Donald Trump’s second-term election has provided a significant boost to cryptocurrencies, and much of the scepticism shown by traditional financial institutions towards crypto and other digital assets is now eroding.
Sean Kelly, founder of Akrido Digital Assets, believes that the likes of bitcoin will have a bigger role in funds from now on.
“We’ve already seen they’re pushing for a crypto-strategic bitcoin reserve in America. Some 36 states have started getting the necessary regulatory environment in place. Big funds like Fidelity and BlackRock have released ETFs and are investing in bitcoin and cryptocurrency now,” says Kelly.
“It can only go one way. Bitcoin has proven itself as a reliable store of value, and most big funds are looking at a 1 per cent allocation at the moment. Even that would drive the dollar price up significantly.”
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Kelly says it is important to distinguish between bitcoin and the wider cryptocurrencies market, nothing that while bitcoin has a “use case”, as it is a decentralised hard currency with a scarcity value, this is not the case for most other digital currencies.
Maria Flannery, partner, asset management audit, and head of digital assets at KPMG Ireland, agrees that the early days of the Trump administration have witnessed a significant shift to pro-crypto policies in the United States. If, as expected, this is paired with crypto-friendly tax policies, we are likely to see increased investment in this asset class in the US. The situation in the EU is less clear, however.
“Europe continues to maintain a cautious regulatory-focused stance on crypto, which is driving an increased divergence between the US and Europe,” says Flannery.
“The UK recently announced plans to stop retail investors borrowing money to invest in crypto as the FCA seeks to bring crypto within its regulatory remit, which will hinder retail investment in crypto. Institutional investors continue to be cautious; however, significant progress on regulatory clarity on both sides of the Atlantic will drive even the most cautious funds to consider the asset class if they have a clear path to compliance.
“There will always be some level of resistance to such high-risk asset classes. However, as the sector matures and we see more instances of large institutional players entering the crypto space, this will lend increased legitimacy to the asset class and will normalise its adoption.
“There has been a shift towards bitcoin in recent years, and its current dominance of the market demonstrates that it is viewed by many to be the ‘safest’ asset in the cryptocurrency class.”
As an asset, bitcoin has been highly correlated in recent times to traditional markets such as the key US stock indices, and has also reacted to macroeconomic factors like interest rate movements or trade tensions – a sign many observers feel of its increased legitimacy – but Kelly feels that this is changing.
“When the recent trade tariffs were announced, the stock market pulled back but bitcoin stood its ground very well. It’s like the market has now validated bitcoin for what it really is: a stand-alone store of value, separate to the existing financial system. Bitcoin doesn’t care about interest rates, stock markets or any of that. It’s completely separate and a way to store value outside the existing system.”
Flannery notes the growth of tokenisation, a way of making illiquid assets such as real estate, private equity and commodities more liquid, and sees its potential to not only make illiquid assets more liquid, but also to bring greater efficiency and transparency to wider financial markets.
“It could lead to reduced friction from an operational perspective, with faster settlement, fewer intermediaries and increased automation of processes,” she says. “Fractional ownership also has the potential for greater liquidity and accessibility, with lower investment thresholds and the potential to allow more efficient secondary-market trading. However, interoperability between stakeholders, platforms and blockchains will be the greatest challenge to unlocking the potential of tokenisation.”
Kelly is also a tokenisation enthusiast: “That’s a very good use case, and I do see a lot of interest in that area. Bitcoin, separately, is the most liquid asset in the world. If you want to buy or sell quickly, bitcoin is the fastest, quickest, most liquid asset. Compare that to property, which might take six or 12 months to sell, or gold, which you have to physically move.
“While bitcoin is already the world’s most liquid asset, tokenisation of traditional assets – real estate, bonds, etc – is progressing mainly on platforms like Ethereum for now. But overall, the trend toward blockchain settlement is accelerating and solves those problems.”
