HNWIs are embracing digital assets

On By mehranmuslimiblogIn UncategorizedLeave a comment

Capgemini released its 2022 World Wealth Report on 14th June. Its poll surveyed 2,972 global HNWIs with 54% reporting a wealth band ranging from $1 million to $30 million and 46% reporting wealth of $30 million and over. One of the most exciting insights is that 71% of these high net worth individuals have invested in digital assets.

The survey asked about investment preferences, breaking the digital asset sector into cryptocurencies, exchange-traded funds (ETFs) non-fungible tokens (NFTs) and products related to the Metaverse.

The highest concentration of owners are under forty years old, with nine in ten having invested, compared with one in seven overall. The younger group expressed more interest in cryptocurrencies, saying they were their favourite investment, although crypto ETFs and Metaverse products are also highly desired.

However, cryptocurrencies don’t make up the majority of portfolios. According to the survey, HNWIs have only allocated 14% of their portfolios into “alternative investments” which includes crypto alongside commodities, currencies private equity and hedge funds.

On the other hand, Capgemini says that it is seeing an influx of investments into digital assets and this has “increased the demand for educational capabilities.” Nilesh Vaidya, the firm’s head of retail wealth management said: “The influx of new investment avenues such as sustainable investing and digital assets is having a crucial impact on the wealth management industry. Wealth management firms must prioritize providing timely education around this trend to retain their customers.”

As a result, some wealth management firms are looking for first-mover advantage in this niche sector by launching investment products targeted at the demographic. For example, Morgan Stanley introduced Bitcoin to its HNWI clients in March 2021, allowing only those with $2 million or more to invest in the cryptocurrency. BBVA in Switzerland is also offering access to crypto trading and custody services, as is Wells Fargo in the USA. Both of these started their service in 2021.

I previously wrote about the Accenture report that revealed 52% of wealthy Asian investors held some form of a digital asset during the first quarter of 2022, but that wealth management firms have been slow to adopt investment products with cryptocurrency or digital asset exposure. But it looks as those wealth managers elsewhere are now alert to the potential of the digital asset market.

Dazzled by some insanely high APYs?

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Have you noticed that a significant number of DeFi projects are offering insanely high annual percentage yields (APY), which, of course, look very attractive to investors, especially retail investors, who are those most at risk.

There are DeFi protocols that have been built using the proof-of-stake (PoS) consensus protocol offering eye-watering returns to their investors in return for them staking their native tokens. But, as most of us know, sometimes by getting burnt ourselves, if something sounds too good to be true, then it probably is.

The issue is that some projects are nothing more than cash grab schemes. Shiraz Jagati at Cointelegraph gives the example of YieldZard, a project positioning itself as a DeFi innovation-focused company with an auto-staking protocol, which claims to offer a fixed APY of 918,757% to its clients. Who finds that believable? All you would need to invest is $1000 to gain a return of $9,187,570! And YieldZard isn’t the only project offering fast and high payouts.

Assessing an APY

How can you as an investor assess the sustainability of projects like this? Here is some advice from Kia Mosayeri, product manager at Balancer Labs — a DeFi automated market-making protocol. “Sophisticated investors will want to look for the source of the yield, its sustainability and capacity. A yield that is driven from sound economical value, such as interest paid for borrowing capital or percentage fees paid for trading, would be rather more sustainable and scalable than yield that comes from arbitrary token emissions.”

Ran Hammer, vice president of business development for public blockchain infrastructure at Orbs, pointed to the fact that DeFi offers a another major innovation to the crypto ecosystem: the ability to earn yield on what is more or less passive holding. But as he says, not all yields are equal by design because some yields are rooted in “real” revenue, while others are the result of high emissions based on Ponzi-like tokenomics.

Understand the source of the ‘yield’

Ultimately, it is very important for investors to understand where the yield is coming from. For example, transaction fees in exchange for computing power, trading fees on liquidity, a premium for options or insurance and interest on loans are all “real yields.” Whereas those that are based on token inflation may turn out to be less sustainable, as there is no real economic value funding these rewards. 

