Round table Investing in Cryptocurrency

January 16, 2025

_{This report was originally written in Dutch. This is an English translation.}

Six experts discuss the opportunities and future of crypto investments. Discussion leader Bert Slagter asks them how the increasing institutionalisation of cryptocurrencies is affecting the market, and whether cryptos now deserve a place in an investment portfolio.

By Gerrie Spaansen

The crypto market has evolved tremendously in recent years. While it was once seen as a niche market for techies and speculators, it has now become a global phenomenon taken seriously by more and more retail and institutional investors. Yet not everyone is completely converted yet. Koen Bender says he often gets questions about his attitude towards crypto currencies, especially when the so-called ‘crypto winter’ seems to be over and investors tell each other about their successes in the pub. ‘Every private investor likes to tell their success stories,’ he notes. 'But I remain critical. I have to be able to interpret the value of a coin before I take it seriously.'

At the same time, Bender recognises that the world is changing. 'Our customers are often still young and not engaged with crypto currencies, but that time is coming. As an entrepreneur, I have to be prepared for the future.'

What does the crypto market consist of?

Marcel Burger paints a picture of a complex, layered market that encompasses much more than just the well-known crypto currencies such as Bitcoin and Ether. ‘The market consists of different types of assets, such as utility tokens, security tokens, stablecoins and decentralised financial products,’ says Burger. ‘This makes it necessary for investors to develop a detailed understanding of which of these assets actually add value and which are mainly speculative.’

He emphasises that there is a shift from speculation to developing real-world applications for these technologies. ‘In 2017, I still simply divided the market into Bitcoin and smart contracting platforms like Ethereum and applications built on it, but the palette has since become a bit more complex,’ he says. 'Bitcoin remains a category in its own right, while infrastructures like Ethereum, Avalanche and Solana now also play an important role. You also see the rise of tokenised real world assets, which represent ownership or a stake in physical assets, such as real estate, commodities or art. You also have the rise of memecoins, which are not received enthusiastically by everyone.'

Jeroen Tielman explains that the crypto market today is much more than a speculative trade in digital currencies. 'There are now different types of tokens. Tokens as currencies are only a small part of the market,' he says. ‘The market is maturing and it is important for investors to understand this diversity.’

He cites the Ethereum network as an example. ‘Native’ Ether tokens are used to pay for the network's services and the use of decentralised applications (dApps). So they are a productive asset. ‘This makes them an interesting addition to the market because they are not tied to the traditional characteristics of currencies,’ Tielman explains. ‘You can see them as the equivalent of shares in a new kind of business model where the services are not provided by a central company, but by a decentralised network.’

According to Tielman, the strength of the crypto market lies in the underlying technology of decentralised trust, which places more and more economic processes onchain. 'About a third of global GDP is related to trust. In the future, these processes can be carried out more efficiently through decentralised networks. This alone indicates the huge potential of this technology.'

Crypto as a means of payment

One of the key questions of the roundtable discussion is whether crypto currencies will ever be widely accepted as a means of payment and what steps are needed to make this a reality. Jan Dubach explains that the acceptance of crypto as a means of payment depends on the stability of its value. ‘As long as crypto coins like Bitcoin and Ether remain extremely volatile, they will not be widely accepted as a means of payment,’ says Dubach. ‘Both businesses and consumers need some form of stability in their transactions, and that is currently lacking.’

Bert Slagter points out that the average consumer still does not fully understand how crypto-currencies work and that this is a major barrier to the adoption of crypto-currencies as a means of payment. ‘Technologies like the Lightning Network, which enable faster and cheaper transactions, are promising, but it will take years before these technologies are fully rolled out and accepted,’ says Slagter. ‘We still have a long way to go before crypto is as user-friendly as traditional payment methods such as credit cards or bank transfers.’

Stablecoins

Bender points to the success of stablecoins as an important step towards wider acceptance. ‘Stablecoins, which are linked to fiat currencies such as the dollar, offer a stable value that is necessary for the acceptance of crypto payments,’ Bender says. However, he notes that there are still technological challenges to overcome, such as improving the speed and scalability of blockchain networks to enable large-scale payments. Despite the growth of stablecoins, he says most crypto currencies are still too volatile to act as a reliable means of payment. 'The current crypto market is still dominated by speculators. Before crypto-currencies can be considered real currencies, they need to become much more stable.' He warns that convincing speculators to accept a stable currency will be a process of years.

Joost Elsenburg adds that stablecoins, such as those offered by Tether and USD Coin, play an important role in the further professionalisation of the crypto market. 'Stablecoins offer a way to store and trade value stably, without the volatility inherent in many other crypto currencies. This makes them attractive to both retail investors and institutional parties who want to experiment with crypto but are still reluctant because of the extreme price fluctuations.' Elsenburg also thinks that greater acceptance of stablecoins is a necessary step to make crypto a mainstream payment method.

