While Bitcoin used to be an asset that investors stayed away from, many asset managers are considering adding it to their own portfolios nowadays. In a statement by the managing director of digital product development and innovation at State Street, Jay Biancamano, it looks like next year could be lucrative for the crypto market, but none of the asset managers have pushed for the storage of crypto yet.
Biancamano stated, “We’re talking to them less about ‘Can you custody this,’ and more about how we can work together to make sure these changes aren’t disruptive to our business models.” During a bank-sponsored event on Thursday in New York, he added that there will be a clearer idea of what the financial institution plans to do with these assets and their custody next year. Once establishing that custody, State Street will be looking into fund administration, private placements, and the trading and issuance for this sector.
Even without much interest in the custody of crypto, clients of the bank are seemingly investing more of their own funds in the asset class. A survey conducted by Oxford Economics, at the request of State Street, found that digital assets and related products are already held by 94% of their clients. In 2020, the bank expects to discover that over a third of the clients plan to increase their allocation of digital assets, though just under half stated that their allocation would remain unchanged.
The interest in digital assets by State Street comes at a time that the bank is working to reduce plumping with distributed ledger technology, suggesting that Wall Street is giving up their push for “blockchain, not bitcoin.” The bank was forced to lay off over 100 blockchain developers this year, though Biancamano’s team’s responsibilities were independent of the developer team.
Biancamano stated, “Being able to provide custody and servicing around digital assets is different than building our entire backend infrastructure and prioritizing our technology stack to support Hyperledger blockchain.” He called these two endeavors “parallel paths,” adding that the company still has the ability to go into the sector without employing DLT engineers. While State Street still has the expertise of this sector within their staff, more of the focus will be “on the digital asset piece.”
The sample of asset managers in the survey included 101 clients, also finding that 62% believed that risk management could be improved with tokenization, and just over half of responded believed it would improve security. Only one-third of the clients expressed that it would increase liquidity or create democracy in investing for retail investors.
The clients of State Street seem to have a more bullish perspective on DLT than the actual company, as over half of the respondents stated that they’ll add the tech to their trading process in the next year. Only half of the same group made the same statements about artificial intelligence. Furthermore, the majority of clients (65%) agreed that financing products could be improved with the use of DLT.
These investors appear fairly confident in the changes that they expect to see from the market overall, as just under half of the respondents showed faith in the approval of a Bitcoin ETF by regulators in 2020. Biancamano added, “Honestly, institutions already have the ability to invest in these funds. VanEck is doing a private placement. WisdomTree announced the ability to invest on the Swiss exchange. I would like to see regulators become more comfortable with a bitcoin ETF… but I think the ability to invest in bitcoin in a fund or directly is there.”