Banca Generali is to provide bitcoin custody to its customers following an agreement with Conio that will see the bank acquire a $14 million stake in the crypto-focused fintech. Financial institutions that once gave cryptocurrency the cold shoulder are now embracing it in the latest deal that further demonstrates the convergence of traditional and digital finance.
Known as the best private bank in Italy, Banca Generali is part of the Generali Group, one of the world’s top ten insurers with a who’s who of financial institutional shareholders. The bank is known for its innovation in technology and investment management and boasts one of the best diversity scores on the planet with women comprising 50 percent of its 2,000 private bankers, an inspiring statistic for a male dominated industry.
The bank’s clients are typically high net worth individuals (HNWIs) seeking private banking and wealth management services. 2020 market data and surveys have shown that HNWIs are one of the biggest growth segments for bitcoin and digital asset class diversity, but require appropriate custody services in order to gain exposure to cryptocurrency. Banca Generali will administer these services for clients which are scheduled to roll out in the second half of 2021.
“The growth of bitcoin has drawn more attention to this asset class, particularly among younger customers,” explains Banca Generali CEO Gian Maria Mossa, “Blockchain technology and digital currencies are gaining a place in global payment systems and, as an innovative bank keen to develop digital services, we want to be able to offer broader services to our clients and to be competitive in this new environment.”
Institutional adoption of digital assets has rapidly accelerated as concerns regarding the underlying infrastructure, custody, volatility, liquidity, and regulatory clarity continue to be assuaged. Grayscale now holds $10 billion in assets in its Bitcoin Investment Trust, while Square has allocated one percent of its treasury to BTC. Mass Mutual, the 169-year old insurance firm announced last week that it had invested $100 million in bitcoin and made a $5 million equity investment in NYDIG, a financial services firm with $2.3 billion in assets under management, that caters to institutions, private clients and banks interested in investing in bitcoin.
Banks Begin Batting for Bitcoin
Historically, banks have been some of the harshest critics of this emerging asset class while others have been more pragmatic and have followed the money. Bank of America has begun developing custody solutions, helped with clarification from regulatory bodies like The Office of the Comptroller of the Currency (OCC), allowing nationally chartered banks in the US to provide crypto custody services. Standard Chartered Bank is also set to launch crypto trading services tailored to institutional investors.
Even JPMorgan, whose CEO Jamie Dimon famously once called bitcoin a fraud, has had a change of tune, suggesting gold could lose its shine in the long term due to institutional investors’ preference for bitcoin. The bank’s research found that $7 billion has flowed out of gold exchange-traded funds since October, while the Grayscale Bitcoin Trust saw over $2 billion of inflows in the same period.
Demographics matter too, and this also points to the bigger picture of millennial and younger investors that have a preference for digital, with JPMorgan analysts anticipating a doubling or tripling in the bitcoin price if the current trend continues. JPMorgan Chase has also accepted two crypto exchanges, Coinbase and Gemini, as banking clients.
Morgan Stanley is another bank warming to bitcoin, recommending the cryptocurrency as a hedge against rampant money printing and even suggesting it has the potential to replace the US dollar. Chief Global Strategist Ruchir Sharma warned authorities not to “assume that the traditional currencies like the US dollar or Euro are the only stores of value or mediums of exchange that people will trust forever.” He also referred to demographic shifts suggesting that while Baby Boomers tend to prefer gold, millennials and Gen Z’s are making bitcoin their choice, and that will become the norm in the future.
Goldman Sachs Remains Cautious
In contrast, the once bitcoin-positive Goldman Sachs, reportedly once looking into establishing a crypto trading desk, has reverted to its stance of old following a client call with its analysts earlier in the year. They pushed back on the idea that cryptocurrencies, including bitcoin, are an asset class, not recommending them for clients on any basis. While the report demonstrates a negative opinion of bitcoin and cryptocurrencies, at least publicly, the fact it feels the need to address the market at all is evidence of progress. Interestingly, the bank now seems to be the last of the big U.S. banks to maintain an antagonistic stance towards the asset class.
Further afield, DBS, Singapore’s leading bank, leaked the launch of its fiat-to-crypto exchange dubbed DBS Digital Exchange. It will allow users to trade in four crypto assets initially, with security token offerings (STOs) to follow, utilizing the bank’s institutional-grade custody solution.
Beyond the legacy banks, several crypto firms, including Kraken, Paxos, and Avanti, have applied or been approved for a banking license and are more than happy to take advantage of opportunities in the market if traditional banks are not.
Hedge Funds & Family Offices Enter the Game
Crypto hedge funds have taken advantage of opportunities in the space for years, growing to over $2 billion AUM in 2019. While the majority of such funds solely invest in the crypto space, others can be misleading, leveraging being crypto-based as marketing for a fund, but in reality only allocating a small percentage to it.
Nickel Digital Asset Management with $50 million in assets under managements and a team of 16 led by a team of ex-JPMorgan and Goldman Sachs asset managers has become Europe’s largest digital asset arbitrage manager with a steady performance track record. Nickel is expanding and seeking to professionalize the complex and opaque world of crypto assets, exploiting a rich arbitrage opportunity set against a long-term inflationary and currency debasement outlook.
What has changed recently is the number of traditional hedge funds, notably those managed by some of the most successful investors in history, now starting to take a position in bitcoin and warming to the crypto space as a whole.
Billionaire hedge fund manager Paul Tudor Jones arguably sparked that trend earlier this year, reducing reputational risk for the industry by announcing that his Tudor BVI fund held a “single digit percentage” of its assets in bitcoin futures. Describing bitcoin as an inflation hedge, he went on to state, “The best profit-maximizing strategy is to own the fastest horse… If I am forced to forecast, my bet is it will be bitcoin.” His conviction seems to have grown too, commenting more recently that, “I like bitcoin even more now than I did then. I think we are in the first inning of bitcoin and it’s got a long way to go.”
Renowned investor Bill Miller of Miller Value Partners also weighed in, saying that he “strongly recommends bitcoin” and describing it as the “single best performing assets class” having previously allocated 30% of his fund to bitcoin.
They were followed by fellow billionaire and legendary fund manager Stan Druckenmiller, who revealed in November he now owns some bitcoin through his family office and had “warmed up to the cryptocurrency as a store of value.” It followed his bearish thesis on the US Dollar and inflationary pressures in the coming years given unprecedented stimulus from the Federal Reserve, with the expectation that bitcoin will perform like gold, only better, in this environment. It is also a reversal of his comments on bitcoin just two years ago.
In yet another change of tone, Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund with $140 billion assets under management, has been increasingly positive about the asset class. Dalio recently stated, “I think that bitcoin (and some other digital currencies) have over the last ten years established themselves as interesting gold-like asset alternatives, with similarities and differences to gold and other limited-supply, mobile (unlike real estate) storeholds of wealth. So, it could serve as a diversifier to gold and other such storehold of wealth assets.”
With banks on the major financial hubs now providing cryptocurrency services to discerning clients, bitcoin is rapidly being assimilated into the system it set out to displace. The bitcoin technorati say Veni, vidi, vici.