Safeguarding assets has become critical in the world of digital assets. Edouard Hindi, Chief Investment Officer, TYR Capital, talks through the priorities in the digital assets space and the key factors for growth in the space.
1. What has been the most significant change you’ve observed in the industry?
We think that the attitude to counterparty risk is by far and away the most significant change we saw last year. Market participants are much more aware of the importance of safeguarding their assets and confirming they are safe outside their own wallets/ecosystem.
2. Can you list the factors which can impact investor demand both positively and negatively?
Wider adoption of crypto-assets is clearly a major factor since the digital assets space seems to be influenced by the ebb and flow of wider supply and demand. Secondly, the relatively high correlation with risk-on assets in general and technology stocks in particular implies a shared fate for both, to a degree. Finally, the perceived safety of assets sitting with both centralised and decentralised unregulated venues is, again, a major factor.
3. Which are the most significant challenges in the digital assets industry right now and how can they be best mitigated?
Re-establishing trust both in centralised and decentralised unregulated platforms is and should be the first priority. We think the answer is implementation of risk mitigation measures, such as third-party custody of assets, where the blockchain technology does not offer an answer.
4. What are the three key pieces of advice you would give clients in the current environment?
The first piece of advice is to always look for ways to diversify. This applies to asset class risk; counterparty risk and any other source of risk investors are exposed to. The second is to always do your own homework when it comes to KYC in the space. Even when this is difficult or impossible to do the result is still of great value to the investor. Lastly, one needs to understand what type of risk it is they are getting rewarded for when investing in any asset class, counterparty, investment strategy and so on.
5. Where are the most rewarding opportunities for growth in the space?
Unregulated trading venues which can provide truly robust and transparent measures which can reassure investors, such as third-party custody by truly institutional grade providers, for example, will reap big rewards. Digital asset managers who have a history of success in the space and who managed last year’s events better than most will also come out winners, especially now when their number is reduced as a result of last year’s bankruptcies.