Contributing Firms:
Crypto Assets, and Crypto currencies
The Central Bank of Ireland has given its first approvals to Irish-domiciled investment funds to invest, albeit indirectly, in crypto assets. The approvals followed warnings from the CBI, in concert with the ECB and other euro system central banks, about the risks of investing in crypto assets, notably crypto currencies. What do you see as main potential risks and opportunities crypto assets pose in the regulated funds space, and do you think there is a need for a clear delineation between cryptocurrencies and a wider universe of ‘digital assets’?

Ian Sinclair, Managing Director & Head, Digital/Crypto Assets RBC Investor & Treasury Services: Investing in any asset class brings about some degree of risk and digital assets are no different. Notably the volatility that we have seen, specifically crypto assets is not akin to that of traditional asset classes however as institutional adoption ramps up we will likely see the volatility in this asset class fall, thereby reducing that risk.
Ian Sinclair
Ian Sinclair

The asset class does also provide an avenue to further diversify portfolios where an allocation can be made to crypto assets. Today, there are ETFs traded on the TSX that are fully backed by direct cryptocurrency holdings (and some with indirect holdings) with an AUM of ~3.9bn USD1 and we have seen from those that there is demand for this asset class, which has only grown over the last few years and will likely continue to do so as adoption broadens.

Our view is that there isn’t necessarily a need for a clear delineation between cryptocurrencies and a wider universe of ‘digital assets’ but rather cryptocurrencies need to be considered as one facet of the ecosystem. As such the delineation needs to be between each facet of the ‘digital assets universe’. Therefore cryptocurrencies need to be considered separately to Central Bank Digital Currencies (CBDCs), which need to be differentiated to stable coins and so forth.

Each part of this ecosystem does bring slightly different risks and opportunities and so understanding them separately but how they can potentially work cohesively in today’s financial infrastructure could bring about opportunities that we have not seen before including efficiency gains in transaction settlements, seamless (and possibly instant) cross-border payments where the number of intermediaries are reduced and more.