Digital Assets and ESG – how to invest and get it right

Christian Kranicke of blufolio

Aug 17, 2022

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1. Should Asia’s HNW investors be considering digital assets, and why?

2. What sustainable options are available in this space?

3. How should intermediaries and advisors educate investors on cryptocurrencies?

4. For those private clients buying into these assets or thinking of doing so, how should they buy safely and efficiently?

5. Who is Blufolio and what do you do in this space?

Video transcript

1. Should Asia’s HNW investors be considering digital assets, and why?

Thank you, Michael, for that question. In fact, I believe very strongly that high net worth individuals should consider investing in the digital asset space and I'll tell you why, but before doing that, I would just like to be specific about what digital assets in fact are. We have heard quite a bit about cryptocurrencies, which represent digital storehouses of value and a means of exchange. But going beyond simple exposure to cryptocurrencies themselves, I would also emphasise that in the digital space, there are other types of assets as well. Namely, I am speaking about companies and projects which deploy blockchain technology in their business models. These business models span many different sectors from the banking industry, to digital identity, to the energy sector. A whole range of opportunities exist, in the so-called digital space. Digital assets do not just refer to cryptocurrencies, though there is growth potential strictly in that asset class. But one must realise that the protocols that underpin the technology that are built upon those protocols also represent extremely attractive value propositions. With this understanding in mind, we arrive at the question regarding why a high-net-worth individual should consider investing in these assets. For me, that is very clear. First, as part of portfolio diversification, I believe that these assets should represent a portion of any allocation. Secondly, because the growth and value creation potential look to be quite significant in the months and years ahead, this is an extremely attractive asset class. Also, in the short term -- I'm going to say in 2022 -- we see many other factors that point to the persistence of a sustained bear market in more traditional assets, such as equities and bonds. So, for those reasons, I believe that high net worth individuals from Asia should consider digital assets as being an integral part of their portfolio.

2. What sustainable options are available in this space?

Michael, regarding sustainable options that exist within the blockchain space, I would like to point out a few items. First and foremost, we at Blufolio pride ourselves on investing at the intersection of blockchain and sustainability. There might be some question in investors' minds as to what this is and what is represented concretely by that statement, but it's quite easy to answer. Blockchain technology offers the opportunity for added efficiency in almost every undertaking and we see the application of this technology in very important sectors. Taking clean energy for example, the application of blockchain technology adds efficiency and economy to wind and solar power generation, sources that offer clear and sustainable alternatives to coal production or nuclear-generated energy, to say nothing of oil and gas. In the energy sector, we can see that in many different projects that use the blockchain as an integral part of their value proposition. Such projects raise the profile, scalability, and the profitability of clean energy initiatives. We can even go beyond clean energy though, to talk about other subjects such as supply chain. If you can imagine the journey of any particular product, either from field to the store or from factory to consumer, there are numerous elements that are involved in that supply chain from start to finish. Each of these elements consume enormous amounts of energy. Blockchain technology and the efficiency that it brings to systems help to reduce bottlenecks, added costs, and of course, energy consumption. Making the systems that affect all our lives much more effective and economical from an energy point of view, whether it's in energy production itself or in other areas such as supply chain, is an integral part of the sustainability philosophy and practice that underpins Blufolio's investment philosophy.

