Interview with Iconic Funds Managing Director Maximilian Lautenschläger.
This interview first appeared in the June issue of Cryptocompass, the magazine for everything to do with blockchain. Do you want to know more about it? Then click on this button:
It is no secret that the demand for regulated securities with a crypto-base value has risen sharply in recent months. The Frankfurt crypto asset manager Iconic Funds ensures with its exchange-listed bond products (ETPs) that Bitcoin and Co. can also be kept in traditional securities accounts. The CEO and co-founder of Iconic Funds, Maximilian Lautenschläger, told us in an interview what excites professional investors about cryptocurrencies, what impact a Bitcoin ETF could have on the market and how much tech stocks correlate with blockchain protocols.
BTC-ECHO: Your Bitcoin ETP has been traded on the Deutsche Börse Xetra since May 2021. How is your summary so far?
Maximilian Lautenschläger: Overall, the product is very well received. ETPs are still vehicles that investors need to have regulatory security. We are currently seeing more and more ETPs or ETNs that can be traded on the Deutsche Börse. The trading volume is very good. Another important step in the right direction is the permission that special funds in Germany can now also invest in crypto currencies.
The next step that would push the whole thing to a higher level would be the approval of a Bitcoin ETF.
BTC-ECHO: Securitizing tokens in documentary securitisations is a step backwards from a technological point of view. Why should I still buy a Bitcoin ETP from you instead of buying Bitcoin directly through a crypto broker, for example?
Maximilian Lautenschläger: Our vision is that one day we will only have tokenized financial instruments. I am firmly convinced that we will have a global market in which tokenized violins with swords from World of Warcraft, stocks, vintage cars, digital stocks, can be traded with one another. That’s out of the question. Why this step back: Current studies have shown that – depending on the study – 84 to 100 percent of family offices are already invested in cryptocurrencies. The expectation from these investors is that they have an instrument that they can trust that is liquid in the secondary market. Because what we don’t have at the moment is a secondary market on which all tokenized assets can be traded. At the moment we only have silo solutions.
Until then, investors want to use the vehicle that has the greatest liquidity and that is trading venues such as XETRA.
BTC-ECHO: And what drives your customers more: speculation on high returns or the possibility of diversifying the portfolio with another asset?
Maximilian Lautenschläger: I would be lying if I said that it is just the belief that blockchain and crypto is the future. I would break it down into different types of investors. There are those who have just seen how extremely fast it can go up. That is, they take cryptocurrencies into their portfolio as accelerators.
The second part sees it as I do from an asset class perspective, who says: I want to have as diverse a portfolio as possible. And what does a diversified portfolio include? Not only stocks, bonds, real estate and precious metals, but also private equity, venture capital and, of course, cryptocurrencies. And that’s the genius: The crypto sector is the only asset class that has no significant correlation to any other asset class. Because if we take stocks and real estate, for example, we see a slight correlation; Private equity, on the other hand, has a relatively strong correlation with infrastructure and infrastructure with real estate. The crypto sector is really detached from this and has low correlation coefficients to all of that.
Another part of investors see the future in blockchain technology – and therefore consider it advisable to invest in Ethereum. Because the more applications run on Ethereum, the higher the price. Bitcoin, on the other hand, is considered digital gold, which is why family offices are moving out of gold and investing in BTC instead.
BTC-ECHO: How strong do you see the demand for Altcoins versus Bitcoin?
Maximilian Lautenschläger: The demand for altcoins is growing all the time. One of the reasons for this is Bitcoin’s sustainability issue. Because that’s how people started looking for alternative protocols to Bitcoin. We see, for example, that a great many of the second-layer blockchains rely on proof of stake. I think the sustainability aspect has become so important that the demand for these altcoins is getting higher and higher. The question in the end is what beliefs do people have. Do I believe in the stock-to-flow model? Do I believe in the digital gold narrative? But my impression is that the majority of people believe that blockchain is the infrastructure of the future on which, for example, financial transactions and supply chains are mapped.
However, you can of course notice that most things happen on Ethereum, but the transaction costs are immense. IOT use cases are therefore not at all worthwhile on Ethereum. For example, Cardano is more efficient. Overall, however, the demand for all altcoins should increase in the medium term.
BTC-ECHO: Practically every week, another Bitcoin ETF application is filed with the US securities regulator. When do you think the time will come and we’ll see the first permits?
Maximilian Lautenschläger: Two or three years ago it was said that technical challenges prevented Bitcoin ETFs from being approved. For example, it was not clear who managed the private key for the Bitcoin. But now you have with providers like Coinbase Companies that have solved this dilemma. Approval is now just a political issue. When we look at what’s coming from the SEC, those are actually clear signals. For example, Commissioner Peirce has already said that it is far too late to ban Bitcoin. I believe there is no longer any reason for the SEC to say no. So, in my opinion, it is only a matter of time before an ETF is approved. The Americans are already investing in Bitcoin – only through the Grayscale Trust, which is a super inefficient vehicle. An ETF is overdue and would extremely legitimize the crypto sector as a whole.
BTC-ECHO: How do you rate the influence of an ETF approval on the courses?
Maximilian Lautenschläger: The traditional markets have shown the way: Arbitrage is becoming significantly more difficult and the market increasingly efficient. I believe that a Bitcoin ETF will mean that we will have such efficient markets in the crypto area as well. Of course, there will also be the option to take short positions, which of course can lead to extreme market movements, especially in times of crisis. The number of people who believe in the topic in the long term should increase with an ETF – that will be good for the volatility in the market.
BTC-ECHO: You regularly publish analyzes and studies. What have been your most exciting insights so far?
Maximilian Lautenschläger: So first of all the fact that all the assumptions that we had had come true was insightful. If we take the subject of correlation, unfortunately misleading statements are often made in the crypto area. Could Bitcoin even be correlated with other assets between 2011 and 2014? No, because at that time the liquidity was not high enough at all. An asset first needs a certain liquidity in order to be able to correlate at all.
The question of what happened in the Corona crisis was also exciting. Because in the Corona crisis, the correlation of the various asset classes was very high – regardless of whether you take gold, stocks, bonds or just crypto. If there is such a thing as a holy grail in portfolio construction, then it should have at least two properties: On the one hand, the asset should have no correlation to other asset classes and, on the other hand, it should increase the Sharpe ratio, i.e. for higher ones Compensate for risk. What we have now shown is that the crypto sector actually has very little correlation to other asset classes. Secondly, we were able to show that no matter which portfolio type we take, be it pension fund models, endowment models, balanced portfolio models: Not only the returns are increased from each portfolio type, but also the Sharpe ratio, i.e. also the volatility Bringing cryptocurrencies into the portfolio is worthwhile due to the additional income.
BTC-ECHO: To which other asset class does the crypto market correlate the most?
Maximilian Lautenschläger: It’s very difficult to say. But I think that all of the second-layer blockchains are most likely to correlate with tech start-ups. Because when we bring blockchain to market maturity, that will happen in parallel with other “mega-trends” such as machine learning, robotics and artificial intelligence. It may well be that these technologies are ready for the market at the same time. And therefore, of course, they should correlate with each other the most. If we follow the thesis that Bitcoin is digital gold, then BTC should have a relatively high correlation with gold.