Upside potential and mainstream institution investment drive interests of family offices and high-net-worth individuals on digital assets, find KPMG’s report
24 October 2022, Hong Kong – KPMG China and Aspen Digital announced the results of a recent study indicating 92 percent of respondents were interested in investing in digital assets, with 58 percent of family offices and high-net-worth individuals already investing, while 34 percent are planning to make such investment.
Digital assets have evolved to an alternative asset class in recent years, with a market capitalization of more than USD 1 trillion1 as of September 2022. According to a joint report by KPMG China and Aspen Digital titled “Investing in Digital Assets - Family office and high-net worth investor perspectives on digital asset allocation”, the interest in digital assets from family offices and high-net-worth individuals has surged and it is expected that there will be higher asset allocation in digital assets in the future.
Paul McSheaffrey, Partner, Financial Services, KPMG China, says that the recent growth in the market means that new products will likely continue to emerge while regulatory regimes will also evolve to deal with digital assets.
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.
Institutional investors are looking for a clear regulatory regime that enables the trading of digital assets. We can still expect further developments as regulators start to consider specific regimes that cater for the specifics of digital assets.
Yang He, CEO of Aspen Digital says the report findings further validate 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.
The huge upside potential is the main reason for such growth of interest. Since digital assets emerged around a decade ago, investors have seen outsized returns, although recent volatility may have an impact on expectations. The fact that mainstream institutional investors are also investing in digital assets, boosts the confidence of family offices and high-net-worth individuals about the sector.
60 percent of family offices and high-net-worth individuals interviewed are presently allocating less than 5 percent of their portfolios to digital assets, while 54 percent say they want to allocate between 5 and 30 percent in this asset class.
Currently, cryptocurrencies dominate digital asset investment. All of the respondents who are investing in digital assets own Bitcoin, and 87% own Ethereum. In the meantime, decentralised finance (DeFi) and NFTs are drawing attention from investors, 60 percent of respondents who currently own digital assets are investing in NFTs; DeFi tokens are still emerging, with 47 percent of respondents owning digital assets investing in them.
Digital asset service providers, especially cryptocurrency exchanges and software developers, are also gathering momentum. 58 percent of respondents invest in these service providers, while 21 percent say they are planning such investments in the future.
The findings of the report are based on feedback from 30 family offices and high-net-worth individuals based in Hong Kong and Singapore in the second quarter of 2022. In-depth follow-up interviews were also conducted with leading funds, family offices, external asset managers and high-net-worth individuals to acquire additional perspectives on investor sentiment.
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. 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.
Nonetheless, regulators are creating specific regimes to tackle the rise of digital assets amid the evolving global environment. Asian regulators are seeking to balance investor protection and the growth of the digital asset market.
Tax treatment of digital assets is a growing area of focus for the industry, and taxation clarity on digital assets is crucial for family offices and high-net-worth individuals to make investment decisions. 29 percent of respondents said that lack of tax clarity reduces their eagerness to invest in digital assets, 54 percent agree that they would be more willing to invest in digital assets if they could receive beneficial tax treatments.
As the digital asset sector continues to generate high returns, it is increasingly attracting top talent, asset management institutions are also increasingly seeking to attract talent with specialised skills and experience in digital assets. According to LinkedIn research, digital asset industry-related job postings grew by almost 400 percent in 2021. The demand for high quality talent from service providers is expected to continue.
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About KPMG China
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About Aspen Digital
Aspen Digital is a leading technology and financial services company with a mission to accelerate the mass adoption of digital assets. The company provides a digital asset management solution for asset managers, institutions, and sophisticated investors. Aspen Digital was co-founded by digital assets innovators and asset management veterans at Everest Ventures Group ("EVG") and TT Bond Partners ("TTB") in 2021.
For more information, please visit https://www.aspendigital.co.