[Insights Article] Allure of Cryptos Draws Clients & Wealth Planners As Appetite Grows
A couple of years on from the pandemic outbreak, the world has not only become far more digital, it has also opened the door to investing in digital assets, albeit just ajar in some markets, thereby attracting a new wave of Gen Z and millennial high net worth individuals (HNWIs).
There’s a logic behind this younger generation of HNWIs’ growing appetite for tokenized assets, non-fungible tokens (NFTs) and cryptocurrencies. Within their lifetime, they have witnessed the let-downs of the financial crisis of 2008, the too-big-to-fail bank bailouts, Libor rigging and more, plus the Panama Papers, Paradise Papers, as well as the latest trade war. In many ways, it may be irrational for them to only put their bet in traditional financial institutions and investments.
The appeal of cryptocurrencies is illustrated by 59% of Gen Z and 46% of millennials saying they believe they can become millionaires by investing in them, according to a recent report. While HNWIs are already millionaires, the sentiment towards cryptocurrencies reflects a broader increased appetite for risk. Asia-Pacific families see their wealth growing faster on the back of riskier assets, with 35% of them looking to invest more in cryptocurrencies this year, well above the global average of 25%.
Right now, customers of AXA Switzerland can pay for all non-life insurance products with Bitcoin — including car insurance, cyber insurance, and legal protection insurance since 2021. Vice versa, a new insurance policy has also been rolled out to protect cryptocurrency safe within online wallets. Whilst the receptiveness of using Bitcoin as a payment network is increasing around the globe, we understand that Bitcoin is around 12 times more volatile than the S&P500 which clearly presents opportunities, but not necessarily for the faint-hearted.
As a result, wealth planners and bankers must familiarize themselves with ongoing blockchain trading platforms and tokenized assets. Fortunately, some of the key investment themes that would be recommended by an asset manager, such as diversification of portfolio across asset types, geographies, currencies etc., are still relevant in the crypto space and sought after by younger investors. It’s worth adding, however, that the sector is sure to see more regulation that may vary across jurisdictions, so it’s important to keep abreast of that.
NFTs are also enjoying a boom period at present. Total NFT sales last year came to about $25 billion. In January this year, sales reached $16 billion, so it’s clear that sales this year will outstrip 2021 by several hundred percent. It’s also clear that this is a wild market globally. It’s important to understand it and the risks before taking the plunge.
As the younger generations veer towards NFTs, cryptocurrencies and other tokenized assets, that may fall outside any jurisdiction or regulation, Lioner can help clients – the young ones’ parents even – to balance their portfolios within its lines of service to offset risk, reduce volatility and deliver better legacy planning.
In fact, some HNW clients are starting to treat cryptocurrencies as an asset class and include them in the investment portfolios under their trusts, aiming to capture long-term value appreciation opportunities, although digital assets are still in their infancy.
As this new group of HNWIs emerges, they will be able to capture opportunities offered by the rapid appreciation of cryptocurrencies, helping them to potentially accumulate personal wealth. Whilst enjoying a favourable income, clients should seek ways to protect hard-earned assets and explore long-term wealth planning solutions at the same time for a secured portfolio. In light of cryptocurrency’s highly volatile nature, Lioner is well-positioned to provide wealth planning and wealth preservation advice, “customized” for this new client segment by offering diversification of investment vehicles, such as insurance and trusts to ensure clients’ legacy will sustain and grow over the generations.