The Relevance of Digital Assets to the Wealth Management Community – Momentum Gathers

A key discussion point underlying all the debate at the Hubbis Digital Assets Forum in Singapore in December was the relevance of cryptocurrencies and other digital assets to private clients and, therefore, to the private banks and independent firms that serve them. Should private banks and wealth managers be launching a digital asset strategy and promoting such investments? If so, what sort of allocations to digital assets should HNW and UHNW investors consider as part of their broader portfolios? What guidelines should advisors propose for private clients regarding purchasing, holding, and storing digital assets? From a wealth management practitioner's perspective, what improvements are needed to help advance the digital securities and tokenisation industry? Is the regulatory landscape strong enough, improving, or still significantly too disjointed and weak? How can wealth managers balance compliance with emerging regulations while leveraging blockchain and AI technologies for improved service delivery and operational efficiency? The panel of experts cast their net over these and other key issues, with the conclusion to their deliberations that the crypto winter is over and there is again a keen and growing impetus towards digital assets of various types. But they also agreed that more building blocks must be implemented and that the catalysts for the market’s continued evolution lie in regulation and good governance.

Chair

Sean Lawrence
Head of Asia
Kaiko

Speakers

Ray Tam
Chief Executive Officer
REVO Digital Family Office

Jackson Ng
COO
Azimut

Donald Day
Chief Operating Officer
VDX

Steve Knabl
Chief Operating Officer & Managing Partner
Swiss-Asia Financial Services

Rafael Weber
Head of Institutional Clients
Swissquote

Key Observations at a Glance

Growing Mainstream Adoption of Digital Assets: Digital assets, especially cryptocurrencies, are transitioning from investment and trading by ‘techy’ enthusiasts and speculators to more mainstream adoption, while the promise of tokenisation and digital asset diversification is becoming better understood.

A Favourable Regulatory Environment in Asia: Asian jurisdictions such as Hong Kong, Singapore, Thailand, and Korea are laying the foundations of a rather conducive regulatory environment for cryptocurrencies and other digital assets, with robust standards of licensing, sensible regulations, strong oversight, increasing transparency and there is a culture of encouraging professional involvement from all quarters, while gradually opening the doors to more retail participation in some of the newer manifestations of digital assets.

Importance of Best Practices: Increasing regulation innovation and oversights are positives, but it is also vital that there is improved governance amongst the exchanges, brokerages, and all participants to ensure that any future FTX-type debacles are avoided. There needs to be a tight focus on the analysis of partners, on due diligence and also on rigorous, risk-aware advisory to navigate the ecosystem and investment complexities and ensure safe strategies.

Rising Confidence in Regulated Digital Asset Investments: Confidence in digital assets increases when working with licensed exchanges and asset managers, leading to a more measured and prudent approach in the industry.

Real Opportunities Beyond Cryptocurrencies: There are genuine opportunities in digital assets well beyond cryptocurrencies such as Bitcoin or Ethereum, with the nascent tokenisation market offering democratised access to real-world assets that represent assessable and tangible value.

Risk-Mitigation amidst the Promotion of Digital Assets: Wealth management businesses need to ensure that any enthusiasm they or their clients have for diversification towards digital assets is tempered with the right approaches to risk mitigation and suitability.

Education and Safe Custody in Cryptocurrency Investments: The panel emphasised the need for education and understanding of cryptocurrency volatility, the importance of safe custody solutions by financial institutions is highlighted, especially for clients not equipped for self-custody in the crypto sphere.

Key Insights in More Detail

Mainstream adoption of digital assets is taking place steadily and gradually, with the real opportunity lying in the nascent tokenisation revolution

Cryptocurrencies, initially for tech enthusiasts, are now becoming mainstream and represent a growing and already significant asset class, particularly in asset tokenisation. Private clients should be open to considering cryptocurrencies, especially as part of a growth strategy, due to their potential for diversification and as an emerging asset class.

There is a relatively favourable regulatory environment in Asia for cryptocurrency, especially in markets such as Hong Kong, Singapore, Thailand, and Korea. Single and multi-family offices are increasingly engaging with those promoting such assets and are becoming more comfortable with the levels of regulatory support, and the maturing ecosystem of financial institutions, intermediaries and exchanges.

An expert remarked that the real opportunity lies less in cryptocurrencies like Bitcoin, whose fundamental analysis models are questionable, but more in areas of tokenisation that promise to solve real-world problems and deliver tangible, accessible value. Another speaker said the challenge now is enhancing cross-jurisdictional cooperation to facilitate the movement of tokenised funds across different jurisdictions.

Regulations are expanding, oversight is increasing, compliance is a greater priority, risk mitigation is more of a focus, self-governance is improving and any ‘player’ worth their salt is focusing on best-in-class practices

A speaker observed that from a fund manager’s perspective, the ability to discuss investment losses with investors is more manageable but trying to explain any complete loss of assets due to inadequate licensing of platforms and inept (or corrupt) intermediaries or exchanges is not. He emphasised the importance of due diligence, careful consideration of jurisdictions' regulatory frameworks, and the vital role of advisors in navigating these complexities to ensure safe and effective investment strategies. He said that Asian markets such as Singapore and Hong Kong are working hard to lead the market forward to best-in-class practices, with a robust ‘touch’ and tough rules and supervision.

The leading cryptocurrencies are empowered by the blockchain, which will provide the technology for central bank, and state-sponsored digital currencies, and that should unleash the power of tokenisation

A speaker replied to this question from the delegates by distinguishing between cryptocurrencies and blockchain technology. He explained that cryptos are facilitated largely by the blockchain, but said it was more akin to cloud computing and AI and should unleash a wave of tokenisation. He observed that the collapse of major brokerages and crypto exchanges in the past had waylaid the market’s development, but the return and increasing involvement of institutional players and institutional-level investment vehicles in this space is a positive sign.

A panellist indicated that when they work together with licensed exchanges and licensed asset managers with a strong track record, they see confidence rising as these entities and also established institutions take a measured and more prudent approach now, whereas there was an element of over-enthusiasm in the past.

Should Asia's financial institutions promote digital assets to their wealthier clients? Yes, within sensible and cautious limits and based on better education, understanding and appropriate risk management protocols

A speaker commented that investment in cryptocurrencies should align with the client's risk profile and typical guidelines around suitability. He said Ethereum could be foundational for the future financial system, while Bitcoin has become to be seen in some circles more like a form of digital gold, offering non-correlation to mainstream assets and markets, and some form of ‘insurance’ in the face of potential ‘extreme’ financial sector scenarios, meaning that it is valuable for portfolio diversification. He also recommended diversified crypto VC funds, working through established or mainstream players in the market.

Another expert reinforced the view that careful selection and detailed due diligence are required for sensible decisions on exposures. He said the new batch of ETFs and various funds offer potential but warned against blindly investing in them without thorough investigation.

The guests recommended total exposure of up to 5% of private client portfolios, given the current state of the market’s evolution. That type of exposure allows for participation within reasonable levels, they argued.

A specialist reiterated the importance of education and understanding in dealing with the inherent volatility of cryptocurrencies. He noted that awareness of risks like counterparty risk has grown, even among those previously unfamiliar with such concepts.

While the true spirit of crypto involves self-custody without the need for banks, he acknowledged that most clients are not equipped for this and rely on institutions for safe custody. He observed that, despite various issues in the market, institutions are continually developing solutions to integrate crypto assets safely into client portfolios. These solutions include offering crypto holdings on statements alongside traditional stocks and other capital market products, with full segregation from the institution's balance sheet.