Blockchain technology could have a disruptive effect on wealth management. Some of the reasons why this could happen include the fact that the decentralized ledger system of the technology enables enhanced transparency, accountability and security. Another fact is that the distributed ledgers enjoy a higher level of flexibility, and the possibility of enhancing efficiency too. For instance the streamlining of model portfolio management becomes easier, compliance burdens are lifted and the settlement and clearing of trades is faster.
One of the areas where wealth managers could fill a gap with regards to investments in digital assets is in the arena of Initial Coin Offerings. This is because to a large extent ICOs are unregulated and there is thus a need for expert advice. At the moment the number of ICOs keeps growing as well as the amounts that are being raised. So far, per Forbes, the amounts that have been raised in Initial Coin Offerings are over $2.3 billion. Most of that amount was raised in the first half of last year.
Tokenizing real assets
Some of the startups that are looking to tokenize real world investments include Blackmoon which aims to bridge the gap that exists between real investments and digital currencies. Some of the real world assets that have been tokenized include property and gold.
Another firm that has introduced a cryptocurrency wealth management solution is Bankorus which expects to launch a token sale this year. The firm is targeting the vast amounts of wealth that is in the hands of high networth individuals. It is estimated that combined, high networth individuals own assets valued at over $60 trillion. However less than 0.1% of this wealth is held in cryptocurrencies which means the opportunity is huge.
However one problem is the fact that high networth individuals have assigned the role of wealth management to financial institutions which employ infrastructure that is unreliable, centralized and outdated. Another challenge that hinder high networth individuals from putting more of their money into cryptocurrencies includes high compliance costs, inconsistent reporting standards, expensive high-touch processes and the risks of a data breach. Bankorus is thus aiming to eliminate these challenges for high networth individuals.
Risks and opportunities
At the moment the value of assets that the five-year old Bankorus currently manages is more than $30 billion. The firm boasts of more than 200,000 clients in Europe, the United States and China besides partnerships with global consulting firms that include Microsoft, Bain and Roland Berger.
BCT is another blockchain-based platform which is aiming to disrupt wealth management as we know it. Unlike Bankorus which is mainly targeting high networth individuals, BTC is eyeing hedge funds and other institutional players in the wealth management sector.
Despite the many benefits that blockchain technology could offer wealth management there are still risks. One of the biggest risks is that digital assets especially if they are stored on a centralized exchange could get hacked and lost forever. This obviously is a scary thought that could serve to dampen adoption. An example of such breach occurred seven years ago when Mt. Gox got hacked.
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