3. How should intermediaries and advisors educate investors on cryptocurrencies?

This is a very important subject and I believe that the way one goes about addressing it is crucial. We must understand that even though there has been a lot of exposure in the press about cryptocurrencies and about blockchain, these technologies still remain still new. Oftentimes, their use cases may not clearly understood -- and that is not a big surprise. The fact is that the newness of the technology means that any investor, even sophisticated investors, may not have the same degree of familiarity that they would have with traditional assets such as stocks, bonds -- whatever it might be. The most important thing for any investment advisor to bear in mind when they speak with clients is that the entire space is best served, and the investors' interests are best served, by sharing knowledge about the products. It is important to make sure that clients feel as comfortable as they can with the products that are under consideration, whether it be simple exposure to a cryptocurrency or understanding what a direct equity investment in a company in tokenised fashion can mean. There are terms, concepts and a certain language in the crypto and blockchain space that are not familiar to most people. So, the most important thing is to demystify all of that and explain it very simple and basic terms. We do that at Blufolio by sharing our knowledge with investors and making sure that we speak very clearly about what is at stake. We publish and share other sources of information that investors can look at on their own. Those may include educational videos or other items to help investors become more comfortable with the subject matter or a given project. Making investors feel comfortable with this new technology is quite important, particularly if they're going to be making commitments in the area. And I would emphasise that it's much easier than many people think. There is a wealth of information on the internet that one can read and view. All these items are very helpful in raising the level of understanding and hence the comfort level for any investor. That should be the number one priority for any investment advisor when they go and speak to their clients.

4. For those private clients buying into these assets or thinking of doing so, how should they buy safely and efficiently?

Making investments into the crypto and blockchain space is something that we encourage, but we should also emphasise when anybody enters this space that it's important to do so in a secure and safe fashion. There are different ways that one can approach this. There is, the ‘do-it-yourself’ method, which is the method often preferred by people who are particularly skilled from a technical point of view and who are quite happy to spend time setting up accounts on various exchanges, et cetera. For the individuals who have that skillset, I would always emphasise that it's important to make sure at each and every step that there's security, both in terms of the storage of the assets and in terms of connectivity. The fact is that all exchanges are open to some degree of hacking and exposure and we have seen in the past that it's quite easy to lose one's digital assets if one is not careful. So for those who want to pursue that particular path, there are steps to take to ensure that one’s exposure to hot sources or to areas where there are significant points of weakness is minimised. And of course, once you have your digital assets stored on a remote device it is crucial to keep that device in a secure place, disconnected from the internet itself. If all that sounds too complicated for the average investor, I would say you're not alone. Despite the number of years that crypto and blockchain technology have been available to the general public, the fact is that from a technical point of view it can be quite user-unfriendly, and going through the process of setting up accounts, managing relationships with exchanges, and executing transactions can be extremely cumbersome. In that respect, I would say that it is often easiest and advisable for investors to simply develop a relationship with an asset manager that has a skilled technical team and who understands how to manage these issues for them and on their behalf. As I said, there are different approaches. One group of investors might always prefer to handle the technical issues for themselves. And that's just fine. My experience though has been that most individuals have many things to do during their day and they aren't interested in devoting endless hours to mastering technical matters. They have other things that demand their attention. My advice to that group – the one that does not want to manage the tech matters-- would be to ensure that the asset manager that you're speaking with has a skilled team, and that they can handle any matter from transactions to security, to storage. We do this for our clients at Blufolio. Those are questions that anyone can put directly to an asset manager when speaking to them. Ask questions about their connectivity, the exchanges they work with, their custodial services, the skills of the technical team and how they go about safeguarding these digital assets. No question is unimportant. I always emphasise that it's important to raise the level of knowledge. We understand how banks work: that they have vaults with assets that are kept underground or in secure locations; and the same type of question is very relevant for the storage and safekeeping of digital assets.

5. Who is Blufolio and what do you do in this space?

Blufolio Switzerland is an investment company. We are an investment firm with a focus on the confluence of blockchain technology and sustainability. Our interest is in taking direct equity stakes in companies which deploy blockchain technology to solve the key issues facing the world and which have business propositions that we feel represent excellent growth and future value. We look at a range of business proposals that are put forth by projects running on different chains. We manage a portfolio of liquid crypto assets ourselves, and together, we try to offer access points to the crypto and blockchain space for investors of every stripe and risk profile. For some, that means simply entering this asset class via highly-liquid OTC products, such as our liquid crypto portfolio. For others that means taking a longer-term view and investing directly through our institutional grade venture capital fund to gain exposure to exciting companies that are really on the cutting edge and who will be creating value in the years going forward. That is our focus at Blufolio.

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