Digital assets have exploded in recent years and evolved into an alternative asset class, with a market capitalisation of more than US$1 trillion.

The huge growth has attracted mainstream attention, with institutional investors entering the space. Family offices (FOs) and high-net worth individuals (HNWIs) have also moved into the digital asset sphere. Yet, volatility in the market continues to be a feature with significant crypto gains — and losses — dominating headlines. With the global regulatory landscape still catching up with the rapid development of the sector, there remains uncertainty around how digital assets will be treated.

What are the key opportunities and challenges facing FOs and HNWIs in the digital assets ecosystem? To better understand the landscape, KPMG in China and Aspen Digital have joined forces to gain insights into their current activity in the market and plans for future investment.

Their report, Investing in digital assets, provides an in-depth look at where and how FOs and HNWIs in Hong Kong and Singapore are investing, the key drivers behind their choices, as well as the main challenges they see to investing in the sector. It also explores the key tax and regulatory concerns of investors around digital assets.

The rise of digital assets: key findings

More than 90% of FOs and HNWIs in Hong Kong and Singapore surveyed are interested in digital assets, with 58% already investing in them and 34% planning to do so. The main driver of this growing interest is the huge upside potential.

Since the emergence of digital assets about a decade ago, investors have seen outsized returns — although recent volatility may have an impact on expectations. The increase in mainstream institutional investors investing in digital assets has also given FOs and HNWIs more confidence about the sector.

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Among the digital assets that FOs and HNWIs invest in, cryptocurrencies dominate. Those who have yet to invest in the digital space are most interested in cryptocurrencies and stablecoins. The survey also shows growing interest in non-fungible tokens (NFTs) and decentralized finance (DeFi).

FOs and HNWIs are also investing in digital asset service providers, especially cryptocurrency exchanges and software developers, with 58% already investing in such providers and 21% interested in doing so. The key reasons for investing in service providers include portfolio diversification benefits and exposure to ecosystem growth.

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There is still some uncertainty among FOs and HNWIs about investing in digital assets, particularly regarding regulation and valuation. Diverging regulatory approaches in different jurisdictions are a key concern with investors seeking a clear regulatory regime that enables trading.

Valuing digital assets can also be challenging due to the lack of publicly available information. Limited research methodology and valuation approaches on digital assets also hinder investment in service providers. Some investors note a lack of clarity on how digital assets are treated for tax purposes. Market volatility in the past two years has had an impact on investment approaches.

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