“Better Than Gold” – Bitcoin Collateral Is Bringing Crypto to Asset Management

January 2020


This article was originally posted as an op-ed to Kauppalehti as a response to the paper’s articles on cryptocurrencies (KL 20.1.2020). Link to original post (in Finnish) can be found here.

The world is facing an important turning point. Cryptocurrencies and digital assets at large are fast becoming a part of traditional asset management; in other words, digital assets are going mainstream.

Instead of a medium of exchange, bitcoin should primarily be seen as a store of value. In this capacity, its properties make it compare favourably against more established long-term investments. Unlike gold, for example, bitcoin has low storage-associated costs and is inherently deflationary since the amount of mineable bitcoin is capped globally at 21 million.

Particularly in the US, many traditional asset management firms have added digital assets to their portfolios. Well-known names in finance are entering the scene: for example, the Chicago Mercantile Exchange has included bitcoin futures in its listings for years and in late 2019, a subsidiary of Fidelity Investments received a license for a crypto asset focused business.

The digital asset industry has grown and developed remarkably quickly. In terms of regulation and market participation, the US is years ahead of Europe. Finland has been in the forefront of regulatory implementation in Europe: it enforced the fifth EU anti-money laundering directive among the first member countries and the country’s Finance Regulatory Authority actively monitors domestic companies working in crypto markets. A well-established regulatory climate is in the interest of all market participants.

The narrowing chasm between traditional and digital asset management is perhaps best illustrated by the proliferation of fiat lending collateralised with cryptocurrency. Bitcoin is an extremely liquid type of collateral as it is traded 24/7 globally in hundreds of exchanges. These crypto collateralized loans – usually denoted in USD – provide excellent risk-adjusted returns on investment.

The digital asset class developing at an exceedingly fast pace and expertise is the key in keeping up.

Link in Finnish: https://www.kauppalehti.fi/uutiset/turvallisempaa-kuin-kulta-bitcoin-vakuudet-tuovat-kryptovarat-perinteiseen-varainhoitoon/36c83391-e8ec-4643-889d-39c236f61c5c