Investment Operations

DIGITAL ASSETS GAIN MOMENTUM IN ASIA

Blockchain Data Initiative

Asset managers are starting to incorporate cryptocurrency and blockchain themes into their fund offerings

Interest is growing among some fund and wealth managers in Asia as they anticipate the retail demand for cryptocurrencies spilling over to mutual funds and exchange-traded funds (ETFs), according to new research by Cerulli. In Asia, retail demand for crypto is strong despite market volatility, particularly among young and risk-tolerant investors, who are attracted by potential quick gains and in the high-risk, high-reward crypto game, and can quickly grasp the technicalities of investing in the digital finance space. Cerulli finds that in South Korea, crypto trumps direct stock trading, ETFs, and mutual funds, in that order, among millennials and Generation Z.

Interest is also brewing among wealthy clients— some private banks and family offices in Singapore and Hong Kong are seeing interest in direct crypto investing or crypto ETFs. According to the research, 55% of family offices indicated interest in increasing exposure to crypto over the next two years.

While not all asset managers are keen on crypto, there are signs that traditional managers are exploring digital assets broadly. For example, some have debuted blockchain-themed mutual funds in Korea, Thailand, and Singapore since 2021. Crypto ETFs are also seen as a logical next step for managers exploring various strategies in the digital assets space.

There is also growing demand from distributors. Cerulli’s research indicates that they want their asset management partners to develop niche product ideas that offer long-term opportunity, including technology themes such as blockchain and cryptocurrency. Regulatory barriers and concerns over crypto investing mean there has yet to be a proliferation of such funds in the region. Korea, for example, does not yet permit the launch of crypto ETFs or mutual funds. Singapore seems to have a warmer stance on crypto, but it still lags behind markets such as Australia in formal crypto-related ETF listings.

“Crypto funds offer an important asset-gathering opportunity for managers. For investors, the growing number of mutual funds and ETFs coming to market help to widen product choices or even legitimize crypto investing by providing arguably safer routes to accessing this asset class, compared to direct crypto investing,” said Ken Yap, Managing Director.

Yap added that, in an environment of increasing regulatory scrutiny and market volatility, safety and security would be the key selling points for crypto-related funds vis-à-vis direct crypto investments. “Marketing and education will also need to take into account how funds invest in underlying crypto assets, particularly if these products are targeted at younger investors who are savvier and more discerning about the growing digital space,” Yap said.