Bitcoin and the wealthy | Financial Times

Ten years ago, Sandra Law worked in finance in London when a currency trading friend told her about Bitcoin. Cryptocurrencies were released just a few years ago and are still far from a global phenomenon.

“Bitcoin was really known only in the ridiculous tech world, and eventually London currency traders learned about it around 2010,” Ro says. She is the CEO of the Global Blockchain Business Council, a Swiss non-profit organization that has invested in cryptocurrencies, built significant fortunes and is now promoting the technology behind cryptocurrencies.

Against the backdrop of global banking markets such as Deutsche Bank and Morgan Stanley, Ro quickly realized the revolutionary potential of blockchain. “What intrigued me was whether technology could mediate financial markets. What on earth did you think?” She recalls. “Bitcoin was trading for hundreds of dollars at the time, so what if it worked? And what do you guess? Did it!”

Today, Bitcoin and its digital peers are becoming mainstream. Hype has reached new heights this year after cryptocurrencies have gained 600% value in 12 months. Mania has wiped out not only individual investors but also very wealthy people. Ultra-net assets individuals such as Paul Tudor and Stanley Druckenmiller (UHNW — people with assets of $ 30 million or more) were one of the earliest supporters of Bitcoin, the largest cryptocurrency, and are well known in the market today.

Rapid Draw: Ten years after the first investment, Sandra Law made a considerable fortune from Bitcoin © Pascal Perich

Bitcoin And others Cryptocurrency It is also attracting attention as a storage of value for financial institutions. Banks are lining up to compete — Goldman Sachs is trading cryptocurrencies while Citigroup is considering trading, custody, and providing financial services.Billionaire investors openly discuss cryptocurrency-related investments, while some listed companies, such as software companies, Micro StrategyHolds billions of dollars worth of Bitcoin on your balance sheet.

Neither the sharp sellouts that hit cryptocurrencies last month nor the turmoil around them should obscure the fact that these are now huge markets totaling $ 1.6 trillion. This is large enough for an investment pool, even for the wealthiest individual investors and even the largest family offices.

But Bitcoin is still divided. For some it is an obsession and for others it is a speculative bubble. Still, financial industry analysts say few people really understand how it works. To make life more complicated, it has produced scores for other cryptocurrencies. All of these are based on complex computer-driven calculations, but with different levels of liquidity and transparency. “I’ve seen UHNW individuals and family offices research cryptocurrencies and be interested in allocating a portion of their investment to cryptocurrencies,” said Calvin Koo, a Hong Kong-based Kobre & Kim lawyer. Stated. “But it’s important to prevent investors from inadvertently stepping into the minefield.”

Obviously, what makes the cryptocurrency field attractive is the story of the people who made the money. Ro was reluctant to say how much it was worth as a result of a Bitcoin punt, as he was targeted by a scammer and threatened with murder after talking about the matter. However, she was able to quit full-time banking in 2017. In the year of Bitcoin’s first significant rally, prices rose slightly above $ 800 to nearly $ 20,000. Ro’s wealth has increased as Bitcoin surged to $ 63,000 earlier this year.

“Let’s say, I’m doing very well. I’ve started working for a non-profit organization from a banker,” says Ro, who studied at Yale and Columbia University. “It’s pretty cool because the technology looked really cool and getting in early was a good investment, too.” Being an early investor meant she had to try a dozen exchanges. It meant that he suffered from hacking and was locked out of investment. Her friends are doing well from her advance, as she remembers giving them Bitcoin “just to test how it works”.

“I wasn’t surprised that Bitcoin was working well, but there were always a lot of risks. There were hacks, regulatory risks, and exchange failures,” she says. “Cryptography was once messy. Millions of dollars are now being built.”

Another early believer is Olivier Janssens, a Belgian-born entrepreneur who has described his profession on LinkedIn as an investor in Bitcoin since 2010. Software entrepreneur. In 2014, when Bitcoin was trading for around 600 euros, he became the first person to pay for a flight on a private jet using cryptocurrencies. He estimates that he settled the bill for the trip from Brussels to Nice in 15 bitcoins — a fairly expensive trip, when you think about it later. “”[That] It will be worth about € 400,000 today, “he says.

Janssens is also an unstable world of cryptocurrencies, especially Collapsed Exchange Mountain Gox, One of the biggest crypto-linked financial failures.

With prices soaring these days, early investors like Janssen are tackling the problem of having too much Bitcoin as a percentage of their entire portfolio. Some Bitcoin investors who vow to never sell cryptocurrencies are known as “Hodler” (holding a dear life). “When we reach 50% of our assets, we can rebalance our portfolio. I’m smart enough to sell from time to time — I’m not a hardcore Hodler,” says Janssen.

Seven years after Belgium’s historic trip, Bitcoin private charters payments are less mainstream, but no longer worth the press. In January, more than one in ten flights was settled in Bitcoin by the jet hire company PrivateFly, and the share of cryptocurrency revenue increased to one-fifth of the total. Denison, a US luxury yacht charter company, published a list of 372 powerful fleets in Bitcoin in February.