Which cryptos have a future?

There are currently many different crypto currencies, but not all of them will stand the test of time. Menno Martens foresees that the market will eventually consolidate. 'At some point, the market will purge itself of many of the smaller, less relevant coins. Eventually, only the coins with a strong foundation and valuable use cases will remain,' says Martens. He refers to technologies such as smart contracts, supported by platforms like Ethereum, as key factors in the future success of crypto currencies.

Burger is more optimistic about the future of the crypto market, but acknowledges that there will be a big divide between coins that offer actual value and those that are mainly speculative in nature. 'There is a huge amount of innovation in the crypto market, and that is what makes it so exciting. We see new technologies emerging, such as decentralised finance (DeFi) and nonfungible tokens (NFTs), which offer completely new ways to create and trade value.'

The recent approval of Bitcoin and EtherETFs by the US Securities and Exchange Commission (SEC) is an indication that crypto is becoming more mainstream, Slagter argues. 'BlackRock and Fidelity's ETFs offer institutional investors regulated and secure access to the crypto market, without having to hold crypto currencies directly. This could be a great catalyst for further acceptance of crypto as an asset class. Slagter predicts that other financial institutions will follow, which then leads to further institutionalisation of the crypto market.

‘As long as crypto currencies like Bitcoin and Ether remain extremely volatile, they will not be widely accepted as a means of payment.’

Innovations thanks to crypto

The rise of tokenisation, where physical assets such as real estate, shares or art are converted into digital tokens on the blockchain, is discussed as one of the most promising developments within the crypto market. Tielman is excited about the opportunities this technology offers investors.

'Tokenisation allows us to fractionate assets that were previously difficult to trade, such as real estate or illiquid securities, and make them accessible to a much wider group of investors. This could revolutionise how we invest and how we assign value to certain assets.

Burger concurs, stressing that tokenisation not only makes investments more accessible, but also creates new forms of liquidity. 'Previously, it was almost impossible for smaller investors to invest in things like luxury real estate or works of art, as these assets were often only available to the ultra-rich. Tokenisation offers a way to break down these assets into smaller parts, allowing smaller investors to participate in these markets as well.'

Yet there are also risks associated with this new technology, Martens warns. 'While tokenisation is promising, it is also important to recognise that the market is still in its infancy. There is still a lot of uncertainty about the legal status of tokenised assets, especially when it comes to property rights and liability. These are issues that need to be resolved before tokenisation can become truly mainstream.'

Regulation

Regulation will play an important role in further professionalising the crypto market, Elsenburg underlines. 'On the one hand, regulation can help protect investors and create a more stable environment. On the other hand, there is a risk that too strict regulations stifle innovation and hinder the growth of the market.'

Elsenburg explains that the legal infrastructure around crypto is still evolving, which makes investors uncertain about the long-term risks. ‘We see governments and regulators worldwide struggling with how to regulate crypto currencies and blockchain technology,’ Elsenburg said. ‘There are still many grey areas, especially when it comes to the legal status of certain cryptocurrencies and ownership of digital assets.’

The European Union's MiCA (Markets in CryptoAssets) regulation is seen by the panellists as a positive development that could contribute to confidence in the market. Elsenburg notes that MiCA provides a framework within which crypto companies can operate without the constant fear of legal complications. 'This is an important step forward for the industry. It gives investors more certainty that they are protected against fraud and clear guidelines on how companies should operate in the crypto market. However, it will take time to fully implement the regulations and ensure that investors have adequate protection,' Elsenburg said.

However, there are still many questions surrounding the exact details of the regulations. Dubach argues that many family offices are still waiting for further clarity before deciding to invest seriously in crypto. ‘There is still too much uncertainty about exactly how crypto will be regulated and what the long-term implications are for investors.’

Crypto in the investment portfolio

A central question during the roundtable discussion is whether crypto currencies deserve a place in a diversified investment portfolio. Bender stresses that the correlation between crypto and traditional assets such as stocks and bonds is relatively low, making crypto an attractive diversification tool. ‘Crypto can be a valuable addition for investors looking for new ways to diversify their risk,’ Bender believes. ‘It offers a way to diversify outside traditional markets, especially in times of economic uncertainty.’

However, Tielman points out the complexity of investing in crypto. ‘It's not enough to simply buy crypto coins and wait for increases in value,’ he said. 'You can think of it as an explosion of new startups. For some, the technology offers a real flywheel; for other applications, a traditional, centralised model would be better. To make this distinction, you have to be deep in the business.'

