Crypto is sweeping under-developed economies

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PwC’s global financial services and digital assets leader John Garvey has said a new wave of crypto adoption is coming from under-developed economies.

Garvey, a partner at PwC who has spent nearly two decades at the consultancy, said that developed countries like the US and UK had failed to develop a clear regulations for digital assets.

US regulators’ “hostile” approach to crypto is also damaging the country’s digital asset ecosystem, according to Garvey.

The US Securities and Exchange Commission launched a crackdown on crypto exchanges in June, suing Binance and Coinbase.

“In the absence of law, the regulators won’t tell you what to do, but they will tell you what their preferences are,” he said. “It is pretty clear in the recent cases that their preferences are not crypto firms.”

Garvey said Latin American and African economies, where inflation is soaring, are taking a lead in crypto adoption as investors look to hedge against devaluing currencies.

READ Nomura’s crypto CEO backs Asia for growth drive

On 12 July, PwC published a report on global crypto hedge funds alongside CoinShares and the Alternative Investment Management Association. Around 23% of traditional hedge funds are reassessing their crypto strategy due to the US regulatory crackdown, it said.

At the end of the first half of 2023, 29% of traditional hedge funds had some exposure in crypto, compared with 37% in the first half of 2022, according to the report.

Garvey, who was a co-author of the report, told Financial News that traditional hedge funds are staying out of the crypto market for now.

However, crypto-only hedge funds have changed their tactics lately to stay active, he added.

“A lot of crypto-only hedge funds are market neutral. They love volatility and play on market inefficiencies. For those guys, the market has remained pretty good. Two years ago, market neutral was a modest percentage of strategies, and now it has just exploded,” Garvey added.

According to Garvey, average assets under management at crypto-only hedge funds are around $70m.

READ Tradfi firms eye crypto push as regulators crack down

The PwC report said that the demand for third-party crypto custody has surged recently with almost 80% of crypto and traditional hedge funds using third-party services for the custody of their digital assets.

“About a year ago, we were doing a lot of work around exchange due diligence. Family offices and hedge funds were figuring out the due diligence of crypto trading platforms. Recently, there has been a lot of demand in Europe around crypto custody licences,” Garvey told FN.

In June, Deutsche Bank applied for a crypto custodian licence. On 20 July, BNP Paribas announced a partnership with Metaco and Fireblocks to develop crypto custody services.

However, Garvey noted that central bank digital currencies had yet to gain real traction.

“There are more than 100 central bank digital currency pilots going on around the world but no one has adopted it on any grand scale; even the adoption of the Chinese central bank digital currency is pretty modest.”

To contact the author of this story with feedback or news, email Bilal Jafar

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