Emerging Asia’s wealthy big on cryptos despite concerns

Undeterred by the volatility that saw Bitcoin lose two-thirds of its value from its December peak of nearly $20,000, Asian high-net-worth individuals (HNWIs) remain more optimistic than their global peers about the merits of cryptocurrencies, according to a newly released wealth report.

The World Wealth Report 2018 by Capgemini, released on June 19, revealed that among HNWIs in Asia ex-Japan, 51.6% were highly interested and 28.7% somewhat interested in holding or purchasing cryptocurrency compared with 29% and 26.9% globally. The survey was conducted in January and February 2018 and involved over 2,600 HNWIs, including 1,205 from the Asia-Pacific region.

HNWIs in China and emerging Asia are definitely leading the way in terms of cryptocurrency interest, David Wilson, head of Asia wealth management at Capgemini, told AsianInvestor.

And within Asia, 63.7% of Chinese HNWIs were highly interested in holding or purchasing cryptocurrencies.

For emerging Asia as a whole – which for the purposes of this report comprised India and Indonesia, as well as China – the figure is 44.5%, still well above global averages.

Only 22.3% of HNWIs polled in developed Asia, which took in Australia, Hong Kong, Japan, Malaysia, and Singapore, were highly interested in holding cryptocurrencies, the report showed.

“It’s more China and the emerging Asia markets, which traditionally, when we modelled their philosophy as it relates to investments, tend to be more growth focused,” Wilson said. 

These markets have a higher tolerance for risk and speculation in the portfolio, he added.

For Sundeep Gantori, executive director and equity analyst for global technology at UBS Wealth Management, that may reflect the risks already inherent in their home markets.

“These are mostly emerging or less developed countries because they don’t have trust in their currencies. I sense that they are the ones who are more interested because it provides some diversification for them,” Gantori told AsianInvestor.

SPECULATION AND STORE OF VALUE

China's particularly high interest in cryptocurrencies may also be driven by broader factors such as the general buzz around innovative technology and the country's fast-evolving fintech scene, Wilson suggested.

Among Asia ex-Japan HNWIs, 50.6% cited the potential for investment returns as a key attraction  compared with 39.3% globally. Although Capgemini did not provide a regional breakdown for how many respondents saw cryptocurrencies as an alternative store of value to gold, almost a fifth said it was their primary objective for holding or purchasing cryptocurrencies. 

The speculative nature comes from the raft of initial coin offerings (ICOs) and tokens being offered right now in search of angel investors or looking to raise capital, and more of these are going to HNWIs, Adeline Tan, wealth business leader for Mercer, said.

“Sometimes the buy-in isn’t that huge – it’s quite affordable for a few spare $100,000 or so to invest in,” Tan told AsianInvestor.

However, a lot of clients are still hesitant to invest in cryptocurrencies because they aren’t sure whether it’s even a new asset class, said Gantori.

“We believe that cryptocurrencies fail to meet the two standard principles of currencies, which include medium of exchange and store of value,” he said.

Unlike traditional currencies where central banks manage the demand and supply, for example, most cryptocurrencies have an unlimited supply.

“If not one cryptocurrency, there is always a scope for another cryptocurrency, so you cannot actually control the supply and that is one of the key arguments why we believe that most of the cryptocurrencies fail to meet store of value,” Gantori said.

Cryptocurrencies have quite a way to go before they can be truly considered stores of value, Tan agreed.

A store of value needs to be recognised and right now you don’t see governments accepting any cryptocurrency as a way to pay taxes, she said. “It needs to be an asset that you can save in it and you can exchange it for something that is valuable later on.”

WEALTH MANAGER ADVICE

Despite high interest from Asian HNWIs, wealth management firms have been slow to offer clients anything around the subject of cryptocurrency, Capgemini’s Wilson said.

“Most wealth managers today in the region don’t actively cover them the way they do the traditional securities – it’s not formal recommendations from wealth managers,” UBS’s Gantori agreed.

However, firms should at least be able to provide clients with some intelligent dialogue on the topic since they are relatively well-placed to offer meaningful insight compared with, say, a social media post or an online message board where the quality of information can be suspect, Wilson said.

That said, the technical aspects of cryptocurrency investing may be beyond the experience and advice of some wealth managers, according to Mercer’s Tan.

“I’m not sure if wealth managers are well versed in technology to say is it liquidity or is it spreads or is it the complexity of your wallet that’s going to dictate which cryptocurrency you choose. I’m not sure if there’s enough information to offer advice,” she said.

The ambiguous regulatory nature of cryptocurrencies and the sheer number of cryptocurrencies out there at the moment have made it difficult for wealth managers to offer any advice, Gantori agreed.

“There’s hundreds, if not thousands of cryptocurrencies. It’s difficult to have an informed view on each and every cryptocurrency,” he said. “[But] there’s no rush for wealth managers to have a dedicated desk or to have a very active view on cryptocurrencies.”

To offer more insights on China's investment landscape, AsianInvestor is holding its 5th China Global Investment Forum in Beijing on September 13. For more details, contact Minal Khilani via email or on +65 65790103