Martens stresses that although crypto adoption is growing, many institutional investors are still reluctant. ‘For many institutional parties, crypto remains too risky, especially given the extreme volatility of the market,’ he points out. ‘While there are certainly advantages, such as diversification and the potential for high returns, there are also significant risks that cannot be ignored.’

Institutionalisation of crypto

A key question is how far away we are from the time when institutional investors consider crypto as a fully-fledged asset class, alongside traditional investments such as stocks, bonds or real estate.

Bender is optimistic about the speed of this development. 'The entry of big players like BlackRock and Fidelity is a game-changer. The fact that these institutions now offer ETFs based on cryptocurrencies means that crypto is increasingly accepted as a serious asset class. This is likely to encourage other institutional investors to also take the plunge.'

Burger adds: ‘I notice that there is increasing interest in crypto among institutional parties and that family offices in particular are more easily making the move into crypto. Yet we still see some reticence there too. The volatility combined with excesses in the market caused some parties to refrain from investing in crypto after all. But once the previous all-time highs are settled, I expect interest to accelerate. Institutional parties are moving a bit slower in this than family offices, but will also start making the move.' According to him, a slow but steady shift is taking place, with investors showing increasing interest in crypto as a diversification tool within their portfolios.

Martens thinks there is still a long way to go before crypto is fully integrated into institutional investors' portfolios. ‘Most institutional parties are still in the exploration phase,’ he said. 'There is a lot of interest, but also a lot of uncertainty. Investors want more clarity on regulations and risks before they dive fully into crypto.'

Burger stressed that clear regulation is necessary to gain the trust of institutional investors. ‘Institutional investors are looking for certainty and protection,’ he said. 'Regulation can help professionalise the market and ensure that investors feel protected from fraud and abuse. But at the same time, we need to ensure that regulation does not stifle innovation.'

‘There are still many grey areas, especially when it comes to the legal status of certain cryptocurrencies and ownership of digital assets.’

The train has left

According to Tielman, it is essential that institutional investors seriously examine the development of blockchain technology, regardless of how early the stage it is currently in. ‘It is irresponsible not to look seriously at the implications of this technology,’ he argues. Tielman stresses that - even if they cannot invest in it directly - it is important for institutional investors to understand the impact blockchain can have on existing portfolios, especially in sectors such as finance.

‘Even if you are sceptical about the ideology behind Bitcoin and Ethereum, it is important from a risk management and portfolio management perspective to seriously consider crypto,’ Tielman argues. 'Blockchain introduces a totally new, decentralised, business model, which will increasingly compete with existing, centralised companies and institutions. The train has taken off. We do not yet know exactly how this technology will develop, but it is clear that the potential impact could be huge. It is the responsibility of fiduciary managers to take this seriously and not wait until it is too late.'

Volatility

One of the main factors making institutional investors cautious is the volatility of the crypto market. Dubach points out that the fluctuations in the value of Bitcoin and other crypto currencies are a major obstacle for investors looking for stable returns. ‘The volatility of crypto makes it difficult for institutional investors to include it in their portfolios, especially if they are responsible for managing large sums of money,’ Dubach said. ‘Nobody wants to risk significant losses due to a sudden drop in cryptocurrency prices.’

Still, there are ways to manage crypto risks, argues Burger. 'One way institutional investors can manage crypto volatility is by combining it with other assets. Ideally, you would see negative correlations with other asset classes, but the lack of correlation, as we see now, also leads to a better diversified portfolio. That way, the entire investment portfolio gets an improvement in risk return characteristics.'

Burger indicates that adding Bitcoin and Ether to a classic 6040 portfolio leads to higher returns without significantly increasing volatility, provided the right balance is maintained. He cites recent reports by BlackRock that support this idea. According to him, this helps change the perception of institutional investors. 'Before crypto can be considered as an investment, it is essential to be fundamentally behind this asset class first. Investors must first make that fundamental choice before including crypto in their portfolios.'

Burger notes that previous objections, such as the lack of liquidity, for example, are off the table now that institutional parties have recently become much more involved in impact investing, where they also face many of the objections that were previously a barrier to including crypto currencies in portfolios. This makes institutional parties now seem more willing to seriously consider cryptoassets.

Tielman stresses that he sees blockchain as a new technology. According to him, the focus needs to shift away from specific assets and towards the earning power and new opportunities of this technology. For all activity where a central, ‘trusted’, intermediary is now required, blockchain offers an alternative, and it is inherently global and 24/7. That, he says, is extremely disruptive. Currency is just a first application.

Crypto for diversification

Bender stresses that crypto, despite its high volatility, can act as a diversification tool within a broader portfolio. 'The correlation between crypto and traditional assets such as stocks and bonds is relatively low. This makes it attractive to investors looking for ways to diversify their portfolio and spread their risks.'

