Investors warned that crypto return products are not bonds

It does not often happen that an investment can be compared with safe bonds in the moor standard and with risky risk capital participations. But this is currently happening to certain crypto-asset systems-since new developments in digital finance continue to bend old definitions.

Since investors put billions of dollars into new Bitcoin tracking ETFs in the USA, the debate changes about the purpose of what-if at all-cryptocurrencies can meet in portfolios.

Bitcoin, the largest cryptocurrency, was compared by many investors with “digital gold”, who believe that it can serve as a defensive asset against inflation and as a counterweight to other risks.

However, some investors wonder whether certain crypto -based strategies could be an alternative to keeping bonds as a source of fixed income currents. And it becomes an area of growing interest, since the bonded ends remain at a low level and the amount of the negative debt is close to record heights worldwide.

At the moment there are several options for looking for passive returns via cryptoma markets.

Firstly, it is possible to borrow money to other parties on central and decentralized crypto platforms and to achieve competitive interest rates. For example, Seba-the Swiss-regulated crypto investment bank founded by two former UBS employees-introduced a service with which its customers can earn interest from decentralized financing (Defi) and crypto loan with returns between 3 and 13 percent.

"We have more and more demand for the return product of institutional customers," said Guido Buehler, CEO of Seba.

The volume of the Smart Contract loan, which is handled by the Ethereum blockchain, rose to more than $ 26 billion, according to the data from the research provider CryptOCCOMPARE.

Secondly, income income can be generated by "staking": locking your cryptocurrency assets to contribute to the administration of the blockchain, on which trades are recorded and in return to earn crypto rewards.

Analysts from Goldman Sachs compared the “Staking Yield” paid by some blockchains with the dividends for shares. They also said that the returns offered by defi services very likely contributed to their growth last year. Cryptocompare figures show that the staking volume on the Ethereum blockchain rose from $ 65 million in January to $ 4 billion in October.

In the same period, the value of stable coins-cryptocurrencies that were covered by conventional currency stocks-that were pledged in exchange with returns, rose from $ 2 billion to $ 19 billion. Max Boons, CEO one of the largest cryptocurrency trading companies B2C2, even believes that "crypto bonds" that are paid in stablecoins are imminent.

But this increase in the return-going crypto investment has led to an intensive examination of the groups that offer the public products. The Coinbase crypto exchange listed in the USA gave up its efforts last month to launch a return offer called "Earn" after the US stock exchange supervisory authority SEC had threatened with legal steps if it was continued.

Many US regulatory authorities believe that a product range for paying interest on crypto interludes to the public is technically a security. Therefore, providers must comply with the financial regulations for the emission of securities, for example the obligation to register with the authorities.

Several companies that have already started to offer these interest -bearing accounts are now being pursued by state supervisory authorities. The New York Attorney General Letitia James ordered last month that two nameless crypto loan platforms hire the company in the state. Authorities in several other states have also stated that the lenders have violated Blockfi and Celsius against their securities laws. Both companies have denied these claims.

3%-13%

interest rates through decentralized financing and crypto loan

However, crypto-return offers for institutional money managers and professional investors are not subject to the same regulatory restrictions as products that are aimed at public.

Nevertheless, experts say that investors should be very careful when it comes to moving to conventional fixed -interest systems - in view of the extreme volatility of cryptocurrencies, their relative lack of regulation and the risks associated with the support of crypto projects in the early phase.

"Common protocol errors and losses from hacking are typical features of new technologies and reflect the immature of the [Defi] industry," warned Goldman Sachs.

Bühler from Seba Bank uses a different analogy to explain potential investors crypto-return products. "It offers a similar opportunity for certain cryptocurrencies that we saw for maybe 25 years ago for real estate," he argues. "You buy an asset with considerable upward potential while you achieve a considerable return."

Some investors are more careful. Peter Edwards, CEO of the Australian Family Offices Victor Smorgon Group, which has started to change a small percentage of his assets in crypto, sees an alternative to gold in Bitcoin, but sees all other crypto chances as a higher risk.

"Everything else that is called Coin, [WE] basically consider it a risk capital," he says, comparing the projects with still unpredicted start-up companies, whose value is based on their potential for future returns.

I was surprised by the achievable yields. . . 6.5 % are massive today “

However,

Edwards admits that the returns offered in Defi are attractive. "When examining the defi area, I was surprised by the returns that could be achieved with certain security guidelines that limited their risk," he says. "[A] 6.5 percent return are enormous today."

A lack of attractive returns elsewhere has undermined the conventional strategy of keeping 40 percent of a portfolio in bonds and only increased the attractiveness of crypto, says Ruffer-the British asset manager, who has invested $ 1 billion in Bitcoin.

like Duncan Macinnes, an investment director at Ruffer, who helped the administration of his Bitcoin share, explained at the beginning of the year: “The increase in the Bitcoin price was rather rational in the sense that investors have to take always more drastic steps to protect themselves from inflation and numbers, which can be done with the 40 percent of their portfolios that do not deserve anything.“