The crypto industry has received another boost with the entry of financial services giant Northern Trust in a quiet but significant move. The firm, which manages over $10.7 trillion in assets, has added blockchain features into its private equity workflow, while extending its administration services to a select group of hedge funds betting on digital assets.
Institutional Entry at Long Last?
For months, the cryptocurrency market has waited for the expected entry of institutional finance, an event which is expected to herald its coming-of-age as a bona fide investment asset class with a long-term future. By and large, a torrent of banks and funds pouring money into crypto assets has not materialized, driven in part by fears of regulatory uncertainty, and the erratic and unconventional behavior of the asset.
This series of quiet but deliberate moves by Northern Trust, however, could signify the beginning of a significant investment influx to crypto markets. In an interview with Forbes, Pete Cherecwich, president of corporate and institutional services at Northern Trust confirmed that a shift is indeed taking place, and he highlighted the reason why.
“You can take anything today. You can take movie rights, you can take all sorts of entities, and you can create a token for those. We have to be able to figure out how to hold those tokens, value those tokens, do those things,” he said.
While Northern Trust didn’t reveal the identity of the hedge funds it’s working with, in this new area of engagement, Cherecwich dropped a tantalizing hint, by mentioning that the project is with three “mainstream hedge funds” who are adopting a significant investment position in digital assets.
Northern Trust as the Lodestar
At the moment, few recognized financial services firms are offering their services to crypto-related activities. A few notable exceptions to this are the so-called “Big 4” accounting firms, namely KPMG, Deloitte, EY and PwC, who have variously embarked on individual crypto-related projects and client engagement.
Other vital exceptions are Goldman Sachs, which recently launched a bitcoin trading desk, and Bloomberg, which launched the Galaxy Crypto Index alongside hedge fund investor Mike Novogratz earlier this year. By adopting a crypto-positive position early on, Northern Trust hopes to become the premier financial services provider servicing hedge funds that choose to invest in crypto assets.
The firm’s strategy, however, doesn’t include taking direct custody of crypto assets. Instead, it’s focused on helping its customers account for their crypto investments. Effectively, it is providing the proverbial picks and shovels during the crypto gold rush without actually taking on crypto assets or the risk therein. According to Cherecwich, this comes as part of a broader strategy to prepare for a time when cryptocurrencies effectively disrupt fiat currencies and become the accepted global norm.
Describing such a time, Cherecwich says, “I do believe that governments will ultimately look at digitizing their currencies and having them trade kind of like a digital token — a token of the U.S. dollar — but the U.S. dollar [would still be] in a vault somewhere, or backed by the government. How are they going to do that? I don’t know. But I do believe they are going to get there.”
The new crypto management solution which has been demoed to “well over 100 clients” is yet to be launched publicly, but Cherecwich believes it will be a success.
“We have determined that we will be able to go out and sell it,” he concluded.
Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.