Thriving in the era of digital assets

Distributed ledger technology (DLT) – blockchain being the most well-known – and digital assets are growing in importance. This can already be seen in the market capitalisation of the top 100 cryptocurrencies, which now exceeds more than 2.2 trillion euro (as at end-November 2021).

Despite the high volatility, investor demand for cryptocurrencies and digital assets continues to rise. To this end, investors also want new trading and custody services, which most banks and asset managers have so far offered only to a limited extent.

The main reason for this lies above all in a regulatory framework for digital assets that is insufficient from the point of view of financial companies and therefore lacks regulatory certainty. This is shown in our opinion poll of companies in the financial industry from six European countries. The findings show a comprehensive picture of the current industry view of DLT and digital assets.

On the basis of the responses we have distilled four core hypotheses:

• With recent regulatory developments in digital assets and the application of DLT, a new dynamic is emerging in the market as a major entry threshold for financial market participants is eliminated.
• Due to its transparency, programmability, and unforgeability of data, DLT has the potential to completely redesign previous processes, thereby significantly improving the operational efficiency of the sector.
• From retail clients to family offices, the demand for digital assets is booming, pushing established market players to expand their offerings and target new investors or client groups.
• If European banks and asset managers fail to accelerate their investments in digital asset products and services in the near future, they risk falling behind highly specialised service providers and FinTechs.

In our paper "Thriving in the era of crypto and blockchain", we provide an overview of the current market and regulatory developments with regard to digital assets, cryptocurrencies and DLT solutions. We comprehensively present and analyse the findings with respect to the four hypotheses described. From this, recommendations for action for banks and asset managers can be derived.