The market for cryptocurrencies such as bitcoin has been tough in 2022, with prices tumbling since January. As far as tokens and other digital entities are concerned, the market remains relatively brisk.

 A report by KPMG China and Aspen Digital, based on views from 30 family offices and wealthy individuals in Hong Kong and Singapore, says that 92 per cent of those questioned were interested in digital assets. More than half (58 per cent) of respondents already invest in the sector.

The organisations probed views about the digital assets space, which currently has a market capitalisation of more than $1 trillion. 

The report found that 60 per cent of family offices and high net worth individuals interviewed are allocating less than 5 per cent of their portfolios to digital assets, while 54 per cent say they want to allocate between 5 and 30 per cent in this asset class.

“Increasing allocation to digital assets requires related hedging and derivative products to allow investors to effectively manage risks. The development of such products outside of popular tokens such as bitcoin and Ethereum will help to drive allocation to a wider range of digital assets,” Paul McSheaffrey, partner, financial services, KPMG China, said.

The market for cryptocurrencies such as bitcoin has been tough in 2022, with prices tumbling since January. Heavy falls, for example, to so-called “stablecoins,” adding to the drop in tech stocks since central banks began to hike interest rates, have taken their toll. That said, the space known as “digital assets” covers far more than cryptocurrencies – it includes areas such as non-fungible tokens (NFTs), tokens that are linked to real-world assets, smart contracts, and other entities that use blockchain technology. (See here for an overview on how the digital assets' area affects wealth management.)

Yang He, CEO of Aspen Digital, said the report’s findings provide further validation for the long-term potential of digital assets, despite recent global volatility.

“Compared to traditional equities, digital assets require a new fundamental analysis framework for screening investment opportunities. For example, on-chain data is a new metric to measure the network robustness of digital assets. As more institutions are expressing their interests to explore digital assets, we expect a more mature research methodology to evaluate the emerging asset class,” Hang Ye said.
 

Cryptos still on top
Cryptocurrencies dominate digital asset investment, the report said.

All of the respondents who are investing in digital assets own bitcoin, and 87 per cent own Ethereum. In the meantime, decentralised finance and NFTs are drawing attention from investors, 60 per cent of respondents who currently own digital assets are investing in NFTs; DeFi tokens are still emerging, with 47 per cent of respondents who own digital assets investing in them.

Digital asset service providers, especially cryptocurrency exchanges and software developers, are also gathering momentum. Fifty-eight per cent of respondents invest in these service providers, while 21 per cent say that they are planning such investments in the future.

“As digital assets are fairly new, there is still some hesitation among family offices and high net worth individuals about investing in the sector, particularly regarding regulation and valuation. Half of respondents say difficulties associated with the valuation of digital assets is one of their main concerns in digital asset investment,” the report said. 

Diverging regulatory approaches to digital assets across different jurisdictions is a key concern for them, according to the survey. This group of investors are looking for a clear regulatory regime that enables the trading of digital assets, it added.