Bender argues that the vast majority of listed companies - some 96% - eventually lose relevance. ‘They melt away like ice cubes,’ says Bender. He points to examples such as General Electric, once one of the largest companies in the world, which is now being eclipsed by newer players. 'Or take a company like Boeing, which now has to issue shares to raise 25 billion. It makes more sense to buy a bond from Boeing than a share, and the same goes for Shell.' Bender emphasises that most of today's big companies were founded in our own lifetimes and the founders are still at the helm, which he says indicates how fast the business world is changing.

According to Tielman, diversifying through crypto is a logical step, especially when you realise that the trust-related part of the economy will migrate to ‘on chain’ applications. This migration, he says, will be highly disruptive compared to current economic processes, which are facilitated through centralised parties. In this respect, exposure to blockchain technology in the portfolio can be not only an opportunity, but also a ‘hedge’ against the potential threat of its introduction to certain existing investments.

However, the challenge lies in selecting the right applications in collaboration with deeply specialised parties that understand both the technology and the application areas. Only then can you invest in the private phase, before the network is live at all. Otherwise, you are condemned to buying liquid currencies in which the whole world speculates and it is difficult to make a difference. Investors should not only choose between platforms and applications, but also understand which applications can claim a lasting existence.

Crypto and ESG

To what extent do Bitcoin and other cryptocurrencies fit into an ESG strategy, especially given the high energy consumption of Bitcoin mining? Martens: ‘Bitcoin consumes huge amounts of energy and that is difficult to reconcile with a sustainable investment policy.

Nevertheless, he says, there are initiatives trying to reduce Bitcoin's energy consumption, such as using renewable energy sources for Bitcoin mining. ‘We see more and more Bitcoin miners switching to renewable energy, and that is a step in the right direction,’ Martens said. 'But it is not enough yet. More needs to be done to ensure that Bitcoin can actually become sustainable.'

Tielman points out that other crypto currencies are less energy intensive. 'Bitcoin is an exception with its proof-of-work consensus mechanism. Most networks use proof-ofstake, for which this argument does not apply,' Tielman explains. 'Blockchain technology in general is actually a very ESG friendly technology. It is extremely inclusive, transparent, a counterforce to centralisation, and it offers a new and promising model to tackle global problems like climate change by being able to influence behaviour on a global scale with the right incentives. We are seeing the first promising examples of this'.

Martens adds that crypto also offers opportunities for social impact. He stresses that the social and governance aspects are often underexposed, while crypto can mean a lot in these areas. ‘Many people, even in Europe and the US, still do not have access to a bank account or financial services, and crypto can offer a solution to that,’ Martens says. He adds that blockchain also offers a democratic way to make collaborative decisions about the direction of a protocol or network, contributing to better governance.

Blockchain in asset management Blockchain offers a decentralised, transparent and secure way to record transactions, which could revolutionise the way asset management is organised. ‘One of the biggest advantages of blockchain is that it can reduce the need for intermediaries, such as banks and brokers,’ says Martens. 'This means that transactions can be conducted faster, cheaper and more transparent, which ultimately benefits the investor. But we are also an intermediary. So we have to think about what this development can mean for us.'

'If we are not working on it, maybe another party is. So we have to,' Elsenburg also argues. 'We are trying to look at what the future asset manager looks like. There are already several apps available where your account can be linked directly to a fund manager.'

Burger adds that blockchain technology can also help make different aspects of asset management more efficient. 'For example, if we now look at how tokenised money market funds are being deployed in collateral exchange between larger parties in the market, to me that is confirmation that we are on the eve of a big change. It started with stablecoins, and is now continuing with money market funds. The parties that are now experimenting with it are experiencing how much benefit there is in managing traditional assets in this way. I think eventually everything, including stocks and bonds, will move through blockchain infrastructure. We are moving towards a world where all assets are going to move over the same tracks because of great efficiencies.'

However, Tielman points out that the implementation of blockchain in the asset management industry is still in its early stages. 'While the benefits of blockchain are clear, there are still many technical and legal hurdles to overcome before blockchain can be widely adopted in asset management. This will take time, but I am convinced that blockchain will eventually become the basis for many processes within the financial sector.'

Conclusion

The panellists are convinced that crypto and blockchain will have lasting impact on the financial world, but further professionalisation and regulation is needed. Crypto is no longer a niche or speculative toy. Large institutions like BlackRock and Fidelity are encouraging wide adoption and now institutional investors are also showing interest. There are now regulated financial products like cryptoETFs, and new applications are emerging through innovations like tokenisation and DeFi. This makes crypto more diverse. While challenges remain, such as volatility and regulation, the panellists think it is irresponsible for investors to ignore the potential of crypto, even if you do not invest in it directly