and does not look like a safe enough investment.
While enthusiasts see the long term game: true, crypto is risky, but when it starts
having better use cases and more adoption, volatility will be solved and so will
regulation.

And slowly, but surely, it seems like big institutions are siding with the cryp-
to enthusiasts. As previously mentioned, big investment firms like Blackrock,
Blackstone and KKR are giving their first steps into the blockchain world. What
seemed like a far-fetched fantasy scenario during the 2017 bull-run, is now
turning into a concrete reality after the 2021 bull-run. This begs the question,
what will happen during the next bull-run? Enthusiasts assure it is safe to as-
sume that big institutions and investment firms will be fully invested in the block-
chain space in the not-so-distant future.

As a final conclusion, we can say that it is safe to assume that we have only
seen the very early days of the blockchain revolution. It is comparable to the
internet in the late 80s and early 90s, since we still have a way to go in order to
see massive adoption, although we could assume this will happen faster rather
than slower.12 Also, a generally increasing institutionalization and professional-
ization seems inevitable during the coming years. We will see how traditional
asset managers and highly professional institutions start to give in to their cli-
ent’s demand, and begin to incorporate crypto assets in their business model.

12 https://philippsandner.medium.com/crypto-asset-management-after-the-crash-where-are-we-heading-now-7fdb856e9d5b