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Cryptocurrency investors are moving their assets into onshore locations


The bankruptcy of trading platform FTX has once again harmed the already weak crypto market. Many cryptocurrency prices have fallen, with private investors in particular selling their holdings. But is this the full story?

“On the institutional side, we are seeing a different picture”, says Daniel Knoblach, Board Member at Fair Alpha, “where demand is still brisk. There is, however, a call for more regulation.” This benefits mainly regulated crypto service providers and the EU as a place for doing business for institutional investments in this asset class.

The founding myth of cryptocurrencies continues to lie in their wide-ranging independence, their function as an alternative currency and even a certain form of anarchy. But is this image the right one for crypto’s next phase of growth?

“As appealing as all this may be, it is definitely not the environment in which institutional investors want to do business or are even allowed to do so”, Knoblach points out. The bankruptcy of crypto trading platform FTX has again reinforced the need for regulation.

“This is not primarily a call for large additional regulatory steps”, says Knoblach. “Within the EU, the FTX case would hardly have been possible in this manner even with today’s regulations. Additional adaptations of some details, however, are certainly desirable, for example as far as brokers or custodians are concerned. The concentration on regulated markets and professional vehicles is expected to increase and market share will shift away from offshore locations that are weakly or not at all regulated towards regulated brokers or custodians within the EU or in Switzerland.”

More cryptocurrency is flowing into the EU

Two levels are interesting in this connection. Knoblach says he observes that more crypto money is flowing into the EU in general. At the same time, however, he has also noticed that cryptocurrencies are being held less and less directly, but by way of institutional vehicles.

Providers of Actively Managed Certificates (AMC) based in Luxembourg are seeing a huge influx, for example. These compartments, set up under EU regulations, which are subject to far-reaching legal requirements. All the while, they are also very easy for investors to handle, since they are securities that can be traded on a stock exchange and held by a custodian and have their own securities identification number.

Jointly with brokers regulated in the Germany/Austria/Switzerland region, an ever larger number of crypto AMCs are currently being launched, especially out of Luxembourg it seems.

“Right now, offshore AMC providers and brokers are massively losing market shares to EU providers in this territory”, Knoblach adds.

And in absolute terms, the trend towards crypto is unbroken as well. “Many institutional investors already established cryptos as part of their asset allocation quite some time ago”, says Knoblach. “They are keeping with this approach and are currently buying crypto stocks – either directly or primarily via AMCs – at favourable prices.”

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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