Sygnum Bank’s Group CEO Designate, Mathias Imbach, shares his views on Future Finance – the changes it will bring, but also what will remain constant.
The invention of blockchain technology and digital assets enables the direct and instantaneous transfer of value between two parties globally, without centralized intermediaries. Original versions of assets can be transferred in this way, not copies or duplicates, and this has significant potential to transform the financial industry.
Future Finance will see the emergence of a trusted, secure, and efficient digital asset economy, and financial institutions need to be ready for the changes it will bring.
Future Finance is about choice, technology, and ecosystems
First and foremost, Future Finance will create greater access to ownership and value. This means that clients will have more choices available to them and the ability to exercise these choices – driving the development of financial products according to their needs.
Secondly, leveraging technology that is embedded in the bank-grade trust will become even more important to enable this element of choice. And lastly, we believe that Future Finance will be more open, with institutions and people functioning together as an ecosystem.
At the same time, there are elements of traditional finance that will continue to endure whether now or in a hundred years’ time. A key pillar of the financial industry will always be trust, and the people who stand for that trust and represent the institutions that we work with.
The rules of the game – regulatory frameworks – will also remain important to govern how we interact and ensure integrity in business dealings.
Accelerating shift to Future Finance
Record amounts of fiscal stimulus being injected into economies globally have created challenges for traditional asset classes. The amount of value that can be generated from investments has been reduced and there is a risk of inflationary pressure leading to the loss of a portfolio’s purchasing power.
This is accelerating the shift to Future Finance and adoption of digital assets such as cryptocurrencies, which are emerging as an alternative asset class independent of the traditional economy. Adding cryptocurrencies to a portfolio could boost returns while increasing diversification.
Get started in digital assets by investing in Bitcoin
Looking at real historical data, a 5 percent allocation of Bitcoin to a traditional portfolio originally comprising 75 percent equities and 25 percent fixed income would have increased investment returns by 12 percent from the start of 2019 (see performance of portfolio 1 without Bitcoin versus Portfolio 2 with Bitcoin in figure 1). While volatility would have also increased, the outperformance after adjusting for the increased risk is still positive, with a Sharpe ratio of 1.04 compared to 0.76.
The winning factor is that Bitcoin and other cryptocurrencies have historically demonstrated a low correlation to traditional assets. For the most part, Bitcoin’s correlation to equities and fixed income has fluctuated between -10 and +10 percent, which means that in the long-term Bitcoin is a good diversifier and can increase the resilience of a portfolio.
Figure1
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