feature | cryptocurrency
cryptocurrency:
the race is on
for wealth
managers
Prices of cryptocurrencies have been reaching new highs, at the time of
publication, and increasingly attracting client interest. he wealth management
industry – typically steeped in tradition – is taking a multi-track approach,
with some players speeding ahead while others avoid the hype and stick to their
strategies, writes Saloni Sardana
W
ealth managers and private
banks have reacted to
‘cryptomania’ in diferent
ways, but there is consensus that blockchain
technology, which drives cryptocurrencies,
could revolutionise the wealth management
sector.
In terms of those players in the fast lane
when it comes to cryptocurrencies, Swiss
private banking giant Falcon stands out.
Falcon has become the irst Swiss private
bank to ofer blockchain asset management
solutions for its clients. But is this a one-
of attempt for private banks and wealth
managers to venture into cryptocurrencies,
or will it spark a precedent for the private
banking world?
BITCOIN AND BLOCKCHAIN
At the time of writing on 11 January 2018,
Bitcoin – the bellwether cryptocurrency –
plummeted to $13,864 after news emerged
that South Korea, one of the world’s
largest cryptomarkets, was planning to ban
cryptocurrency trading on its exchanges,
according to industry website coinmarketcap.
com. However, this comes after a period of
much volatility and a surge in the value of
cryptocurrencies.
Vertragsmuster zur Begutachtung
10 | January 2018 | Private Banker International
Blockchain is the distributed ledger
technology behind cryptocurrencies, allowing
market participants to keep track of digital
currency transactions. his is diferent from
traditional databases, as distributed ledgers do
not have a central data store.
Falcon currently ofers clients the possibility
to invest in four cryptocurrencies: Bitcoin,
Bitcoin Cash, Ethereum and Litecoin.
he bank’s chief investment oicer, Stefan
Bollhalder, says: “We take the view that
blockchain assets will probably remain volatile
and therefore continue to be a speculative
investment.”
He adds: “he biggest advantage [of
ofering cryptocurrency investments] is
that our clients get an additional portfolio
diversiication possibility.”
He also notes there has been less paperwork
for Falcon clients following the provision of
blockchain investment opportunities.
BANKS USING BLOCKCHAIN BASED SOLUTIONS
bank Country Date
Siam Commercial Bank Thailand June 2017
SBI Remit Japan June 2017
Falcon Private Bank Switzerland August 2017
Source: Private Banker Internaional
Nael Shahbaz, wealth manager at Swiss
robo-advice irm SAMT AG Asset and Wealth
Management, says: “With the cryptography
[behind blockchain], banking operations will
run much smoother and eiciently. here is
still a lot of paperwork involved in [private]
banking operations. Cryptography will replace
all of that, and hopefully it will also reduce
fraud since the open ledger style of operations
brings more transparency.”
He expects the implementation of
blockchain in the private banking sector to
continue, citing a remittance partnership
between hailand’s Siam Commercial Bank
and Japan’s SBI Remit. In August 2017, the
Asian banks partnered with each other to
launch its irst Ripple blockchain-powered
payment with Japan and hailand.
But not all private banks are bullish on
using blockchain technology to provide
cryptocurrency trading opportunities. RBC
Wealth Management says that while several
of its advisory clients have enquired about
cryptocurrencies, it does not see itself ofering
the services any time in the near future.
Despite “trading beneits such as anonymity
and low costs”, RBC sees more risk in using
cryptocurrencies in private banking.
“We cannot take the unhackability of
blockchain for granted,” says Frédérique
 feature | cryptocurrency

Carrier, MD and head of investment strategy bitcoin growth

at RBC Wealth Management.
Shahbaz, however, notes: “he biggest Bitcoin trading values in US dollars from January 2017
advantage [of blockchain] is that it will $
eradicate the middle man.” 15,000
In early January this year, Falcon extended
its cryptocurrency opportunity programme 12,000
so clients can place wealth originating from
crypto-assets and convert them into a iat 9,000
currency with Falcon.
Given that blockchain technology makes
6,000
the user anonymous, Falcon says it addresses
this problem by using speciic tools to
3,000
interpret the history and to ensure the bank
is complying with know-your-client and anti-
money-laundering laws. 0
17

