The Role of Digital Assets in a Traditional Portfolio. A Private Banker View | EBC10

[Music] my name is Carlos alenas I'm the head of digital assets of Mora Bank we are a familyowned bank uh from Andora and basically we started um investigating what was the role of a Traditional Bank within the digital asset space okay so we started like this um this this um Journey like like three years ago um because we had some um uh changes in Andora in which basically we were able to uh develop this business line because we had a specific regulation to be able to basically to uh explore and to come up with products around digital assess for our clients that's why the title of my presentation is well is that we like to Define ourselves as a digital assets Private Bank okay just to give a bit of context and you know probably all of you you know that are here are aware basically of all the changes that we seen in the market uh on the last few months okay since the launch of the ETFs um to basically New York Stock Exchange thinking about having run the clock uh R the clock trading um and and tokenization and everything and this slide you know I just prepared this slide like a few days ago and it's already outdated for instance this news um I think it's gone under the radar for many people but uh basically we we have Swift which is one of the main um infrastructures that the financial sector uses on a daily basis to transfer money around the world is now fully compatible with digital assets and you know this is this is a huge news and I in my opinion it should have been made like like the front news of every newspaper because it is so profound in terms of basically what it will mean in the future for digital assets uh okay so today I want to start framing this um this this keynote around um you know what is in the mind of a private banking uh banker and and the private banking client okay um and I'm going to frame it basically uh on on on the actual let's say um investment uh situation or investment uh space in which we live in okay I I consider uh that uh you know all investors around the world are facing like fine five fundamental challenges over the next few years okay the first one is basically the end of the bull market for bonds basically the uh the portfolio of a private banking client is made of in a big big chunk about uh debts bonds okay so bonds have been like living like a a multi multi-year uh bull market because we've been living in a decreasing interest rate wall okay um driven also by by by by Falling inflation this regime has changed okay over the last two years we've all experienced a massive increase in inflation and a subsequently increas in interest rates it's true that now there are winds of recession or crisis which uh we seen by the you know reaction of central banks by cutting interest rates but the basically the um thinking thinking that this is going to reverse that it's going to continue falling and it's going to continue like being a Bull marketing bonds is like a big question mark right now okay so big piece of a portfol of a traditional portfolio is in question right now okay now the other big part of the these portfolios are equities okay and and what we see here is that we've been living in a a time in which Returns on the equity Market have been extremely concentrated in here you can see uh the US Stock Market versus the other uh components of the uh of the uh of the other assets okay and if you analyze what has driven those returns are mainly based basically concentrated on a very very very few companies which are related to technology Nvidia Teslas Etc so you know the diversification effect of the stock exchange is is kind of Disappearing again um when you build a traditional portfolio made of equities and debt you expect some Decor some some um um uh uncorrelation or decorrelation on the portfolio and that is also changing lately basically we have seen that the correlation between the S&P 500 and treasuries is kind of converging okay so it's you know it's leaving us with less and less options to have a healthy Diversified portfolio again on the equity side we we are also experiencing that there are less and less choice you know the number of of of IPOs is like on on a downfall and also the uh the number of listed companies is also falling quite rapidly because you know private money private markets are are on the rise other options of finances are coming to the market I'm not talking about tokenization here yet but tokenization definitely that will be an effect will have an effect in here whereby companies will find different or more um flexible ways of financing their growth and the fifth is basically we're living in a constant instability on a macro basis we seeing every day interest rate is going up up going down there we see Wars we see um uh loads of basically um leading indicators like P PMI for instance in Europe this week it was kind of a surprise we have seen you know companies like uh Volkswagen laying off 30,000 people last week you know very very convulse times okay so these are our choices okay if we are if we are normal if we are an invest a private banking investor or even a regular investor these are our choices okay these are these are all the ingredients that we can add to our portfolio Okay if we want to to have one actually okay and this is all frame in a basically in a standard way which we use in in Banks and in finance which is called a risk risk uh risk return um framework or Matrix okay in in here you can see that we on the on the um on the lower axis we see the volatility or which is a measure of risk and on the on the next axis we see the um the the the analized return so for instance we see bonds you know offer low volatility but low return the nasda the NASDAQ 100 offers low high return but also High volatility so what happens when we start adding crypto to this mix okay try to imagine also uh for you for for those of you that are not Finance minded try to imagine that you're a chef okay that you are you are working in a restaurant okay and this is these are your ingredients okay so you're used to cook with this okay these are these are the the uh the ingredients that you use on your daily basis okay and one day uh a provider comes comes through through the door and say listen Carlos I found two new ingredients on the market which are amazing they have amazing properties they you know they're going to have they they're going to add a lot of flavor to your to your to your cakes or to your Rices or whatever and basically and when