In today's Exponential Investor...- The individual (or retail) investors
- The institutional investors
- The entrepreneurial investors
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HEILIGENSTADT, VIENNA Vienna has long been known as the City of Music.
It is not impossible that, at some point in the future, it will be known as the City of Crypto.
One of the fintechs (i.e. basically technology companies that do things that would traditionally have been done by banks or other conventional financial institutions) that are based in Vienna is a company called Bitpanda.
Founded in 2014, Bitpanda is a digital investment platform which enables people to "invest in bitcoin, gold and over 100 other digital assets on [their] phone or desktop."
Bitpanda is Austria's first unicorn (meaning that it is the first recently established – or start-up – technology company that has a value of over $1 billion).
It has over 500 employees and over 2.7 million users.
Those hard numbers provide a useful starting point for this edition of
Exponential Investor.
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Crypto is still a long way from being a mainstream asset class for most individual investors
In terms of the hard numbers that it cites, Bitpanda has already become a substantial business.
And, of course, Bitpanda is not the only exchange or investment platform on which bitcoin and other digital assets can be traded.
By many yardsticks, the crypto world – which is the company's area of focus – is already enormous.
According to CoinMarketCap, the total capitalisation – or market value – of all cryptocurrencies is $1.38 trillion (or, if you prefer, $1,380 billion).
By that measure, the largest cryptocurrencies are bitcoin ($640 billion), Ethereum ($248 billion), Tether ($62 billion) and Binance Coin ($50 billion).
Now, consider this:
As of 31 March 2021, the total assets under management (AUM – or value) of regulated – and open-ended – investment funds globally was $64.63 trillion ($64,630 billion), according to the Investment Company Institute (ICI).
Open-ended funds are funds that expand or contract in terms of the numbers of shares on issue as they experience net inflows or outflows of money from investors.
The ICI is a Washington DC-based trade group for the US investment company (mutual fund) industry.
In the United States, as in the rest of the world, investment companies (or mutual funds) pool the savings of many individual – or retail – investors.
The ICI has three main objectives: encouraging ethical behaviour by industry participants; advancing the interests of the industry; and promoting understanding of mutual funds and investment companies.
As a part of its research, the ICI compiles data from investment fund/mutual fund industries around the world; the latest data was released in mid-June.
The ICI's data provides a number of interesting insights:
- As of the end of 1Q21, the most important kinds of open-ended funds were: equity funds, with AUM of $29.76 trillion; bond funds ($12.92 trillion); money market funds ($8.74 trillion); and balanced/mixed funds ($7.95 trillion).
- One year previously, at the end of 1Q20, the total AUM of all funds was $47.93 trillion – all of the main types of funds have experienced growth since then.
- Equity and bond funds experienced outflows during 1Q20 – when fears about the implications of the Covid-19 pandemic were causing huge swings in financial markets: however, the global fund industry has experienced net inflows in every quarter since the beginning of 2020.
- The AUM of exchange-traded funds (ETFs – investment companies that are listed on stock exchanges and which track particular indices, portfolios or commodities) have grown consistently thanks in part to net inflows and reached $8.27 trillion at the end of 1Q21.
| Investment funds have benefited from rising stock markets – as well as steady inflows |
A detailed discussion of how most investment fund/mutual fund management companies have been faring over the last 18 months (i.e. generally well, thanks to stable flows into funds and the general strength of world stock markets – as indicated in the chart above) should wait until a future edition of
Exponential Investor. For now, what really matters is this: crypto assets, as measured by CoinMarketCap, are only about 2.1% of the assets that are invested globally by retail/individual investors, as measured by the ICI.
The crypto world still has enormous potential for growth.
The institutions agree – and have not got involved with crypto… yet
In a recent edition of
Crypto Profits Extreme – another Southbank Investment Research publication – guest editor Nathan Tipping looked at what institutional investors (e.g. pension funds, insurance funds, large charities and sovereign wealth funds) are doing in and saying about crypto.
- A survey of UK, US French, German and UAE investors, conducted by Nickel Digital Asset Management, found that 82% of respondents expect to increase their exposure to crypto and digital assets by 2023.
- Of those that expect to grow their exposure, 40% or so anticipate doing so "dramatically".
- Another recent survey, by global investment bank Citi and specialist publication Global Custodian (which caters mainly to financial institutions which do business with other financial institutions), found that 92% of the roughly 220 institutions interviewed expect that crypto assets will become mainstream – or possibly dominant – over time.
- The Citi/Global Custodian survey also provided a very useful definition of crypto assets:
… We take digital assets to mean essentially a basket of different asset classes enabled by a common technology, cryptographically secured on distributed ledger technology (DLT). These assets can include cryptocurrencies, stable coins (cryptocurrencies pegged to fiat money or other assets), central bank digital currencies, security- and asset-backed tokens and NFTs (non-fungible tokens), representing anything from music to art and other collectibles. In addition, other relatively illiquid assets, such as private equity and real estate, have the potential to be digitalised and fractionalised.
The point is that institutional investors see huge potential for the DLT (or blockchain technology) which underpins crypto assets, and they are likely to become far more involved with the crypto world in the coming months and years.
Crossing from old money to new money
Here in Vienna, Bitpanda believes that "everyone should have access to the tools that remove the barriers that stand between people and their financial goals, empowering them to invest in what they want, when they want".
This is a neat summation of a concept that runs through many of Southbank Investment Research's publications.
It is a particularly important concept in
Crypto Profits Extreme,
Revolutionary Trend Investor and
Frontier Tech Investor – all of which are edited by Sam Volkering, who is well known to readers of
Exponential Investor.
A recent edition of
Frontier Tech Investor highlighted the difference between old money and new money.
Old money involves fiat currencies (like the US dollar, the euro and the pound), control by governments and central banks and traditional financial institutions.
New money involves digital assets and cryptocurrencies, the absence of central control and new financial institutions.
The shift from old money to new money is central to the empowerment of people as envisioned by Bitpanda, for instance.
Entrepreneurial investors are building companies that will make the transition from old money to new money easier.
A recent edition of
Frontier Tech Investor profiled a fintech that is taking advantage of open banking and that offers its customers a user-friendly digital wallet which enables the customers to manage their holdings of bitcoin and fiat currency.
Coming from the traditional financial system – old money – open banking allows fintechs and other financial technology providers to build new applications through open-source application programming interfaces (APIs) from major financial institutions.
Open banking's potential is limited only by the imagination of the fintechs and technology companies.
Open banking can provides customers with many benefits, including transparency over their finances, available deals, budgeting, and payment options.
One of Southbank Investment Research's editors was able to open an account with the fintech in question and buy bitcoin in just ten minutes.
In some ways, this fintech operates like a traditional bank, paying interest on deposits: deposits of bitcoin earn an interest rate of 5%.
Out of fairness to the subscribers to
Frontier Tech Investor, I can't reveal the name of the company here.
However, I can tell you that the stock price has held up since the beginning of the year – in face of a lot of volatility for technology-related companies.
Retail/individual investors, institutional investors and entrepreneurial investors will all have roles to play in the shift from old money to new money.
In five years' time, it is possible that a lot of cities – and not just Vienna – are laying claim to the title of "City of Crypto".
Until next time,
Andrew Hutchings
Managing Editor, Southbank Investment Research
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