Crypto is an asymmetric return opportunity

[ad_1]

Digital assets are playing an increasingly important role in institutional portfolios through diversification and exposure to technological innovation, she told finews.asia.

There is an opportunity to invest in the start of a new financial system with extreme growth potential, said Cici Lu, Managing Partner (Asia), Apollo Capital, in an exclusive interview, together with Fixed Income Leaders Summit Asia next week.

The digital asset expert, who is also the philanthropy mission leader at the Association of Family Offices in Asia, sees a growing demand for crypto / digital assets for portfolio diversification. She shares her thoughts on their explosive growth, regulation and opportunities for investors.

Cici Lu, what do you think about the growth of crypto / digital assets over the past year?

The explosive growth seen in the crypto asset market over the past year confirms the asymmetric return opportunity present in the market. A small allocation in an institutional portfolio has the potential to produce excess returns while exposing the entire portfolio to minimal downside risk.

What is preventing its wider adoption?

Custody issues and the general market infrastructure have long hampered the institutional adoption of crypto assets. However, the depository market has improved dramatically in recent years and so has the market infrastructure.

Knowledge, understanding and confidence in crypto assets are the main obstacles preventing the adoption of crypto assets. It takes time for investors to be convinced of the future value and usefulness of crypto assets due to the learning curve associated with technology.

Are Increased Regulations Impeding Opportunities?

There are many risks and opportunities associated with investing in such a young, rapidly evolving and innovative asset class. Regulatory risk is present in the crypto industry, although the main obstacle to the market is regulatory uncertainty. Institutional adoption will be more widespread if the market knows where the regulator is placing the goalposts.

Ultimately, regulation will have a bigger positive impact because it will attract more investors. Beyond regulatory risk, the crypto asset market is exposed to the regular risks that any business faces when operating in a highly competitive market with low barriers to entry.

How has the DeFi explosion changed your strategy?

From the start, we have been focusing on blockchain-based financial applications, so DeFi’s explosion did not change our strategy, but rather reaffirmed our position and our thesis. We continue to allocate to Layer 1 blockchains that have the potential to foster a thriving challenge ecosystem and application-based DeFi assets.

Is there room for ESG in the crypto space?

One of the most misunderstood areas is how crypto fits into ESG. The Bitcoin proof-of-work consensus and associated energy consumption has led to a narrative that crypto is not compatible with ESG investing, which is not true. First, Bitcoin’s market share is declining to around just under 40%, and after the launch of Ethereum 2.0 over the next 12 months, the vast majority of the market will not be proof of labor intensive work. electricity. Second, bitcoin mining largely uses renewable energy such as hydropower. Not only is hydropower’s carbon footprint smaller than that of other forms of electricity, but bitcoin mining allows us to monetize stranded energy that would otherwise not be used because there is not enough industries near dams.

The social factors in the ESG of crypto are actually very strong. There are around 2 billion unbanked people who have been excluded from financial services. Crypto can bring significant numbers of people into the financial system by providing identification (a key inhibitor of obtaining a bank account), providing low-cost money transfer services so that developing countries can access to global markets and allow them to participate in DeFi (decentralized finance) to borrow / lend, or earn a return by contributing to market makers’ liquidity pools. There is no exclusion of participants based on their skin color, gender, religion or nationality – this is the height of inclusiveness.

Finally, the governance factors are the strongest of all. Since crypto is driven by smart contracts, code is the law. The governance of the project is clearly defined and cannot be challenged or challenged, as smart contracts automatically execute the rules of the system. Each transaction can be viewed by anyone providing ultimate transparency and disclosure, reducing corruption and beneficial ownership issues (e.g. the Panama Papers scandal) that are harder to hide. The voting rights of the protocols are clearly defined and the decentralized nature means you don’t have a handful of people in control, which weakens governance, as we see in some of the biggest companies in the world today.

What type of demand is coming from the family office and what are institutional investors looking for?

There is growing interest from family offices and institutional investors, but crypto is complex and it takes time for investors to familiarize themselves with the asset class. That said, many see not getting involved as a greater risk than getting involved, and are looking for ways to participate in a more sophisticated way than just buying bitcoin or futures (this which does not give you access to innovation in DeFi).

We are seeing more and more next-generation investors paying close attention to crypto investments and blockchain applications.

In Australia, we manage funds for some of the main family offices, we have also just joined the first institutional investor recently. With our expansion into Asia, the family office and private wealth sectors are our primary target for Apollo Capital, we understand that traditionally wealth has been created from real estate in Asia. However, we are seeing more and more next generation investors paying close attention to crypto investments and blockchain applications because they see it as an investment in technology, the asset class. offers asymmetric returns and our funds provide liquidity that real estate investments do not have.

finews.asia is an official media partner of the Fixed Income Leaders Summit Asia, held on September 2930, 2021, SGT. Register now to join the session Cici Lus: All Star Panel: The Unstoppable Rise of Digital Assets Competition, collaboration or both?

Singapore-based Cici Lu leads Apollo Capitals distribution efforts in Asia. She has over 10 years of banking expertise spanning diverse experience in investment banking, foreign exchange and fixed income trading in Toronto, London, Sydney and Singapore. She is drawn to the possibilities of crypto and is excited to help build a new financial infrastructure.

[ad_2]