and and when you put them on the mix basically um you get this okay you know the little dots the little col color dots are the assets that we were seeing before and when we add Bitcoin and ethereum to the mix we get this okay we get a new kind of as class a super ingredient super food it's like you know avocado or seeds or whatever in which okay uh now okay I have this the this new choice to to add to my let's say to my combination of assets why is this important um because you know it offers a complete different profile of investment opportunity to the other assets that we're used to and how we how do we measure this wa we measure this on a by by measuring how correlated is the this new asset to the to the rest okay and in this case this study which is made by gray scale um the number is around 04 so is a asset that definitely adds diversification and UNC correlates you know a traditional portfolio and I think that's really important adding to that basically um if we frame this uh allocation of digital asset within uh or in terms of of of sharp ratio basically what we do here is we start adding Bitcoin or ethereum to a traditional portfolio 60 40 by 60 60 fixed income 40 equity and then we start adding Bitcoin to it and we run the numbers we keep running the numbers and and as you can see here if uh if if you have zero shares of on um zero shares of Bitcoin on your portfolio you get a sharp ratio of of 08 as you keep adding as you keep adding percentage of Bitcoin that curves increase up to one point in which it starts decreasing that means that up to around five six six% it doesn't make sense to add more Bitcoin to a traditional portfolio because even though you can add return but you are also adding risk so your your risk adjusted return is not as great but up to 5% up to 5% basically you are increasing you are increasing your Shar ratio therefore you are adding units of return without increasing your risk and this is really really important that's what we say that a little goes far A little of Bitcoin in a traditional portfolio helps a lot in the long run also keep in mind long run is very important so how how we go about that how how do we give our clients access to these opportunities okay as I said before we're a digital assets private banking okay and this is the magical word trust okay we are a Traditional Bank we've been in the business for the last 90 years as all the as as many as many banks also and we've been serving clients for many many years for many many generations and we are still there we're still serving our clients we're still offering uh services and giving them business so why not doing the same with digital assets and that's basically that's our key or or for any traditional uh Finance institution this is the biggest value that they hold trust because technology well technology uh goes very fast you know there are people that are more advanced than that that banks for show I'm not going to be fighting with binance or coinbase or whatever about having a better app or better experience but I can fight with but but this is my this is my key selling point I can sell trust and that's not easy to sell so what do we offer um we saw that basically the first piece to have to integrate in a bank it was custody on forensics forensics meaning understanding very very very well how that digital asset wealth was created where it comes from what is the life of this wealth for this client so reinforcing the compliance processes the AML kyc understanding 100% where this money comes from and how it has been formated that's that was key as well as having the custody piece why why custody well I will I will come that I will come back to the to to the why in a minute we also offer specialist funds we also offer flow and structure products we have feran Vila our chief strategy strategy products officer around if you want to get more more information about that and also we offer all the ETFs all the ETFs available in the market we offer them to our clients but we've but we've gone what one one step ahead we've also created our own products around this concept okay full reserve and full segregation this is really important okay there are loads of basically uh chatter around about about the the fractional system in which the banking system is built on which has you know its advantages and also it the this disadvantages uh I truly believe that on the digital ass space we need to move on we need to move on into a full Reserve full segregation system that that means that if you bring one Bitcoin to Mora Bank you will always have one Bitcoin at babang and that one Bitcoin will always be on your account and nothing is done with that one Bitcoin for instance so that's what we call full Reserve full segregation and what we've done we've created two funds one for Bitcoin one for ethereum and a third one is coming which is an ethereum with it with it staking layer how we do this basically we just hold the Bitcoins on beh behalf of the clients it's a these are physical investment funds which means that you need to have the asset first to come to the fund and the day that you want to go I'll give you back your Bitcoins I'll give you back your your your your ethereums fully obviously we charge commissions we we need to make a livit for this but we don't charge them inside the vehicle or the fund we charge them outside so therefore if you put five Bitcoins in the fund in five years time you still have Bitcoins and this is pretty new because we do that basically wallet to Wallet transaction so we are not basically uh going through any Omnibus account anything like that we just go from the client's wallet to the morab bang wallet to the funds wallet and reverse that's very important um sorry running I'm running out of time so some benefit that we have basically there are some fiscal resident some fiscal benefits if you're under un resident we let our clients diversify uh into the digital asset from a traditional framework uh you have a claim you have a claim on your Bitcoins uh the Bon that you bring is yours and is there for you on your wallet and also eliminates the complexity of investing the bookkeeping and also solves frictions that you know maybe it's a bit too early but they will come up like for instance inheritance uh um donations transparency these are things that maybe maybe we a bit too early but these issues will come up and will need to be solved so with this we like to say you know we have not a bank we are your Banks and the and your coins are your coins thank you very much