However, Janssen is a little disappointed that Bitcoin has evolved into a worthy store recognized by peer-to-peer payment methods. This “completely defeats the original purpose” of cryptocurrencies, he says. “It’s interesting to see big companies buying Bitcoin as digital gold, but I personally shifted my focus to currencies like Ethereum,” he says.

There are hundreds, if not thousands, of alternative coins with different characteristics. Like Bitcoin, everything is created by a computer that solves complex mathematical formulas and unleashes digital code. What is known as a “sit coin” is created purely as a scheme for gambling scams.

Janssens is one of the wealthiest investors who believes that Ethereum, the second most traded cryptocurrency, launched in 2015, could be larger than its predecessors in the same industry. Proponents say it could rewire the financial infrastructure. Billionaire lenders Mike Novogratz, Peter Thiel and Alan Howard are among the investors who recently announced support for Ethereum-dependent ventures.

Bitcoin is just a digital code, but Ethereum also acts as a data store and a market for assets. With the help of so-called embedded smart contracts, you can perform the tasks of brokers, exchanges and other brokers. These will ensure that the transaction details are correct, the funds will be paid and the assets will be modified, as described in the pre-programmed code.

Ethereum is also behind most Non-substitutable tokenA digital representation of a person, person, or concept that an investor can purchase in the form of a unit of data stored in a secure computer ledger. For example, artwork. Christie’s, a British auction house, is preparing to sell digital tokens created around the work of American artist Andy Warhol. “Digital art is gaining momentum,” says Christie spokesman Emma Cunningham.

Cryptographic servers emit very high carbon dioxide

Cryptographic servers emit very high carbon dioxide © Getty Images

But not everyone is convinced that the future is in the shape of Bitcoin. Cryptocurrency volatility may be attractive to property-seeking investors. However, already wealthy people often avoid falling wildly. “Our clients are already generating a fair amount of wealth, so they are in storage mode and very few clients have the high risk tolerance needed for cryptography,” said British Bank Coots Asset Management. The person in charge, Mohammed Kamalsaid, says.

That doesn’t mean that UHNW individuals ignore the call for sirens of extreme interest, Sayyid says. “All clients have Fomo [fear of missing out], Always. But in cryptocurrencies, they are rather embarrassed. They don’t understand why it went up and down — because no one knows, “he says.

This year’s very high valuation has caused fear of a bubble — the result of betting by several hedge funds backed by wealthy investors. Barry Norris, CEO and Fund Manager of London-based equity specialist Argonaut Capital, said: He started a short on crypto exchange Coinbase and Bitcoin’s corporate owner, software company MicroStrategy.

Cryptocurrencies also face a wider range of challenges. A growing concern is the impact on the environment. According to a study by the University of Cambridge, the computers used to generate Bitcoin consume more power than Sweden.

Meanwhile, US, Chinese and EU governments have questioned the potential instability and lack of transparency of the sector. Criminal investigators say cryptocurrencies can be used to finance terrorism and other illegal activities, but tax inspectors are focusing on investors’ huge capital gains. Kobre & Kim’s Koo says cryptocurrency trading is far more traceable than most investors think, despite its reputation for anonymity. “Many UHNW individuals value privacy for a variety of reasons, so they often have to choose between privacy and security,” he says.

However, despite these concerns, potential returns continue to attract investors, including the Family Office. “We can’t find such an alpha in any other asset class,” says Kevin Kang, founder of BK Coin, a cryptocurrency hedge fund based in New York. Its clients include wealthy individuals. Kang and his co-founder Carlos Betancourt manage $ 50 million in assets with a fund founded in 2018.

Basketball player turns to crypto investor Derrick Brown

Basketball player turned into a crypto investor Derrick Brown © Will Jenkins

Among the well-known individual cryptocurrency enthusiasts is former NBA basketball player Derrick Brown. “First and foremost, I’m an investor and I’ve played sports in the past,” said Free Fenix, CEO of US venture company Free Fenix. He added that if he had just begun his sports career, he would ask for a portion of his salary to be cryptocurrency.

Brown initially invested partially in cryptocurrencies through an allotment to the specialized hedge fund Block Tower. “I see everything from a diversification perspective,” he says, saying that less than 5 percent of his portfolio is allocated to cryptocurrencies. “Bitcoin can decrease by 20% in a day, but it’s still increasing by 85% year-to-date. It’s about how far you see the big picture,” he adds.

Ro agrees. “This is an experimental market and that’s what’s happening,” she says. “I’m a typical Hodler. I believe in cryptocurrencies in the long run, but I’m not going to put all my life savings into it. I have stocks, real estate, jewelry and art. .. It’s about diversification. “

This article is part of FT Wealth, A section that provides detailed coverage of philanthropy, entrepreneurs, family offices, and alternative and impact investing

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