Crypto Broker, a Swiss trading platform for crypto assets part of Crypto Finance, was the first structured products issuance platform for securities linked to digital underlyings developed by GenTwo.
SRP spoke to Pirro Morandi (pictured), head of business development at Crypto Broker, and Philippe A. Naegeli, chief executive officer at GenTwo, about the lack of tier 2 coverage from investment banks, and how new market entrants are using structured products to offer access to crypto assets as well as other non-bankable assets.
“These products did simply not exist two years ago,” says Naegeli. “We see significant activity around securitisation of digital assets, and we see structured products well positioned to capitalise on the growing demand. We want to help normalise investing in this kind of asset and remain committed to working with other players to enter and provide access to this market.”
The asset management space in Switzerland, and by extension in Europe and globally, is quite fragmented. Several new players are targeting those asset managers seeking to trade and get custody storage services for crypto assets with a one-stop shop approach.
It was not efficient to on-board clients or to manage an investment strategy across different accounts - Pirro Morandi
“We approached GenTwo as they are specialised in illiquid assets and in issuing structured products in a different way,” says Morandi. “We had already spoken to several asset managers looking for a platform that would allow them to build their own products and strategies using less liquid assets as well as the usual equities and bonds to build a track record, so we knew there was demand for this, especially from regulated asset managers in Switzerland.”
GenTwo had already helped other firms to issue products offering exposure to non-bankable assets, so it was a natural fit for Crypto Broker to service those institutional and professional investors together.
Crypto asset trading (CAT)
Before the platform was launched, if an asset manager wanted to offer a crypto strategy, this could only be done by opening an account for each individual client that had a significant administrative workload, to segregate the assets etc.
“It was not efficient to on-board clients or to manage an investment strategy across different accounts,” says Morandi. “The first thing we did was to create an issuance platform to offer products in a flexible way, because some clients want to just track an asset and others want more complex strategies.”
The platform has now several issuers plugged with clients trading and increasing funds through the platform. The main advantage of this set up is the flexibility as asset managers working with the platform are able to implement different investment strategies across their client portfolios without having an impact on AuM.
“You can manage a single asset product or go for a strategy managing as many coins as you want, all booked through the securitised product with the client’s existing bank,” says Morandi. “The portability and scalability of the platform makes it an interesting tool for external asset managers to offer different products to their clients.”
GenTwo initially entered the market offering securitisation but the fintech revolution has opened up opportunities for collaboration and partnerships on a number of areas to service the market.
Market gap
Morandi notes that there was a gap in the market because traditional issuers such as investment banks were not touching these products.
“This led to a lack of investor choice when it came to crypto assets, until recently,” he says. “Although investment banks are aware of the potential in providing flexible tools for advisors and asset managers to build structured products for investors, this only covers traditional assets. As a result, innovation remains limited because you always have the same structures and a different underlying within a limited pool.”
When it comes to non-bankable assets such as crypto assets, wine, or art, investment banks are limited in what they can offer although, and that is when structured products can become exciting.
Without innovation, however, there is no growth which is why some of the partnerships in this space are “very promising as they bring new ideas and ways to invest and deliver investments,” according to Naegeli (right).
“We see these opportunities as new horizontals in asset classes and products, whereas the traditional banking sector continues to be focused on the verticals and trapped in the complexity of their own compliance, product development, and departmental structure,” he says.
Fragmentation
In Switzerland, the crypto market is developing fast and there is a regulatory framework also helping give Swiss firms a competitive edge versus other non-regulated providers.
As SRP has reported, there has also been a significant transfer of people from banking to the digital space, and that is helping grow banking knowledge and the ability to respond to market demand.
“This means that if you go to a bank and talk to them about your technology, they will probably not be interested; but if you talk to them about how to trade with your technology, they will probably listen,” says Morandi. “We see that investment banks are relying on third party providers to get into the crypto world, enabling their crypto offering and trading these assets.”
Blockchain
The use of blockchain for banks is also an area of discussion because it raises questions about the ability of blockchain to make processes more efficient and if it is needed across a banking platform.
“We understand that position, but what is clear is that there is also a need for investors to access digital assets in a safe and transparent way,” Morandi says, adding that there are now several players in the US, the UK, and Switzerland that have very clear business models to service this industry.
“We are doing this already with several mid-size players, and we have the capability to serve bigger players – that is our goal. We want to target players seeking to enter the market and to offer their own products. We can help with product design, with the set-up of the offering, the due diligence, contracts, etc. In this way, we are already promoting this asset class and making it accessible.”
The perception is that it will not be too long before structured products providers offering traditional structures bring crypto assets to the mass market.
“It will take some time to build the confidence and trust - firms like Crypto Broker are helping to build up the case for these products and fill the gap that investment banks have left,” says Morandi. “We provide liquidity with our offering and are even market makers for selected coins through a variety of trading venues, which also builds liquidity.”
Liquidity
Liquidity in this space can be fragmented and limited when looking at the products themselves and where the product is listed.
“This is something that the industry needs to keep working on,” says Morandi. “This lack of availability is also why some asset managers are going their own way.”
Relationship managers are increasingly inquiring about digital currencies and having a percentage of their portfolio invested in crypto assets.
“They are investing because firms like Crypto Broker and GenTwo are able to provide support and guidance from concept to delivery,” says Morandi. “We have clients already using products for their customers, trading actively (in and out) and with the flexibility to allocate according to their customers’ needs.
“In the public space, the offering listed on exchanges by investment banks and other ETP providers is very limited. We think there is scope to grow the market share of these products in the retail market.”
The digital assets market is about purpose alignment – helping players and investors to deal with complexity in a transparent way and solving problems for the sector to move forward.
“There has never been so much room for this kind of alignment and to grow the market for the benefit of all. While the traditional banking and financial sector continues to focus on fighting for the same customers, for the same margin, with the same products, there is space to use technology to address complexity and build the tools that can help solve the problems we face efficiently and grow the market in a sustainable way,” says Naegeli.