Corporate crypto: “Invest in the shovels and look for the gold?”.

Date: 01 Mar 2022

Silvia Ricciardi

Bitcoin often gets compared to gold and in some way this is true: mining to develop bitcoin and using it as a store of value are ways to make digital gold. For some though, the volatility story is too significant which has brought with it a hesitancy to be involved at an institutional level. As knowledge of crypto gains and alternative finance industries, mainly hedge funds, get involved, the crypto topic is opening up. Ethereum is the second story but quite a different one: it is part of a world of NFT’s, gaming and fan tokens that are just emerging. As the crypto world develops, Citywealth spoke to some early adopters and corporate crypto players to hear their story.  

Bitcoin: “has a volatility not everybody can stand.”

Dominik Lener, is Chairman of the Board of the Directors at Globaleye Capital, Switzerland which is a Swiss investment and advisory firm specializing in corporate finance, special situations and asset management. Its origins are from a multi-family office established in 1999 in the Middle East. “We manage more than USD 1.3bn in assets and have representations in Europe, Middle East and Asia and represent the interests of multiple families including our principal family to preserve and grow their wealth. For this purpose, we need to utilize all available asset classes, including emerging ones like crypto. The current situation can be described as tricky: inflation is rising while the monetary measures have reached a critical level of quantitative easing. In our belief only a truly diversified portfolio is prepared for market disruptions and events like the Ukraine crisis.  Crypto as such seems to be more correlated to conventional asset classes as many people hoped. It is a store of value in our opinion but has a volatility which not everybody can stand. We are mainly working with large market caps like Bitcoin or Ethereum; Altcoins are of higher risk in our opinion and less to our taste. Our journey in crypto started already several years ago as a buy and hold strategy. It was based on a few general assumptions and diversification ideas mainly not to miss a potential huge market innovation. It’s worth mentioning it is a rather low percentage in the overall portfolio. Luckily this has played out well so far. Our original focus lies in direct investments, mainly in tech companies from seed to IPO. Recently we have closed the Series C for SkyCell, a very ambitious NASDAQ pre IPO company from Switzerland which is active in the Medtech space. In general we are looking especially at the track record and personality of the founder, next to the business plan of course. Same could be applied to many crypto projects but we tend to play crypto as simple as possible. If you google the “stock to flow” model, pretty much our own vision of Bitcoin is covered. To sum it up: Volatility will stay high but we expect to see higher peaks in the future. Therefore looking at our Bitcoin exposure, a maximization of Bitcoin via trading strategies has been developed.

Kraken investment

Christoph Roos is a Member of the Management Board at GE Ventures, Liechtenstein which is the investment arm of Globaleye Capital and invests primarily in German speaking countries. “Our motto is to stick to proven strategies and to think long term. Short term volatility does not shock us, neither for direct investments in companies, nor for crypto. Our crypto strategies are covered by our partner company Salus Alpha Capital. Salus Alpha has made its name because of a long track record in risk optimized strategies for the commodity and liquid assets space. Just recently in November 2021 they also won the “HFM Emerging Manager Award”. We feel very comfortable trusting the strategies and approaches they run as it is all based on deep market knowledge, long term experience, math and scientific common sense and not emotions or “gut feeling”. The consistent execution of a proven strategy leads to the best results in our experience. I think Bitcoin is an inflation hedge with an interesting risk return profile, so like a stock market on steroids. Besides our interest in cryptocurrencies directly, we are looking deep into underlying economics of companies related to the upside and adoption potential of Crypto. As we have a Tech / SaaS-Focus, the investment into Kraken, the crypto exchange, seemed a reasonable step. Crypto exchanges, despite their regulatory risks, have serious potential for returns for their equity investors. Sometimes it is more attractive to “sell the shovels than to search for the gold yourself”. GE Ventures is currently invested in 12 companies in Europe, with combined sales over USD +100mio and over 450 employees.

Turning 10 bitcoin into 20 bitcoin

Oliver Prock, who is CEO and CIO of Salus Alpha Capital Ltd, Liechtenstein, graduated from Vienna University of Business and Economics with an MBA and has gained experience in different investment fields such as financial engineering, product development, trading and sales. He started his career working for an American CTA. Later on, he was in charge of derivatives and structured products at Raiffeisen Zentralbank.  “We have been active in crypto trading since 2017 and our approach is completely algo based. We focus on a relative value approach between bitcoin and Ethereum. Our goal is to maximize the number of bitcoins for the investors as we believe in a long term uptrend. We see bitcoin as a call option on a new financial system and we love this optionality.  Our target return is above 200% p.a.: in some years we had even higher returns. This is based on 10 Bitcoin turning into 20 Bitcoin for instance the value fluctuation of Bitcoin towards the US Dollar or other FIAT currencies is separate and we are not considering this for our return target. For the asset management industry, crypto is still the “new kid on the block”. In the last years more and more companies and banks have detected the beauty of high volatility for trading on the one hand and crypto as an asset class. In a context for inflation protection, crypto will be one instrument for countries that are facing these problems. The global adoption can still be compared to the internet in the late 90s. Nobody knows how the future will turn out exactly although my personal vision is that many currencies will vanish while others like bitcoin or Ethereum will stay and work as a store of value and trading instrument. Smart contracts as such and Blockchain technology have benefits where the world is still figuring out their reach. Institutional adoption has not yet seen a high level of take up because of political and regulatory risks as well as custodial questions. The trend to institutional adoption is positive and will further increase. To sum it up there is still a lot to discover in the crypto space for the industry and we are embracing it. In our view a certain exposure to crypto is always a good idea as asset prices for real estate, stocks and commodities are already very inflated and crypto might be a suitable diversification.”

Whatever the perspective on bitcoin and despite its negative rise to fame, another story is its continued rise in acceptance and diversification for instance in areas like investment and gaining from the significant fee’s exchanges make; its use as an alternative currency in some countries and store of value for others but as Prock says “nobody knows how the future will turn out” but from Citywealths POV, it certainly looks bright.

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