After watching Bitcoin’s stratospheric rise from the sidelines, game developer Adam Dart wanted a piece of the action.
The 29-year-old Scot who lives in Singapore reached out to a handful of local and international banks to ask about opening investment accounts to trade crypto with funds from his family’s wealth office. To his surprise, he was told that while bankers could offer their personal opinions on digital currencies, they couldn’t provide investment services.
“We had to eventually deploy the family office investment via Gemini, a U.S.-based digital asset exchange that operates in Singapore,” said Dart, who helps his parents run the firm that mainly invests in stocks, currencies and private equity. “It’s too much risk for banks to put Bitcoin in the portfolio, that’s generally the reason.”
Dart, whose family owns a semiconductor business, is just one of millions of wealthy investors going it alone as banks largely shy away from cryptocurrencies. Thousands of miles away, Christian Armbruester, founder of the London-based Blu Family Office, is exploring setting up a dedicated fund to trade the assets at a potential cost of more than $100,000 after European banks turned him away.
“They said no way—they didn’t want to custody this stuff,” said the one-time investment banker who oversees about $700 million for himself, his family and other wealthy investors. “This is where the rubber meets the road for cryptos. Everybody can get excited, but the implementation is very difficult.”
Warming Up
After dismissing digital currencies for years, some—but not all—Wall Street giants are warming to the idea. Goldman Sachs Group Inc. said this week it’s close to offering investment vehicles for Bitcoin and other digital assets to private wealth clients. Morgan Stanley plans to give rich clients access to three funds that will enable ownership of crypto and Bank of New York Mellon Corp. is developing a platform for traditional and digital assets. Still, none of the biggest U.S. banks currently provide direct access to Bitcoin and the likes.
Crypto Surge
In Europe, Julius Baer Group Ltd. has started offering trading and custodian services of major cryptocurrencies within Switzerland, and Swiss private bank Bordier & Cie began to trade the assets via a third-party platform. In Singapore, DBS Group Holdings Ltd. recently started a digital exchange that allows qualified investors of its private bank to invest in major digital assets while providing custodian services for them.
Volatility Risk
While Bitcoin is now more than 11 years old, there are very few things it can actually buy, and many lenders remain wary of the volatility risk associated with the virtual currency. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon famously called Bitcoin a “fraud” in 2017 and threatened to fire any employee caught trading it—comments he later said he regretted. UBS Group AG, one of the world’s largest wealth managers, in January warned new crypto investors that they could lose all their money.
“Lenders also have concerns over compliance and risk management, especially around money laundering and terrorist financing risks,” said Nizam Ismail, founder of Singapore-based Ethikom Consultancy, which advises firms on compliance. “Still, regulators worldwide are revamping their framework to regulate cryptocurrency intermediaries as conventional financial institutions.”