The past few months have seen a setback in crypto investments, creating a dilemma for research houses that had begun to develop crypto research processes in response to earlier high demand.
In a recent panel discussion at the Professional Planner Researcher Forum, Lonsec deputy head of research Darrell Clark said there has been a “crypto winter”, but is confident the work the company has done will prove worthwhile when interest returns to the sector.
“Demand has completely dropped off. It’s obviously a very changed environment now,” he said.
Lonsec quickly decided not to conduct research on some crypto products, such as wholesale funds, because there is less regulation around them. Instead, it leveraged some of its existing processes and know-how gained from analysing other investment vehicles.
“To take a parallel, something like a gold ETF, where we’ve reviewed that for a number of years, we’re very familiar with those type of structures, how they work,” Clark said.
“The additional challenge, of course, with something like crypto is it’s a new asset class, and there’s new counterparties you have to deal with. That’s probably been the biggest challenge.”
Clark said that Lonsec is still trying to engage with various parties, like custodians, to understand the infrastructure around storing crypto, what the infrastructure is, and the security practices in place.
“We’re yet to release any real research,” he said, adding the researcher will take it’s time to do so.
“As much as we’re in favour of embracing new products and new innovation, we’ll do it in a cautious manner and take our time until we’re comfortable with what we’ve presented.”
Clark added that crypto has a sound investment basis built on a long-term structural theme.
“I think the issue is that counter-party risks have come to the fore during the past couple of months, and they’ve played out in real time,” he said.
“It can take quite a while for some of that to unwind. I certainly don’t think any [process development] time has been wasted. It will come to us and to be honest, we’ll be in a much better position when we do have a product that we can look at.”
Digital technologies are becoming the new norm
According to Trovio group CIO Vimal Gor, it does not matter if the public does not understand how crypto technology works because it is still an attractive investment and is fundamental to the digitisation of global finance infrastructure.
“The fundamental building blocks will change, but you won’t see it because you sit at the high level,” Gor said.
He added that if people believe in the digitisation of the world economy, they should invest in cryptocurrency.
“In Australia, we have an entity called the DF CRC, which is a digital finance CRC [cooperative research centre],” he said.
“Its goal is to learn how to move from analogue technology to digital technology to increase the GDP.”
Gor said investors should separate events such as the collapse of cryptocurrency exchange FTX from the investment potential of the underlying technology. He added Bernie Madoff being convicted for running a Ponzi scheme did not stop investors buying US equities.
“It’s a failure of regulation,” he said.
“It’s a failure of accounting standards. It’s a failure of due diligence. It’s the finance industry. To have that much exposure to a centralised exchange goes against what the whole basis and ethos behind digital assets.”
