The digital asset bank with roots in Switzerland and Singapore sees the strongest demand for straight exposure to the market.

Sygnum has been broadening its product range.

Apart from the Sygnum Digital Asset Multi-Manager Fund, an alpha-oriented digital assets fund-of-funds, and Sygnum Platform Winners Index ETP, a 100% physically backed, fully collateralised exchange-traded product with beta exposure to foundational blockchain protocols, it now also offers Defi+ Core, an actively managed certificate (AMC) for exposure to decentralised finance.

In the second of a two-part interview, Katalin Tischhauser (pictured below), head of discretionary solutions and investment research, Sygnum Asset Management, spoke to SRP about the future of the crypto market and whether the bank would consider offering other, more traditional structured products such as reverse convertibles on digital assets.

Cryptocurrencies offer a disinflationary option that cannot be overruled by political decisions - Katalin Tischhauser

“I do not see enormous demand for complicated structured products,” said Tischhauser. “There would be demand for downside protection, for obvious reasons, but when interest rates are very low or even negative, it is very hard to create attractive products with downside protection. In fact, right now 80 to 85% downside protection is possible with limited upside – which usually does not attract investors.”

With the high volatilities in crypto, the implied volatility is high as well.

“It becomes very expensive to get upside exposure through an option or convertible type. Instead of being exposed to one Bitcoin per product, you get half a Bitcoin exposure per product because it is expensive to buy the exposure. With reverse convertibles, if you sell the volatility, you can earn a great deal,” said Tischhauser, adding that with such a volatile product, the expectation is that the market participants selling the exposure are also reckless.

“This very high yield can be appealing, but if things go badly, you own the asset that went wrong. In the crypto markets, this can mean being down 75% in a week for a given token. Few investors would be happy taking that sort of risk.”

At the moment, Thischauser sees the strongest demand for straight exposure to the market, both active and passive.

“There is an active crypto asset options market, although the range of cryptocurrencies has room to grow. However, futures exist for a long list of cryptocurrencies now,” she said.

The company is hoping to develop new underlying strategies in the not-too-distant future. It is looking at both different sectors and asset allocation types while it is also reviewing quantitative strategies with momentum or trend following strategies.

“Fundamentally, we think that the current environment creates a very bullish scenario for the crypto market. We see the current weaknesses as a good opportunity to enter the crypto market, and we expect to see much higher prices later in the year,” said Tischhauser. “We see this is driven by the growing number of institutions entering the market, bringing more users into crypto assets.”

There are developments in the world that support the case for decentralised finance and cryptocurrencies. Canada raised this awareness, when bank accounts were frozen due to protests against the government, as did Russia, where sanctions are affecting a lot of people personally. As a result, many people consider cryptocurrencies more quickly.

“There has been real growth in the usage of cryptocurrencies. As inflation appears after the extreme monetary expansion, cryptocurrencies offer a disinflationary option that cannot be overruled by political decisions.

“More cryptocurrency supply cannot be created just because what a central bank or politician wants to achieve. Currently, inflation is becoming a bigger and bigger problem – such as petrol prices for example. That is inflation, and it affects you directly,” said Tischhauser.

There is also the question of more uses for cryptocurrencies. It is no longer perceived as just one type of investment: there are many applications.

There is also increasingly sophisticated interest in metaverse-related projects, also known as Web3 or the decentralised web, open web projects, decentralised finance (DeFi) and a whole host of applications for building on the blockchain.

“I think this growth in interest is leading to a differentiation of investments by crypto market segment, sector, underlying blockchain, applications built on top, supply chains, communications, or even by media.

“It is still at a very early stage, but we basically see a replication of the old economy on the blockchain. Increasingly sectors are starting with little replicas of their traditional counterparts and then they are growing. Investors are starting to be interested in themes, so they may be interested in buying into metaverse-related crypto assets or NFT-related crypto assets.

“The interest is increasingly specific, rather than people just wanting to buy into ‘crypto’ in general,” Tischhauser concluded.