Digital currencies are here to stay, and investors can benefit from investing early in quality companies that offer bitcoin payments aside from their mainstream services.
De Blonay and his colleague Antoine Hucher have identified indirect exposure to cryptocurrencies as one of the key fintech opportunities in 2021 and beyond, pointing to the total market value of cryptocurrencies reaching $1.5tn (€1.26tn) in February this year.
While his funds do not invest directly into cryptocurrencies, de Blonay is exposed to them through companies which are beneficiaries of the ecosystem.
He named the likes of exchanges Coinbase and Intercontinental Exchange and payment solution providers like PayPal and Square, which are two of de Blonay’s largest holdings.
Speaking to Citywire Selector, de Blonay said cryptocurrency can be used in two distinct ways.
This is either as an alternative store of value used for diversification purposes, due to its low correlation to other asset classes, or as a means of payment in countries with fragile monetary systems.
‘I can understand why governments that are struggling with their fiat currency, like in some countries in South America, want to go for a decentralised monetary system, offer an alternative to an unstable currency and broaden its access.
‘I don’t see the same merits in countries like Switzerland when the monetary system and politics are well managed and trusted by the population,’ de Blonay said.
The biggest risk with investing in cryptocurrency, de Blonay added, is not necessarily that it is unregulated, but rather that governments have been hesitant to argue for or against it.
Therefore, he said the recent adoption of bitcoin as a legal tender in El Salvador, however marred by technical glitches and initial scepticism from businesses and consumers, is a milestone for the sector.
‘Among potential benefits, bitcoin could help expatriates living in the United States or elsewhere to send money back to their families at no cost.
‘This illustrates well the value proposition of cryptocurrencies. They can be used to remove the intermediaries and complexity that exist in the traditional financial system and lead to faster transactions, higher liquidity and lower trading fees for market participants.’
Regulation on the rise
De Blonay does not expect cryptocurrencies to become widely adopted for everyday payments in most countries, given the volatility of the past six months and El Salvador’s rocky start.
But he said the recent adaptation by mainstream businesses, with MasterCard now allowing crypto payments, as an indication that more companies are normalising the use of cryptocurrency.
He expects blockchain and cryptocurrencies to be increasingly used to support the digitalisation of complex financial products and transactions, and points to stable coins and non-fungible tokens (NFTs) as promising ways of fractionalising a unique asset among multiple owners.
However, de Blonday said the recent statement by the US Securities and Exchange Commission chair Gary Gensler suggest cryptocurrency companies still facing scepticism from financial regulators.
‘Governments do not seem to mind unless it starts to pose an apparent threat to financial stability. This week, Gary Gensler just put the cryptocurrency industry on notice of how far the regulator will go to tame a market he’s labelled the wild west of finance,’ de Blonay said.
‘In threatening to sue Coinbase Global Inc. if the exchange lets customers earn interest on their digital tokens, the SEC sent a warning to other firms already offering similar products or contemplating doing so. The move is the clearest sign yet that the regulator will aggressively use its powers to thwart products it’s uncomfortable with.’