So, if you see a dazzling APY offered, you should consider all of the above, as well as the fact that most returns are paid in cryptocurrencies, and since most cryptocurrencies are volatile, (just look at the market this week!) the assets lent to earn such unrealistic APYs can decrease in value over time, leading to major losses. 

US retailers back accepting crypto payments

On By mehranmuslimiblogIn Business, crypto, Mobile payments, StablecoinsLeave a comment

There is some very positive information in Deloitte’s “Merchants Getting Ready For Crypto” report released in collaboration with PayPal on 8th June. Those involved in projects that enable crypto payments should be pleased with the findings.

According to the report, three quarters of US retailers plan to accept crypto or stablecoin payments within the next two years. Plus, more than half of large retailers with revenues over $500 million are currently spending $1 million or more building the required infrastructure to make it happen.

Even small and medium-sized retailers are preparing for a crypto payments future. Some 73% of retailers with revenues of between $10 million and $100 million are investing between $100,000 to $1 million to support the needed crypto payment infrastructure.

This infrastructure spending is set to accelerate in 2022, says Deloitte, as more than 60% of retailers said they expect budgets of more than $500,000 to enable crypto payments over the course of this year.

Consumer interest

Retailer adoption is being driven by consumer interest, with 64% of merchants saying their customers have expressed significant interest in using crypto for payments. And 83% of retailers expect this to increase this year.

Around 50% of retailers believe that adopting crypto will improve the customer experience, and the same percentage claimed that accepting crypto would make their brand seem more “cutting edge.” Of those retailers already accepting crypto payments, a whopping 93% reported a positive impact on their customer metrics.

Of course, the merchants acknowledged there are challenges to adoption of crypto. The main ones were the security of the payments system (43%) changing regulations (37%), volatility (36%) and a lack of a budget (30%).

The survey polled 2,000 senior executives at U.S. retail organizations between Dec 3 and Dec 16, 2021 when crypto prices were still riding high, but the results have only just been revealed. The executives were distributed equally among the cosmetics, digital goods, electronics, fashion, food and beverages, home and garden, hospitality and leisure, personal and household goods, services, and transportation sectors.

The survey also highlighted the fact that 85% of retailers believe the acceptance of crypto payments will be ‘ubiquitous’ in their sectors in five years time.

Affluent Asian investors add crypto to portfolios

On By mehranmuslimiblogIn cryptoLeave a comment

According to research from Accenture published on June 6, digital assets, which include cryptocurrencies, stable coins, and crypto funds, made up on average 7% of the affluent Asian investors’ portfolios. And 52% of the surveyed investors hold some form of digital asset. An ‘affluent investor’ is defined as anyone that manages investable assets of between US$100,000 to $1 million.

This makes crypto the fifth-largest asset class for investors in Asia, and exceeds their portfolio allocations for foreign currencies, commodities, and collectibles. For some of the investors their crypto holdings were on a par with the amount they invest in private equity/venture capital and hedge funds.

The investors taking part in the survey numbered 3,200 and were located in China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, and Thailand. Significantly, the investors with the largest proportion of digital assets were in Indonesia and Thailand.

Some of the investors already held crypto in their portfolios in Q1 2022, but the research highlights the fact that a further 21% are expected to have invested in them by the end of this year, which would push the percentage of wealthy Asian investors holding digital assets up to 73%.

Wealth management firms shy away from digital assets

On the other hand, Accenture’s study showed that wealth management firms have been slow to embrace digital assets, and 67% of them said they had no plans to offer digital asset products or services to their clients. The reasons they gave for ignoring a $54 billion revenue opportunity were as follows: a lack of belief and understanding of digital assets, a wait-and-see mindset, and the operational complexity of launching a digital asset. This leads them to advise their clients to prioritise other products. However Accenture claims this has left investors seeking advice about cryptocurrencies from less reliable sources. It also warned that if wealth management firms didn’t get on board with the digital asset space, they risk being left behind. The 9% of these firms that do offer digital assets have shown that success is possible.

The Accenture report is not the only one indicating a ‘warming’ amongst Asian investors towards digital assets. A Gemini cryptocurrency report published in April, found that crypto adoption skyrocketed in 2021, particularly in countries such as India and Hong Kong. Plus, around 45% of respondents in the Asia Pacific region purchased their first crypto in 2021.