Majority of HNWIs in Singapore and Hong Kong Invest in Digital Assets, KPMG Report Finds

A recent report from KPMG China showed that high-net-worth individuals (HNWIs) and family offices were interested in digital assets, with an overwhelming majority of respondents from Singapore and Hong Kong having exposure to cryptocurrencies or planning to invest.

9 of 10 Surveyed HNWIs Are Invested in Crypto or Plan to Do So

Bitcoin has been trading within a narrow range since June following a steep decline from the all-time high hit at the end of 2021. Despite the bearish mood, high net-worth individuals (HNWIs) continue to consolidate their confidence in digital assets as a great alternative investment option that shows a lower correlation to traditional markets. This conclusion can be drawn from KPMG China’s latest report titled “Investing in Digital Assets.”

The role of institutional investors has become more prominent in shaping major trends in the cryptocurrency market, and they may well decide the trigger of the next potential rally.

A joint report by ‘Big Four’ accounting firm KPMG and crypto asset manager Aspen Digital found out that the majority of family offices (FOs) and HNWIs were into digital assets. The report, released on October 24, focused on 30 respondents from Singapore and Hong Kong, but it may reflect the ultra-rich behavior at a larger scale.

Over 90% of FOs and HNWIs surveyed by KPMG revealed that they had exposure to digital assets or planned to invest soon. Specifically, 58% of them are already invested in cryptos and 34% intend to do so.

https://assets.kpmg/content/dam/kpmg/cn/pdf/en/2022/10/investing-in-digital-assets.pdf

They are attracted by the prospects of high returns and cryptocurrency’s potential to achieve portfolio diversification. Meanwhile, the respondents noted that the increased participation by mainstream institutional investors boosted their confidence in digital assets.

Aspen Digital co-founder and CEO Yang He commented:

“Over the last 18 months, we have seen a huge increase of institutional investor interest in digital assets. For the Asian private wealth management industry, digital assets represent an emerging asset class with opportunities that are unrivalled within other financial products.”

HNWIs cited the evolving regulatory environment and the challenge to accurately value digital assets as the main obstacles to investing in crypto. High volatility is another major concern.

Even though an overwhelming majority of FOs and HNWIs hold digital assets, their allocation remains relatively small. Most of them allocate less than 5% of their portfolios, and less than half of them plan to maintain that low percentage.

“Diverging regulatory approaches to digital assets in different jurisdictions is a key concern according to the survey, and investors are looking for a clear regulatory regime that enables the trading of digital assets,” the report reads.

Bitcoin and Ethereum Are Favorites, DeFi & NFTs Get Increased Attention

Bitcoin and Ethereum, the two largest cryptocurrencies by market cap, continue to be the most popular assets among the ultra-rich. All of the respondents said they had exposure to Bitcoin, and 87% of them are invested in Ethereum. Those who are not yet invested in crypto are interested in cryptocurrencies and stablecoins, the report says.

The recent Ethereum ‘Merge’ upgrade to adopt the Proof of Stake (PoS) algorithm, which cut the need for mining and thus reduced the blockchain’s energy consumption by 99.9%, might attract even more institutional investors with environmental, social and governance (ESG) considerations.

The KPMG survey also reveals a growing interest in decentralized finance (DeFi) and non-fungible tokens (NFTs), with the two sectors being the fastest-growing trends in the crypto space during the past two years. About 60% of respondents are invested in DeFi tokens, with many of them pointing to DeFi’s potential to disrupt financial markets.

The DeFi trend promotes all forms of financial services built on community-driven decentralized infrastructures, with transactions and other operations being conducted without the supervision of centralized entities.

The report notes that one Asian hedge fund manager argued that DeFi could be a ‘game changer’ for financial markets, considering blockchain’s ability to ensure seamless transactions and improve security.

When it comes to the approach to getting exposure to digital assets, HNWIs mostly prefer centralized crypto exchanges, which provide a user-friendly interface and good customer service. Crypto-oriented hedge funds are another preferred option.

It seems that centralized crypto exchanges are the go-to investment platforms for all cohorts in Asia. The latest ‘Geography of Cryptocurrency Report’ by Chainalysis spot exchanges were more popular in Asia than in North America, Western Europe, Latin America, and Africa, following be decentralized exchanges (DEXes) and other DeFi services.

https://go.chainalysis.com/rs/503-FAP-074/images/2022-Geography-of-Cryptocurrency.pdf

The KPMG’s report shows that FOs and HNWIs are not also investing in cryptocurrencies, but also in digital asset service providers, especially crypto exchanges and software developers, with 58% of respondents already having exposure to such providers. Investment is either through direct equity or a mix of equity and tokens.

Although KPMG’s report focuses on Singapore and Hong Kong, it reflects a growing interest in digital assets from HNWIs. Earlier this year, Capgemini’s World Wealth Report 2022 showed that 71% of HWNIs globally had invested in digital assets, and 91% of HNWIs younger than 40 are exposed to digital assets. Cryptocurrencies remain their favorite digital asset investment, followed by exchange-traded funds (ETFs) and metaverse assets.

Institutional Investors Bet on Digital Assets

Institutional investors seem to increase their bet on digital assets, with more asset manager behemoths launching crypto-oriented services for their clients.

In mid-August, the world’s largest asset manager, BlackRock, partnered with crypto exchange Coinbase to offer institutional clients direct access to Bitcoin. BlackRock, which has about $10 trillion in assets under management, is about to launch its first-ever Bitcoin Trust.

During the same month, US broker and investments group Charles Schwab launched an ETF that gives investors exposure to digital assets without actually purchasing the cryptocurrencies. David Botset, head of equity product management at Charles Schwab’s asset management division, reportedly said about digital currencies:

“We know they are a speculative investment, but we have identified it as a long-term trend.”

Last month, stock exchange operator Nasdaq announced the launch of “Nasdaq Digital Assets,” a new business to offer crypto custody service to institutional investors. Elsewhere, asset manager Fidelity Investments plans to launch Ethereum trading and custody services for its institutional clients starting with October 28, according to a leaked email sent to customers.

Fidelity Digital Assets just sent an email to customers announcing that Ethereum will be available for purchase this month. pic.twitter.com/3V0GCrOt5z

— Bruce Fenton 🇺🇸 (@brucefenton) October 19, 2022

While the cryptocurrency market is still struggling to reverse from the bearish pressure, the growing interest from institutional investors looks promising and stresses the long-term prospects of digital assets.