In this article, Dr. Ulli Spankowski, Chief Digital & Product Officer at Boerse Stuttgart Digital and crypto expert, shares insights from his career in digital assets. He discusses the allocation of crypto in retail and institutional portfolios, the risks associated with crypto investments, Europe’s role as a regulatory pioneer with MiCAR, and the importance of security in emerging technologies.

How did you get involved with digital assets?

I joined Boerse Stuttgart Group in 2017 and have been developing and expanding the crypto and digital assets sector as Chief Digital Officer ever since. At Boerse Stuttgart Digital, we provide infrastructure for accessing cryptocurrencies and digital assets. Since 2017, we have been building experience in this area with the retail trading app of Boerse Stuttgart Group, which offers over 800,000 customers access to cryptocurrencies. Now we are also enabling companies and financial service providers to access digital assets. Our offerings include institutional brokerage services, a regulated Multilateral Trading Facility (MTF), and a regulated custodian.

What have been some of the most important insights in your career so far?

I’ve gained many important insights over the years, especially regarding the impact of regulation. In 2017, I set out with the vision of trading Bitcoin immediately and, within three years, including tokenized art and cars in portfolios. It quickly became clear that regulatory frameworks significantly influence the entire ecosystem. Nevertheless, I haven’t abandoned the idea of adding digitized classic cars and artwork to my portfolio, and we are now making better progress. Some providers have already started doing this, but addressing the lack of a secondary market for many of these digital assets remains a challenge. Just because I can tokenize a property and make it widely accessible through fractionalization doesn't mean that someone from Asia or America would be interested in trading a piece of real estate in Frankfurt. While exciting asset classes like private equity may more readily adopt this securities character, the tokenization of real-world assets—such as real estate, art, and classic cars—raises the question of how regional these markets need to be to succeed. In assets like securities or securitized derivatives, we see a high demand from issuers. Moreover, BX Swiss, the second-largest Swiss exchange, is part of Boerse Stuttgart Group and is driving the tokenization activities of the entire group, as Switzerland is regulated with the new DLT license.

What interesting insights about your customer demographics?

Interest in cryptocurrencies is higher among younger investors. However, I believe this is less about investor demand and more about how offerings aren’t designed for older demographics. When we developed our retail offering, we targeted the mid-twenties demographic and crafted our services to suit them. Interestingly, it turns out that our customer base is, on average, over 40 years old—primarily between 35 and 65 years old. These customers have different portfolio needs and investment capacities than we had anticipated. This older group is likely attracted by our established reputation as part of Boerse Stuttgart Group. When trusted institutions like banks develop offerings, we see significantly higher adoption rates among these older demographics.

High volatility and poor valuations of cryptocurrencies certainly contribute to investors' hesitancy. How do you view this in terms of institutional investors?

Institutional investors have different risk profiles and while many are interested in accessing cryptocurrencies, their investment policies often restrict them from investing in "native crypto". They require alternative investment vehicles such as ETNs or ETFs.  In the US, there has been strong institutional demand for cryptocurrencies since the Securities and Exchange Commission approved Bitcoin spot ETFs from BlackRock, Grayscale Investments and other well-known asset managers in January. 

What impact does MiCAR have on the competitiveness and security of the European financial market compared to the U.S. or Asian markets?

MiCAR creates a secure, EU-wide environment with clear rules that will further strengthen trust in the crypto market. Regulatory certainty in Europe and the entry into force of MiCAR will be an important driver for the growth of crypto adoption in the institutional sector. This could allow Europe to overtake the US and position itself as a leading location for crypto and digital assets. Overall, we are on the right track in Europe in terms of competitiveness, but of course there is still room for improvement. This can be seen, for example, in the DLT pilot regime, which still poses certain challenges.

The DLT pilot regime, an EU-wide regulation that came into force in March 2023 and is intended to serve as a temporary regulatory sandbox for the trading and settlement of financial instruments based on distributed ledger technology, limits the investment amount, for example. Investors need to evaluate carefully whether they want to establish a business model within this framework. The European Union's DLT pilot program is limited to six years. Will it continue beyond that? It's likely, but not certain. The promising area of derivative constructs, which could greatly benefit from DLT technology and involves substantial investment volumes, is not included in the regime.

Is security a major concern with today's technology? How do you address the risks?

Today's risks are fundamentally different. Technologically, there is much more you can control than in the past. For example, when I receive a €50 note in cash, I hardly know who owned it before me. With blockchain and DLT, you can trace its entire history. This leads to operational challenges: How far back should AML checks go? Where do I need to look? Some transactions may have occurred in places where they shouldn't have. Unlike physical cash, blockchain provides a clear trail of where funds have been, which raises complex issues. We've spent months working out the right framework, including legal support and regulatory oversight. This process is an integral part of the initial investment - not just in technology, but also in operational processes and expertise, which are new to the company.

At Boerse Stuttgart Digital, we offer our customers the highest level of security and reliability in the custody of crypto and digital assets. Boerse Stuttgart Digital Custody GmbH holds the crypto custody license and is therefore supervised by BaFin. In addition, our information security management system is certified according to ISO 27001. The crypto assets held in trust are comprehensively insured through a partnership with Munich RE, covering risks like theft or hacking.
 
Would you like to tap into the business potential of blockchain, crypto & digital assets, but don't know how? As Europe’s leading infrastructure provider for integrated and tailored solutions along the entire value chain of crypto and digital assets, we accompany banks, brokers and asset managers as a reliable partner step by step on their way into the world of digital finance. As a part of Boerse Stuttgart Group with +160 years of expertise in financial markets, we provide secure and reliable brokerage, trading and custody solutions to enable institutional partners to have easy and reliable access to the world of crypto and digital assets!