1. Given some recent challenges, how do incumbent asset managers view digital assets?
Good question, Michael. As you can see, the reality is that many Private He banks are pretty cautious about high-net-worth individuals in this market. Current and recent news in the field will raise concerns about the correct way to enter the market and most importantly to protect client assets.
Undoubtedly, institutional demand remains strong and there is no doubt that there is a strong interest in accessing underlying technologies, especially blockchain. We believe there is still a very strong opportunity in this area. When it comes to accessing digital assets via cryptocurrencies themselves, some offer fund-based products, but many private banks are unwilling to create and offer direct exposure.
When you think about the broader digital asset portfolio, with stablecoins, DeFi, and NFTs on the move, there’s more talk and more education, but for now, especially given the recent press coverage, it’s hard for companies to dig deeper. I think I’ll keep looking at the watch and wait for strategy instead.
2. Why should I care about my digital assets?
Fundamentally, we need to look at the ecosystem of digital assets. What is a digital asset? Considering the situation today, there has been a lot of talk about cryptocurrencies, Bitcoin, Ethereum, etc. But if you look across the spectrum, you have cryptocurrencies. There are stablecoins.
These are assets that are typically hedged 1:1 or similar to the underlying asset in a particular currency. We are also eyeing the DeFi space, moving across this spectrum into NFTs. These may enable access to a variety of new asset classes. And when you finally traverse this spectrum, you end up in the world of the Metaverse, much has been said about the possibilities of the Metaverse.
Today it’s mostly used as a training, L&D, and marketing tool. But there are opportunities in this area, and the focus is on the rise. Coming back to your question, “Why are people looking at rooms today?” It’s about investing in new technology and future opportunities. There’s a lot of noise around digital assets that need to be considered very carefully. And as we said in previous discussions, trust is very important and we’ll probably go back to that.
Opportunities There is no doubt that many people today spend a lot of time in the digital world. If you look at many of us kids spending time in worlds like Fortnight and Roblox, we see these technologies everywhere and similarities. No doubt, the future will be a mix of online, offline, DeFi, and CeFi, so there will be opportunities for wealth managers in this ecosystem. The real problem for many investors today is gaining access to the underlying technology. We continue to believe that blockchain offers many opportunities in the future and the potential to have many impacts across the financial services ecosystem. Especially when you think about the benefits that come from immutability, transparency, and of course the potential to accelerate the entire transaction behind the financial market system. So when we talk about the possibility of a true T0 world, it will most likely be blockchain technology that underpins it.
3. How can asset managers help clients interested in digital assets?
The first question, of course, is understanding where your customers come from. Some of them may come to you to try to better understand the situation itself before investing. What you’re trying to do is understand what kind of exposure your customers are looking for.
Is it technology? In this case, given the risks of the system, investing through VC or private equity-based funds, especially pool vehicles, maybe the most relevant and you may want to diversify your portfolio. Some customers may only want cryptocurrency exposure. Often this is not a product offered by commercial banks, but through some form of funding, they can provide access to a wider range of products.
But basically, I think it’s important that RMs can debate, qualify and train. Of course, there are options in this area, but it’s important to understand the risks involved and be equally aligned with your home’s views on the development of these technologies.