Dublin Selectors: ‘The tipping point is whether you want to be paid in crypto for your home’

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DUBLIN: The recent fall from grace of cryptocurrencies has been hard to ignore, with more than €187 billion reportedly wiped from the wider market in a single day earlier this month.

Proponents say it’s a sign of a maturing market stabilizing, while critics say the asset is inherently flawed.

Two Dublin-based breeders remain unfazed by their own view of digital assets, despite the ups and downs of cryptocurrencies.

Davy’s head of global investment selection, Michael MacGrath, for example, sticks to a cautious view.

“If you are looking for something that is freely negotiable, exchangeable, as a store of value and represents fundamental cash flow, then that is equity,”

“The tipping point and ultimate test of its worth is whether you’re willing to be paid in cryptocurrency for your home,” he said.

Bank of Ireland’s Tom Baragry takes a similar approach to the asset class, clarifying that his team does not allocate to crypto.

This is despite recent advice from the Central Bank of Ireland to the Irish Funds Industry Association that strategies may hold indirect exposure to cryptocurrency and low levels of cash-settled bitcoin futures.

“For me, it’s about: don’t invest in what you don’t understand”,

“If you don’t know why something goes up or down, or what the valuation is. Don’t invest in it,” he said.

Valuation issues

A sticking point for fund buyers is the volatile and unclear nature of cryptocurrency valuations.

“The most glaring part for me is when you see people saying one cryptocurrency is undervalued over another. When in reality, none of these things have fundamental value. I don’t know how you do that calculation, says Davy’s MacGrath.

The fears of more cautious investors around crypto materialized with the crash of some stablecoins, casting doubt on the theory that a digital asset could serve as a hedge against risk, acting like “digital gold”.

A prime example is the recent spectacular crash of Luna stablecoins and TerraUSD currency – created by South Korean entrepreneur Do Kwon.

The crash also had real consequences, as many South Koreans had invested real life savings in the cryptocurrency, even as its value slid, thinking it was a sign of buy, before ‘she doesn’t completely collapse.

However, hardcore crypto proponents say Coinbase and Terra-Luna aren’t the only ones affected, with the broader tech space being a detractor, with the Nasdaq index dropping 27% in 2022.

Long way to go

Despite crypto’s volatile performance, some major banks have taken steps to embrace the new asset class, making it harder to ignore.

Japan’s largest investment bank, Nomura, for example, is preparing to launch a crypto subsidiary, with plans to create a hundred-person unit by 2024.

That’s when BNP Paribas and JPMorgan are now using digital tokens for short-term trading. All of this suggests that digital assets and cryptocurrencies are here to stay.

However, for funding buyers like MacGrath, the technology behind crypto, such as blockchain, is more useful than cryptocurrencies themselves.

Although investment banks are growing their blockchain and arsenal of digital assets, it seems that crypto as an asset class still has a long way to go before it is widely adopted by institutional investors. At least as far as fund buyers are concerned.

“If technology allows you to independently verify ownership of an asset or prove that you own your property, that’s undoubtedly valuable, but what’s at the bottom of it all? ” thought MacGrath.



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