EXCLUSIVE: Digital Assets Belong In Wealth Portfolios – Study

Tom Burroughes Group Editor London 15 June 2023

EXCLUSIVE: Digital Assets Belong In Wealth Portfolios – Study

The overwhelming majority of advisors who responded to the survey said digital assets, when mixed up with more traditional ones such as stocks and bonds, can help deal with threats such as inflation.

A study of 50 wealth managers holding a total of $1.026 trillion of assets found that 94 per cent of them think that digital assets – a term covering entities ranging from bitcoin to “smart contracts” – can diversify portfolios, this publication can exclusively report. 

On the downside, a number of respondents worry that red tape prevents them from getting access, according to Laser Digital, a digital assets arm of Nomura

The study found that six in seven (86 per cent) respondents to the survey want to see digital assets combined with traditional asset classes to produce “all-weather” income strategies to help cope with inflation and debasement of fiat currencies.  

The market continues to face obstacles, however. 

“For many, their outlook for major digital assets such as bitcoin and Ethereum is positive, but our study also reveals challenges and hurdles for the market. Many of our survey respondents acknowledged that there are legal and regulatory restrictions that could prevent them from investing in digital assets, and these need to be addressed by the industry in cooperation with regulatory authorities,” Dr Jez Mohideen, CEO of Laser Digital, said

Volatile price movements in bitcoin and other cryptocurrencies, the demise of some “stablecoins” and the collapse of FTX, a crypto exchange, last year, have cooled ardour for these entities. Regulators have expressed worries, and there is still a patchwork of rules ranging from the liberal – such as in Switzerland, Singapore and Canada – to the highly restrictive, such as in mainland China. (See this article for an overview of why digital assets matter for wealth managers; this article from 2022 also gives an overview.)

Some 90 per cent of the respondents said that it is important to have the backing of a large traditional financial institution for any digital asset fund or investment vehicle before they or their clients would consider putting money into it. Six in seven (86 per cent) of the wealth managers interviewed are positive about the digital asset class in general and bitcoin and Ethereum in particular over the next 12 months. Just 6 per cent of respondents are negative about the outlook for the sector while 8 per cent are neutral.

Nearly nine in 10 (88 per cent) say they or their clients are currently considering investing in digital assets. More than half (52 per cent) said bitcoin and Ethereum provide a foundation of the “Web 3.0” economy and a long-lasting source of investment opportunities.

The advisors surveyed work for pension funds, wealth managers, family offices, hedge funds and investment funds, insurance asset managers and sovereign wealth funds. They are based in Europe, the Middle East, the US, China, Hong Kong, Singapore, South Africa and Brazil.

The wealth managers interviewed reported a wide range of maximum allocations to digital assets under their risk boundaries. A third (34 per cent) of those questioned say that they can invest up to 5 per cent while 22 per cent can invest up to 4 per cent.
More than half (54 per cent) say their and/or their clients’ total percentage exposure to digital assets will be between 5 per cent and 10 per cent over the next three years.

The survey showed that 64 per cent of respondents said legal or regulatory restrictions could prevent clients, or their funds, from using a product that references exposure to digital assets. 

Most would have to make regulatory filings or notifications as a result of holding or investing in financial instruments focused on digital assets. Nine in 10 (90 per cent of those questioned cited that this as a problem while 8 per cent are confident that they would not need to make regulatory filings or notifications.
Persons interviewed in April represent companies based in Bahrain, Brazil, China, Denmark, Finland, France, Germany, Hong Kong, Italy, the Netherlands, Norway, Qatar, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, the UAE, the UK and the US.

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