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Different ways to invest in digital assets



In recent years, interest in digital assets has grown significantly and along with this, ever better alternatives have developed to simplify, protect and add features to those who want to own digital assets, even for investment purposes.

Furthermore, today we can announce a novelty that we believe can help to gain exposure to this new asset class even for those who, until now, had given up investing, because they were discouraged by management or tax complexity, or by the lack of security of previous alternatives.

But let's see the alternatives in order, to be precise in chronological order:


SELF-CUSTODY

From the early days of early 2009, the only way to acquire and store Bitcoin was through "self custody", or personal custody of one's private keys, typically saved in a file or on a piece of paper. (note: private keys are "passwords" that are used to move the respective Bitcoins they control. If this private key is lost or stolen, the connected Bitcoins are lost forever). Since both the options of saving these private keys in a file on a PC (worse if connected to the Internet), or on a piece of paper, present different problems in terms of security, some years later hardware wallets were invented. who are born with the task of guarding these secrets with greater security. Self custody can therefore be considered a secure method, as it completely eliminates any "counterparty" risk, but to be considered as such requires specific skills and an awareness of the security implications of the setting you choose to use.

Furthermore, this method of custody of digital assets, in addition to not being suitable for everyone, does not provide a simple solution for the generational handover, i.e. the question of how the heirs could recover the digital assets in case of unforeseen events.

If the self custody "maximalists" often specify "not your keys not your coins", one could also answer them "your keys, your problem".


EXCHANGE

Since 2010, a website born for the exchange of stickers named MtGox (from "Magic The Gathering") began to offer the exchange of Bitcoins to its customers (but in 2014 it will declare bankruptcy following a hack).

Created to facilitate the exchange between legal tender and cryptocurrencies, exchanges soon also become custody instruments, as very often those who buy cryptocurrencies leave them in custody with the platform where they bought them, which typically tries to discourage the withdrawal of assets and incentivize (unbridled) trading.

We recognize that exchanges have played an important role in the diffusion of digital assets, as they have greatly simplified access to the market and provided a simple solution to the problem of generational handover, provided that the heirs are informed of the open positions.

On the other hand, exchanges have shown all their limits in terms of reliability and security, as demonstrated by the hacks and frauds that have frequently and systematically involved them.

Furthermore, starting this year in Italy the new tax legislation, which would oblige exchange customers to carry out complex calculations regarding their possible capital gains exceeding €2,000, greatly disadvantages them in the eyes of those who intend to invest non-trivial sums.


ETF (Exchange-Traded Funds)

It doesn't take long, and financial institutions realize the phenomenon of digital assets as a potential new asset class that can offer value in portfolio construction with a sufficiently long time horizon.

The first Trusts in the USA that invest in Bitcoin were born in 2013, but in our opinion the real evolution took place in 2018 with the birth of the first ETPs (so-called Exchange-Traded Products). ETPs are regulated financial instruments, offering simple access to the market, offering investors the protection of effective segregation of assets, ensuring both simplicity and security. In addition, ETPs guarantee simplicity of management from a tax point of view (the intermediary in Italy acts as a withholding agent, without burdening the investor with other obligations) and efficiency, because the capital gains and losses of these ETPs are classified in Italy as "redditi diversi” and therefore allow compensation.

In recent years, several ETP issuers have been born and today there are almost 100 instruments listed in European regulated markets, typically replicating a specific coin or token, more rarely a basket of cryptocurrencies.

But if ETPs are so simple and efficient, what are they missing?


MUTUAL FUND

As with traditional markets, a mutual fund is a tool that aims to provide investors with a diversified portfolio allocation and construction service by selecting investments from time to time and actively managing them over time, seeking on behalf of investors the better opportunities and trying to control risk in the event of negative moments in the market which, in the particular case of digital assets, can be very impactful.

If the first funds dedicated to investing in cryptocurrencies were included in the category of "speculative" or "alternative" funds, typically reserved for professional or institutional investors, and with high entry thresholds, today we can announce the launch of the first UCITS fund in Europe which allows exposure to Digital Assets, through investment in ETPs, also to retail investors starting from a minimum investment of €1,000.

The advantage of a mutual fund compared to ETPs is the possibility of having active management, both in the choice and rotation of the underlying digital assets, and in the exposure to the market, where in some cases, such as the "crypto winter" which has just passed , it is essential to reduce in order not to face significant losses.

Therefore the advantage of a mutual fund compared to an ETP, which justifies the additional cost, is to be found in active management first of all and in risk management, also given the necessary diversification and the minimization of counterparty risk.


Would you like to know more? STAY TUNED!

Daniele

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