A data-based approach to cryptocurrency investment shows promise, so why are investment advisors at top firms still pushing clients away?
The crypto space and market cap is a small percentage of the trillions invested through the global equities market or the amount that the United States Federal Reserve is able to print. While the promise of blockchain technology and the future of Bitcoin (BTC) has been realized through major traditional players unveiling their own versions of the technology, their hesitant investment advice does not seem to match their actions.
Real life application
Recently, Cointelegraph reported that wealth manager Adam Pokornicky had claimed he almost lost a client to the opinions of the top financial holding companies in the world. Adam said that the client, who was going to buy a minor amount of Bitcoin, decided not to proceed with the purchase because JPMorgan Chase and Goldman Sachs advised against it. The words that changed the client’s minds are unknown, but Adam was confident that they influenced the client’s choice.
While the banks’ motives are not immediately clear, long-term application of this suppression will allow banks to retain a certain degree of power as early adopters while their clients are instructed to wait. Benjamin Boyle, CEO of Caipiteal investment management firm, spoke to Cointelegraph about his own recommendations for cryptocurrency to his clients:
“An investment into cryptocurrency should be treated like investing in a startup or early stage company, therefore the company’s metrics should be analysed as if it was an equity investment. So if a client is looking to invest for the long term my suggestion is that the client employs advanced portfolio theory to manage their portfolio. In this case the client would decide to invest only a small portion of their total wealth into cryptocurrencies.”
Investment advisors taking a data-based approach could be doing a disservice to their client in advising against Bitcoin investment as a hedge to any stock portfolio. While investment advisors do typically warn of startup risks, Bitcoin has arguably grown beyond the classification of a startup. Therefore, as the interest in BTC continues to rise, investment advisors may stand in the way of their clients ultimately investing.
JPM Coin and many questions
JPMorgan, the biggest bank in the U.S., recently created and tested a JPM digital coin. This makes JPMorgan the first bank to create a digital coin representing fiat currency. While creating a stablecoin is not necessarily an investment instrument, it shows the industry’s willingness to embrace distributed ledger technology at its core. JPM Coin was created to ensure speedy cross-border payments and securities transactions between institutional clients of the bank.
By using the digital coin, the bank seeks to ensure secure transactions will be possible by the use of its Quorum Blockchain platform. This platform was created in 2016, and it is one of the pioneer partners of the Ethereum Enterprise Alliance.
Related: Ordinary Stablecoin or XRP Killer? What We Know About JPMorgan Chase’s New Cryptocurrency
JPM Coin currently serves as a stablecoin, pegged at a 1:1 ratio with the U.S. dollar. It is an entirely new stablecoin for the corporate banking sector, but there have been some well-known predecessors, one of which is Circle’s USD coins, launched in 2018 with the backing of Goldman Sachs.
Apart from this is the controversy surrounding Jamie Dimon, the CEO of JPMorgan, who has a history of making statements that conflict with his institution’s actions. Jamie once expressed his lack of interest in Bitcoin, calling it “fraud” in 2017, yet the company he manages has since gained an interest in the crypto space. This could mean that Jamie decided to change or at least make exceptions to his earlier beliefs. Another possibility is that he made those statements because he wanted to shift the focus of investors away from Bitcoin.
Cointelegraph reported that at the 2019 World Economic Forum in Davos, Jamie Dimon’s response to one of the questions showed that he is very much opposed to Bitcoin but not blockchain technology. At that summit, he referred to blockchain as a “real” technology that will soon replace certain databases. Amid all these inconsistencies, Cointelegraph further reported that JP Morgan approved banking accounts for Coinbase and Gemini crypto exchanges back in April 2020.
Since the CEO of JPMorgan appears to have nothing against blockchain technology, then one could say that established banks are attempting to convince their investors to shift their focus toward using a centralized entity that banks can benefit from, like the JPM stablecoin.
Further exploring this incongruity, it is evidently important to watch what institutions do, not what they say. For example, in a conversation with Cointelegraph, Michelle Dougherty — one of DigiByte’s awareness team members and a leading lawyer in the crypto space with experience at the United States Department of State as well as a former United States attorney — reflected on her interactions with investment advisors from one of the larger U.S. banking institutions:
“I was personally discouraged from purchasing Bitcoin when I wanted to back in 2014 by my financial advisor from Merrill Lynch. He said it was ‘too risky’ of an investment. Like an idiot I followed his bad advice. Just recently, Bank of America Merrill Lynch came out and named Bitcoin as the best investment of the last decade.”
Dougherty further pointed out that the recent hiring of a Coinbase executive by the U.S. Office of the Comptroller of the Currency is further highlighting the fact that traditional banks are making a u-turn on the industry while attempting to control the narrative:
“When these new headlines are coming out I just chuckle to myself and know that the legacy financial systems are just trying to delay the inevitable and are figuring out how they are going to get a piece of the cryptocurrency pie.”
Pursuing self-serving objectives
The dynamic between actions and advice shows major disparities across the institutional landscape. The initial announcement of JPM releasing a stablecoin did not seem to come as a surprise to the cryptocurrency industry, while the idea of the banking sector getting interested in the crypto market does not please everyone.
Arguments are ongoing about fragmentation and the true intentions of institutions picking up an interest in distributed ledger technology. A distant objective could be to monopolize the mode of transaction and interoperability, giving institutions relevancy in the future digital asset economy.
Related: Central Banks Are Exploring Blockchain — but for Their Own Reasons
It is also important to look at how big financial regulators are viewing digital assets and cryptocurrency. Since 2015, New York State’s Department of Financial Services has approved 25 entities to engage in virtual currency business activity in New York state. In a quote to Cointelegraph, Superintendent Linda Lacewell of the New York State Department of Financial Services remarked, “DFS continues its commitment to fostering financial innovation in New York.”
So, while there is a continuing dichotomy between banks, regulators and crypto maximalists, the underlying technology is nonetheless considered valuable and transformative to our shared future.
