Research Reports 4 January 2023
Cryptoassets: Beyond the Hype
An Investment Management Perspective on the Development of Digital Finance
Based on interviews of investment professionals and crypto experts, the authors go beyond the hype to understand the state of crypto investing and the implications for investors and policymakers.
Cryptoassets: Beyond the HypeRead the report (PDF)
This research paper offers a dispassionate look at cryptoassets from the point of view investment professionals. The paper distills research interviews conducted over the past year with a variety of investment practitioners and crypto experts—some enthusiastic, some skeptical, many cautious but curious. We have sought to go beyond the hype and understand what investment professionals are thinking and doing.
The paper offers recommendations for policymakers as well as recommendations for investors, while taking no categorical position for or against investing in crypto. Instead, we offer a framework of key issues to consider before investing in crypto, including: valuation, fiduciary duty, custody, and safekeeping of client assets. We believe the market events that have affected cryptoasset markets, including the sudden collapse of FTX, reinforce themes that our interlocutors previously stressed to us and that the paper highlights.
Key messages include:
- The need for crypto investors to ground their decisions in an investment case,
- The need, therefore, to examine crypto use cases, especially in the absence of cash flows,
- The need for fiduciaries to think carefully about their duty of prudence in light of the specific characteristics of cryptoassets,
- The need to look beyond the hype and to distinguish the disruptive potential of crypto technology from the value of individual cryptoassets,
- The need to ask what decentralization means in the crypto ecosystem and the conundrum this presents for accountability and regulation; and
- The need to establish a strong regulatory framework, for the benefit of crypto providers and users alike.
About the Author(s)
Stephen Deane, CFA, is Senior Director, Legislative Outreach and Capital Markets Policy for the Americas, at CFA Institute. Stephen also serves as Chair of the Markets Advisory Council of the Council of Institutional Investors. He joined CFA Institute in 2020 after more than nine years at the US Securities and Exchange Commission (SEC). He worked in the SEC Office of the Investor Advocate since its inception in 2014, where he helped to build out the office and served as principal liaison to the Investor Advisory Committee. He previously worked at MSCI, Institutional Shareholders Service (ISS), and in international development.
Olivier Fines, CFA, is head of advocacy and capital markets policy research for the Europe, Middle East, and Africa (EMEA) region at CFA Institute. With teams based in London and Brussels, he leads the effort in researching and commenting on the major trends that affect the investment management industry, changes to the profession, and policy and regulatory developments. The positions taken on these issues and the research pieces that are published are meant to promote the fundamental principles upheld by CFA Institute: investor protection, professional ethics, and market integrity. Previously, Mr. Fines spent 15 years in investment management—spanning research, portfolio management, product management, and regulatory compliance work—at firms based in Paris and London. Prior to joining CFA Institute, he was head of risk and compliance at Rothschild & Co for the private equity and private debt division.