How Blockchain Investing Moves into the Mainstream: The Evolution of an Asset Class

Gone are the days when digital assets were merely a startup domain. Today, financial industry giants are not only involved but start driving the evolution of the asset class. Two recent examples.

Gone are the days when digital assets were merely a startup domain. Today, financial industry giants are not only involved but start driving the evolution of the asset class. Two recent examples.

Some say Blockchain has already become an institutional asset class; others say that’s still far off. The truth, as so often, is probably somewhere in between. Crypto-assets have gained enormous momentum over the past years, but have not yet fully established themselves in institutional portfolios. 

Yet their outstanding risk-return-profile makes them attractive alternative investments, especially in the current market environment, and pretty much everyone acknowledges that: 80 percent of all institutional investors are interested in investing in digital assets, according to a recent survey among pension funds, hedge funds, investment advisors, and family offices by Fidelity Investments. But only a third of the survey participants have actually invested in blockchain assets such as Bitcoin or Ethereum.

Professional investors hesitate partly because blockchain assets still have a somewhat unfavorable reputation of being a gamble backed by nothing else than pure speculation. For this reputation to finally go away, it will need renowned financial industry players to establish the asset class as a new standard.

And while that is already happening, it’s not visible, because not much happens in public. 

Times are changing: Deutsche Börse wants to list first Bitcoin product

That’s slowly starting to change, and blockchain products are finding their way into mainstream finance. Germany’s Deutsche Börse, for example, is about to list a Bitcoin product for the first time: BTCE is the name of the asset, which stands for “Bitcoin Exchange Traded Crypto.” The issuer is London-based ETC Group, and the prospectus has already been approved by the German Federal Financial Supervisory Authority (BaFin), according to the issuer. 

BTCE is an exchange-traded security that is 100 percent secured with Bitcoin. That also means investors could instead open a digital wallet and buy Bitcoin directly, at minimal fees. The advantage of BTCE is that the product is traded on Xetra, meaning investors can simply buy via their usual trading platforms without having to deal with wallets, blockchains, or anything unfamiliar. Simplicity is the product’s key value proposition. 

Such products can boost crypto-markets as a whole by offering investors convenient access to the asset class. The drawback is the high cost. BTCE has a total expense ratio (TER) of 2.0 percent per year, putting it in the same price category with actively managed funds. But the product is not actively managed, meaning that investors are exposed to Bitcoin’s volatility as if they were buying Bitcoins directly. 

Vanguard experiments with blockchain-based securities

Vanguard also experiments with the Blockchain. The second-largest ETF provider in the world has completed the first phase of a pilot project for digital asset-backed securities. BNY Mellon, Citi, and State Street are also involved in the project. 

The goal is to handle the entire securitization process digitally on the Blockchain to automate transactions and thus make them faster, more transparent, and more cost-effective. Besides, Vanguard has also developed a blockchain-based forex trading platform, which has been operational since late 2019. 

Vanguard was also the company that made ETFs an investment megatrend. Small startups can develop innovative products, but ultimately it takes the support of financial industry giants to turn new ideas into blockbuster investment trends. Eventually, it will be companies like Vanguard that will make blockchain investing mainstream. 

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