Crypto Gets A Second Look From Corporate Investors Seeking Yield And Hedge

The head of the country’s only licensed and publicly traded cryptocurrency broker says tighter regulation and exponentially higher yields are causing corporate treasury and cash management accounts to seriously consider this alternative asset class.

This in the wake of the OCC’s Sept. 21 landmark announcement that allowed national banks and federal savings associations to hold certain crypto assets for the first time.

“We are trending toward larger scale adoption and it starts with regulation,” Voyager Digital Co-Founder and CEO Steve Ehrlich told PYMNTS.

“This is the beginning of the adoption phase,” Ehrlich said, “as regulation legitimizes crypto assets, and yields remain ahead of traditional investment products.”

To that point, Voyager has just launched a new effort to attract institutional accounts to its platform, and has expanded its reach to corporate treasury desks and other large investors.

As much as Bitcoin and other cryptocurrencies have attracted scrutiny from the Department of Justice and still lack mainstream acceptance, Voyager’s portfolio of so-called “stablecoins” (which are linked to an underlying currency such as the U.S. dollar ) are seen as a way to generate yield off of idle assets at a time when bank rates for cash are effectively zero.

Ehrlich said stablecoins, including the U.S. dollar-backed USDC, currently offer APR rates as high as 8.5 percent. With the treasury market for S&P 500 companies valued at $2.3 trillion, he said if only 1 percent of those proceeds migrated to crypto in search of yield enhancement and asset diversification, it would still be a $23 billion shift.

“Treasury desks will diversify money market and CD portfolios into these assets as digital assets are better understood and regulated, thereby improving risk/reward profiles,” Ehrlich said.

The Pandemic Pop

Another consideration for a possible corporate shift into crypto is the fact that during the pandemic, governments around the world have pumped trillions of dollars into the markets and economy, and have in turn, caused a degree of destabilization and devaluation of traditional currencies.

It’s a problem, Ehrlich predicts, that will see more companies taking action to hedge against the long-term effect on the dollar and other core currency holdings.

Establishing Trust And Confidence

While the pandemic has accelerated the use of digital payments in general, the broader market’s understanding and embrace of the scale of digital currencies (Voyager currently facilitates 50 on its platform) remains quite slim.

To address this discomfort and knowledge deficit, especially among the large multinational corporations, cash management and other treasury investors it is now pursuing, Ehrlich stresses the fact that Voyager’s top priority is security.

Specifically, he said the platform is fully compliant with regulators and up to date with anti-money laundering (AML) and know your customer (KYC) practices.

In addition, Voyager points out that it is licensed by FinCEN and FINTRAC and can also provide treasury desk clients with the tax and compliance reporting they need. And finally, Ehrlich said, the fact that Voyager is the only publicly-traded agency broker for crypto, should also provide transparency to would-be clients since all of its operations are fully disclosed through public filings.

But this trend toward crypto doesn’t stop there. In an interview with Karen Webster, Ternio Co-Founder and COO Ian Kane and Daniel Gouldman, co-founder and CEO, said the payments world is on the cusp of bringing blockchain — the rails that underpin the cryptocurrency transactions themselves — to legacy financial providers, via its newly formed partnership with Visa.

Bridging that tech gap, they said, will open up the digital payment ecosystem more fully to the use of cryptocurrencies, and even digital fiat currencies issued by central banks.

Erlich predicts that as regulation legitimizes crypto, industry benchmarks will have to be adjusted to account for the yield/returns available in this burgeoning asset class, and to remain competitive, investment houses will also need to offer crypto to their investors.

“The proliferation of digital assets, combined with regulations and global acceptance, will provide significant growth prospects for legitimate crypto brokerages/exchanges,” Ehrlich said.