Furthering VanEck’s mission to anticipate asset classes and trends, Jan van Eck has created strategic beta, tactical allocation, emerging markets and commodity-related investment strategies in mutual fund, ETF and institutional formats. He founded the Firm’s ETF business in 2006. One of the world’s largest ETF sponsors, the Firm offers ETFs, branded VanEck, globally across equity and fixed income asset classes.
Russ Prince: VanEck has such a storied investment history with deep experience across different asset classes. What led to your interest and expansion to digital assets?
Jan van Eck: VanEck takes a “macro” approach. It is in our DNA to ask: what are portfolios missing, given technology, economic and political trends in the world?
This philosophy was established by my father and founder of the firm, John van Eck, when he started to invest in international stocks in 1955. Then in 1968, he converted the firm’s only fund to focus on gold shares. At the time this seemed to make little sense, given the gold price was fixed. But things changed. With the hyperinflation of the 1970s, gold’s role transformed and ended up being the area where you wanted to be as an investor during that time and beyond. This philosophy to identify forward-looking opportunities and disruption has guided our growth as a firm, whether that was through emerging markets and providing investors access to Asian markets in the 1990s or the launch of our ETF business in 2006 as investor desire for liquidity and diversification was changing.
Of course, we had to study bitcoin when it appeared on the scene. While initial conversations around bitcoin and digital assets started much earlier, early 2017 is when we really saw the broad disruptive impact that digital assets could have as a store of value and as a technological platform that transforms financial services, real estate, advertising, gaming and more.
Prince: Digital assets transcend beyond bitcoin, which often serves as a proxy for cryptocurrencies. How can investors measure and benchmark different categories among digital assets?
Jan van Eck: That’s correct, digital assets are way more than just bitcoin. While it’s too early to “prove” anything about digital assets, we at VanEck consider bitcoin to be a “store of value” like gold and other blockchain technologies to be a form of “growth” investments.
The factoid that I like to cite when people dismiss digital assets is that over $3.6 trillion of value was transacted on the Ethereum blockchain in 2021. Hopefully, that persuades people that digital assets aren’t just a speculative fad.
We are most interested in the blockchain databases like Ethereum and its competitors—they enable a lot of the other activities in digital assets, from borrowing and lending to gaming. We focus our research on smart contracts and have launched many funds on these tokens in Europe.
The four most interesting digital asset categories are:
• Decentralized finance, the software programs that run on top of another cryptocurrency to automate a financial service without a centralized institution;
• Infrastructure applications, which are like B2B services commissioned by decentralized applications rather than by end consumers;
• Media and entertainment, or the “metaverse,” which includes tokens used to reward users for content, games, gambling or social media; and
• Smart contracts, open-source blockchain protocols that enable instant, permissionless value transfer and also power other decentralized applications.
Prince: What advice do you have for our audience on conducting due diligence around digital assets?
Jan van Eck: As I mentioned, we’re still in the early stages. There’s still much more that’s needed from both a regulatory and legal standpoint, and the speed of innovation isn’t slowing down. From individual tokens like bitcoin and ethereum as standalone assets to other applications of the underlying tech, as in NFTs, which have entered the mainstream recently, it can be a lot for investors to stay up to date on. Along with this comes periods of extreme volatility, which can skew perceptions of the space as a whole.
In terms of due diligence on behalf of investors, we’re focusing on communication and providing clear insights to clients. With such a rapidly evolving space and a lack of traditional investment experts, our approach has been to supplement an in-house research team with direct interaction with new and emerging software development teams as well as partnering with those at the cutting edge.
The objective is not just to understand what’s occurring today, but also what might be coming next. This means being in the center from a regulatory perspective, becoming involved with different players on the venture capitalist and private side, and making sure that if and when an opportunity presents itself, we have product solutions that are well constructed and additive for investors.
Prince: How do you view crypto allocation within an overall investment portfolio?
Jan van Eck: Think of crypto like a hyper-growth stock. The growth potential makes for an appealing addition to a portfolio, but the common issue with growth investments is that they are richly valued. Being a nascent asset class, investors should also be sure to understand the risk and volatility profile of the overall space, the individual segments, and their specific investments. Rather than jumping in all at once, I suggest a dollar-cost average approach over time.
Smart contracts had a breakout year in 2021. In the blockchain world, smart contracts can be thought of as the database software on which other applications are functioning, including NFTs, borrowing and lending, and payments in the cryptosystem. There are trillions of dollars of economic activity happening on these smart contract databases. I think this momentum will continue, so smart contract protocols are a particular area of focus for us.
Russ Alan Prince is the executive director of Private Wealth magazine and one of the leading authorities in the private wealth industry. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals. Connect with him on LinkedIn.com.
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Investing in cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
