DThe crypto industry and blockchain technology are inextricably linked. For many, bitcoin, blockchain and cryptocurrencies are almost synonymous. But this far-reaching equation ignores the nature of the question. “Cryptocurrencies are just one example of using blockchain,” says Jon Piskorowski.
Because blockchain is just an encryption technology that can be used in many ways, including in the financial industry. Transferring value using cryptocurrencies is just one possibility, says the lead portfolio manager of the BNY Mellon Blockchain Innovation Fund. This has sparked a lot of speculation in the past and just like the internet once did, the industry has now gone from boom to crash.
“What hasn’t worked in the real world is the dream of democratizing finance,” he adds, referring to empowerment trends in ostensibly decentralized systems. This is why clear regulation is necessary, and the institutions of the financial sector are currently waiting for it. “Ultimately, the central question is: how important is crypto to large financial institutions?” Many things will still change: the direction of Bitcoin or the role of crypto exchanges such as Coinbase, which could become financial service providers. “What many still miss is a storyline beyond cryptocurrencies. Who needs 10,000 anyway? The crash of the crypto world was ultimately inevitable – because “there was no adult in the room”. But in the long run, the crash is an advantage in terms of cleaning, because cryptocurrencies could bring benefits in a well-regulated framework, even if the goal is not yet achieved. “Cryptocurrencies can facilitate payments. All information on the blockchain is reliable and accurate and cannot be changed. Ultimately, this enables fully traceable payment channels, so with the proper framework in place, this would be an opportunity to end the money laundering cycle,” says Piskorowski.
A spectacular fall
An example of a financial industry use case that would have great potential is the tokenization of assets, i.e. their legal division into small units, which makes it possible to own illiquid assets even for larger wallets. small. This is still largely limited to private markets, such as real estate, vintage cars, or the like, but can actually be used for anything. “The problem here too is the regulations. Financial service providers want to see the result. And so there is no market – basically the chicken and the egg problem again,” says Piskorowski. But there is progress. There are tests in the bond market, and the Australian Stock Exchange, for example, is currently in the process of replacing its computer-age trading system with a new one based on blockchain.
Industrial uses are often overlooked. An example is the Aura consortium, which the French luxury goods group LVMH founded with other companies. It develops blockchain applications, including digital ID cards for bags, to make them tamper-proof. The consumer goods industry in particular is well advanced, says Piskorowski. But SAP has also been working on a blockchain application for years. “Many projects are in the initial phase,” admits Piskorowski. “It’s just an early-stage technology that we’re making early investments in. However, the potential is immense: according to our estimates, by 2030, there will be an added value of 2.6 trillion dollars. Blockchain technology gives more control over information and allows information to be shared in a more secure and targeted manner. Our goal is to identify real opportunities and provide investors with quick access.
He identified shipping company Maersk, which can track its containers in real time via blockchain, as one such opportunity. Alongside SAP and the Australian Stock Exchange, Maersk is also one of the fund’s largest holdings. The company is currently in the process of reducing its weighting in stocks that have been the focus of public interest in the past. For example, the crypto bank Silvergate, which was still weighted at 7% in the fund at the end of April, is currently no longer among the ten largest positions, which means that the weight has been reduced by at least half.
Overall, the weighting of financial stocks and software stocks in the fund has decreased significantly. Not surprisingly, the fund’s performance reflects the phenomenal success of the crypto industry as well as its dramatic decline. The value of the shares of the fund launched in 2019 increased two and a half times between the Corona crisis and last November, then collapsed by more than half in mid-June. With cryptocurrencies, the price has since stabilized somewhat. Volatility over three years is therefore very high at almost 30%.