Despite the volatile nature of cryptocurrencies and the controversy surrounding Facebook’s Libra, digital currencies are increasingly on the radar of wealth managers.
The Libra project is based on the principle of reinventing money to transform the global economy and improve people’s living standards. Indeed, the project has all the high-minded self-confidence and overarching drive expected of the social media giant as it unveils its crypto outlook.
In October 2019, American lawmakers grilled Mark Zuckerberg regarding various concerns, such as Facebook’s handling of Libra users’ data and the Libra Association’s placement, the establishment in charge of the project, in Switzerland instead of the United States.
These criticisms were set against a background of longstanding issues about Facebook’s privacy policies and advertising policies. Meanwhile, several founding members of the Libra project, including eBay and MasterCard, have quit the project.
Is the criticism increasing interest in cryptocurrencies?
While the Libra criticism has been intense, it has increased interest in cryptocurrencies and their potential as asset classes. Azoth Analytics, a business research and analytics firm, reveals that the crypto market was worth $856.36 in 2018.
“The market valuation has fallen by over 75% to a current level of $195 billion, during which time many coins or tokens have proved worthless or been removed from exchanges,” says Nick Cawley, crypto-expert at financial market news portal DailyFX.
“Indeed, many exchanges have also been shuttered due to poor management, hacks or illegal activity, and the lack of trading volume to make the business economically viable.”
Nevertheless, this vicious correction has caused maturation of the crypto market and calmed the high volatility experienced before, stimulating a more positive, if cautious, crypto outlook in the financial market. Consequently, more wealth managers are being encouraged to vouch for cryptocurrencies to their customers.
Activities such as China’s piloting of its own state-backed digital currency (the digital Yuan) and President XI Jinping’s U-turn on the benefits of blockchain have influenced investor sentiment. “But the important trend is the long-term view. Here, the most significant development is a growing institutional appetite for cryptocurrencies,” says Kiran Raj, chief executive of trading platform Bittrex Global.
Will Libra finally help cryptocurrencies to go mainstream?
“Cryptocurrency presents an opportunity for and, due to its volatility, there’s money to be made for those investing and capitalizing on arbitrage opportunities,” says Robert Courtneidge, the CEO of international business Moorland.
The introduction of Libra provides the possibility of crypto, eventually moving from a niche to mainstream investment. According to Mathie Saint-Cry, the managing director and head of asset management at Geneva Management, regulators, and the whole cryptocurrency industry must work together for this dream to come true.
He added that the focus on cryptocurrencies tends to overshadow tectonic shifting and innovation made by the likes of, say, blockchain technology, or tokens. Asset-backed tokens are seeing increasing growth and adoption, and I would say this is where wealth managers can potentially add value for their clients.
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