17

17

17

17

17

17

17

17

17

18
01

01
20

20

20

20

20

20

20

20

20

20

20
SAMT ofers clients the possibility to
r2

l2
ay

ov
ar
n

ct

ec

n
Ju
Ap

Au
Ja

Ja
Fe

Ju

Se
M

O
M

invest in Bitcoin futures in terms of both the
Chicago-based Cboe Futures Exchange, and
the Chicago Mercantile Exchange (CME).
Bitcoin Futures began trading on the Cboe
exchange on 10 December 2017, and on the
CME exchange on 18 December 2017.
CLIENT INTEREST
While several advisory irms are receiving
client interest in cryptocurrencies, some
say that participation in cryptocurrency
investments remains relatively low.
Neil Moles, MD of UK-based Progeny
Group, which focuses on legal and wealth
management services, says: “Clients are always
talking about it, but very few of them have
actually participated.”
In fact, he says many of them are likely
to have made the investments a long time
ago, and already sold them on. “We deem it
extremely high-risk for the majority of our
clients. he minority are mainly the younger
generation,” he explains.
Carrier says that while RBC is noting
interest from its advisory clients, it is advising
against investment due to a “lack of legal
recourse” surrounding cryptocurrencies.
Nigel Green, from international inancial
consultancy deVere, says: “Most of our clients
– who are, typically, savvy internationally
minded investors and expatriates – are also
increasingly seeking advice and information
[on cryptocurrencies].
“hey are aware that cryptocurrencies
– whether that is the current crop, such as
Bitcoin, or not – are here to stay, and that the
phenomenon is only set to increase and grow
in momentum in coming months and years.”
Although Green acknowledges concerns
such as fraud and misuse related to the use
of cryptocurrencies, he says: “Such possible
D
N
Source: Coinmarketcap
threats simply mean that more and better
regulation and enforcement is required, and
that is on its way.”
CORRECTION
Given that the price of Bitcoin has increased
about 1,500% since the beginning of last
year, but fallen approximately 20% since last
month, experts who spoke to Private Banker
International expect a market correction in
cryptocurrencies, but are divided as to what its
impact would be.
Carrier says: “Very few asset prices
have gone up in a straight line, without
a correction. So I think it is unlikely that
it continues to have a [straight] trajectory
without a pullback of some sort.”
She adds: “[But] we do not consider
Bitcoin, and a correction in Bitcoin, as being a
systematic risk at the moment.”
Shahbaz thinks the boom is unsustainable,
but highlights that any market correction will
“help weed out the bad cryptocurrencies, then
the technology [blockchain] will survive”.
While Green also agrees that
cryptocurrencies will correct downwards,
he believes that existing cryptocurrencies, as
well as the new ones that are set to lood the
market, will continue to gain market share
throughout 2018.
Cryptomania is also posing dilemmas for
inancial regulators across the globe, with each
reacting diferently. For example, Ravi Menon,
MD of the Monetary Authority of Singapore,
is reportedly against the creation of a digital
currency. Meanwhile, Sweden is reportedly
considering the possibility of issuing a digital
currency.
Moles believes that rather than
cryptocurrencies, it is blockchain technology
that will revolutionise the wealth management
industry. “[Blockchain] is not a new
technology, but the uses of it are becoming
more widespread,” he notes, attributing this to
the fact that the direction of cryptocurrencies
is unreliable, but the technology has not been
used to its full potential.
“I am yet to be convinced that Bitcoin [or
any] cryptocurrency is here for the longer
term in terms of an investment proposition.
Shahbaz echoes this view: “Just like
with the dotcom boom, fundamentally
weak companies vanished, but the internet
remained,” he says, adding that he believes
blockchain will also survive in the industry,
despite any collapse of cryptocurrencies.
While many inancial institutions serving
HNWIs may be treading with caution
when it comes to providing cryptocurrency-
trading opportunities, they cannot ignore
blockchain technology. Many of them do,
indeed, understand the widespread uses of
the technology; the partnership between
hailand’s Siam Commercial Bank and Japan’s
SBI Remit is a good example.
It remains to be seen when cryptocurrencies
will correct downwards. Meanwhile, wealth
managers have nothing to lose by providing
the trading opportunity for their clients.
However, whether cryptocurrencies
survive or not, even ofering them in the
short term will require an understanding and
implementation of blockchain technology,
which can still be used to optimise irms’ data
processes.
Blockchain technology’s potential has yet to
be fully utilised in wealth management. <

Vertragsmuster zur Begutachtung

www.privatebankerinternational.com | 11