Family offices in Asia are buying into cryptocurrencies, despite months of market turmoil, as weak returns from their traditional portfolios make digital assets attractive.
The interest from investment managers suggests there are still new buyers of cryptocurrencies such as bitcoin and ether, after a boom in digital asset prices during 2020 and 2021 turned to a bust.
Several family offices and wealthy individuals in Hong Kong said this year’s decline in digital asset prices had to be set against the poor performance of local equity and property markets.
After experiencing volatility in the first half of the year, cryptocurrency prices have recently plateaued, prompting speculation about whether they have bottomed out. Investors said the assets remained an appealing hedge against wider market ructions.
“We never lost interest in [crypto],” said Keith Wong, chief executive of Winland Wealth Management, a Hong Kong-based multifamily office. “We see it as diversification and a separate asset class.”
A survey of 30 family offices and wealthy investors in Hong Kong and Singapore, published by KPMG China and crypto group Aspen Digital on Monday, found that 92 per cent of respondents were interested in digital assets, with 58 per cent already invested and 34 per cent planning to do so.
More than 60 per cent of the respondents were family offices or individuals managing assets worth between $10mn and $500mn, said the report.
Bitcoin, the world’s largest cryptocurrency, has dropped about 70 per cent from its peak in November 2021 and has been trading between $18,000 and $25,000 since June. Ether, the next largest coin by market capitalisation, is down about 60 per cent per cent year to date.
However, Hong Kong’s traditional asset classes have also suffered this year, with the city’s equities underperforming US and European stocks. The benchmark Hang Seng index is down more than 30 per cent this year, hit by geopolitical tensions and repeated Covid-19 lockdowns in mainland China.
The city’s housing market has slumped to its lowest level since the 2008 financial crisis following years of coronavirus restrictions and successive interest rate rises.
“All [my] friends with family offices are saying they have shifted . . . into other things like having an art portfolio . . . and cryptocurrencies as well,” said a wealthy investor in Hong Kong, adding that the property sector had been “really stagnant”.
The focus on family offices comes as crypto companies in Hong Kong are lobbying regulators on licensing requirements that will come into effect in March. The industry fears the rules will preclude access to retail investors.
“For the average high-net-worth individual . . . whatever people recommended in gold, you can chop it in half and allocate half of your precious metal to crypto, because that’s an easy way to hedge,” said Eric Wong, managing director of Bricks and Mortar Management, a Hong Kong-based multifamily office.
Hong Kong-based Raffles Family Office has set up a joint venture with crypto company Huobi Tech to service the “unmet” needs of ultra-wealthy families seeking to invest in digital assets. C Capital, the asset manager founded by Hong Kong tycoon Adrian Cheng, plans to raise about $200mn to invest in blockchain assets over the next 18 months.
Digital assets face a generational divide, advisers said, with crypto companies keen to tap into “old money” from individuals who are more resistant to the new asset class.
“For example . . . the other day I was sitting with a family . . . the parents know nothing about crypto and the kids are asking about it,” said Winland Wealth’s Wong.
In the long run, this intergenerational dynamic will bring more crypto buyers “from the elderly side of the population pyramid”, said Bricks and Mortar’s Wong.