Asian family offices lean into digital asset headwinds for ‘long-term’ gains
BlackRock chief Larry Fink caused a stir last week when he pronounced that, following the implosion of cryptocurrency exchange FTX, most companies in the crypto industry would also likely collapse.
Fink’s bold prediction may yet be borne out, but when it comes to the digital-asset space more broadly, one might be forgiven for thinking that family offices in Asia-Pacific aren’t convinced.
According to an Asia-Pacific-focused survey published this week, family offices, high-net-worth individuals and other affluent individuals in the region have a greater interest than ever in digital assets – even after a series of high-profile cryptocurrency firm collapses and amid an ongoing “crypto winter” of tanking coin valuations.
The Private Wealth in Digital Assets Study 2022, commissioned by digital asset financial services platform Matrixport and produced by FT Longitude, found that interest in digital assets among surveyed investors had surged since the collapse of algorithmic stablecoin platform Terra.
Although it was compiled before the earthquake caused by crypto exchange FTX’s recent bankruptcy filing, sources told AsianInvestor that the exchange’s implosion likely added to that sentiment.
Matrixport
Interest in digital assets among respondent investors post-Terra was up 11 percentage points in Hong Kong (from 56% to 67%), 35 percentage points in Singapore (from 53% to 88%) and 40 percentage points in Australia (from 24% to 64%).
“From our study, what really stands out is the push factor from traditional investing,” Eugene Lim, head of private wealth at Matrixport, told AsianInvestor.
“Many investors have been looking at crypto in response to monetary policies since 2008, which have shown that paper currency and fiat money can be debased at will.”
INFLATION IMPETUS
More than half of surveyed investors with at least 25% of their portfolios allocated to digital assets cited unorthodox monetary policy, the debasement of paper currencies, and disappointing yields in traditional financial markets as factors that increased their appetite for investing in digital assets.
“Unconventional monetary policies were deployed in response to the global financial crisis in 2008 – and again in response to Covid – such as rounds of quantitative easing and negative interest rates,” Lim said. “Educated, sophisticated investors saw that economic principles could be bent at the will of governments. In fact, the Bitcoin white paper emerged in 2008 as a direct response to this.”
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Harmen Overdijk, chief investment officer at multi-family office Leo Wealth, said, however, that currency debasement was not a phenomenon exclusive to governments and to the effects of monetary policy.
Leo Wealth
“One argument always used by people for investing in crypto is the debasement of fiat currencies, because the number of Bitcoins, for example, is limited to 21 million. But the number of cryptocurrencies is unlimited, and it’s gone from one – Bitcoin – to 5,000 cryptocurrencies,” he said. “It's the same debasement as if the Federal Reserve or the European Central Bank were printing dollars or euros. That's an effect that people have totally missed. Crypto is not such a special asset class as it pretends to be.”
Tuck Meng Yee, founder of Singapore-based single-family office JRT Partners, also dismissed the notion that cryptocurrencies constituted a hedge against inflation and currency debasement.
“Just because something is finite, per se, doesn’t mean it’ll automatically increase in value, because it also depends on the demand for that finite supply,” Yee said. “If you look at physical commodities, gold is finite, but that doesn’t mean its price will always go up, because demand will vary.”
CLEANING HOUSE
Overdijk characterised the current wave of crypto collapses as a “washing out of the system” that might push family offices away from digital assets in the short term but which could, over the longer term, increase the attractiveness of the asset class.
“We’ve noticed that among our clients, we got a lot more questions about crypto at the start of this year than we’re getting at the moment,” he said. “But we’re actually turning more positive on crypto and digital assets now. Although this major shakeout is still happening, a lot of leverage has been washed out of the system, and I can see why more sophisticated investors might actually start paying more attention to digital assets.”
Lim said: “My Hong Kong clients were the ones calling on the night of the FTX collapse, saying, ‘Hey, is it the time to look into entering the market now?’ These are not guys who walk away deterred by negative headlines – these are guys who smell blood on the street and are ready to take advantage of calculated opportunities.”
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Beyond the current shakeout, family offices are investing in digital assets for the long haul, Lim said.
“These investors are motivated by factors such as keeping their diversified portfolios up to date with new, innovative assets, and this parallels the early days of hedge funds,” he said.
Overdijk also drew a comparison with hedge fund investment, saying: “There’ll always be investors in the digital asset space – like local family offices were also the early ones investing in hedge funds before all the pension funds stepped in there, 30 years ago.”
Chi-man Kwan, group chief executive and co-founder of Raffles Family Office, a Hong Kong-headquartered multi-family office, said: “Almost six in 10 APAC family offices are already invested in cryptocurrency, they’re happy to hold onto their investments, and they’re still very much interested in the long-term blockchain technology that underlies the emergence of cryptocurrency and digital assets.”
Lim qualified the notion of long-term investment, saying: “The largest proportion of investors from Singapore, Hong Kong and Taiwan see themselves holding their digital assets from a tenor of one to three years, which can be considered long-term in digital assets.”
JRT’s Yee said that in the current market environment, the promise of what he described as near-term results was a priority for family offices.
“Just like any digital asset investment right now, given crypto winter, it's a flight to quality,” he said. “People go to people that they trust or protocols that they trust, where they've got the most users and where they've got the most news around them – the usual tools for figuring out whether this is something they should be in or whether it's just too ‘blue sky’.
“They'll go to projects that have a payoff that they think is shorter term rather than longer term – projects that promise or pay off in two years, where the promoters have a track record, where there’s a use case that they can understand, that are not small, that tick all the boxes. It’s no different from venture capital investment.”