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The allure of cryptocurrencies
Asian family offices take wait-and-see attitude towards digital assets
18 Jan 2021 | Tom King

Every time a cryptocurrency bubble bursts, another one grows to supplant it. According to a recent note from investment manager Man Group, these peaks and troughs will ultimately fade, giving way to a stable, and eventually legitimate digital asset.

Last December, Singapore’s largest lender DBS launched its own digital currency platform, and the recent regulatory actions by the city state’s financial regulator could bolster the validity of what it calls digital payment tokens.

But despite the remarkable rise of late in the value of Bitcoin, multi-family offices and wealth managers in Singapore have expressed misgivings about plunging headlong into cryptocurrency investing.

“We may be seen as sticks-in-the-mud for our view on this, but our mandate remains to protect our families’ wealth across generations and we do not think cryptocurrencies in their current form are aligned with this mandate,” Colin Low, head of investment research at multi-family office Wealth Alliance, tells The Asset.

“At least at this point, we have not seen cryptocurrencies as being mature enough to justify being part of our strategic asset allocations. That said, we have seen some interest (from younger, and actually less young family members) in punting in it as a very short-term trade, but with full recognition that it is not yet an investment for the long term by any means.”

Rising interest

Rainer Michael Preiss, portfolio strategist at Golden Equator Wealth, says there is rising interest from clients in general, and not just from younger-generation clients.

“We have been conducting information sessions for them on Bitcoin and its potential role in portfolios, especially its likeness to VC (venture capital) investment in emerging tech and its potential PE-like roles in portfolios. The opinion is still very divided on whether Bitcoin is an asset class or a bet on the future and the emerging technology of open public blockchain,” Preiss notes.

He believes the extremely high volatility of Bitcoin’s price makes it less likely to be widely accepted as an asset class. There is also an ongoing narrative on Bitcoin as Gold 2.0 but the price volatility has to drop significantly first before it sees stronger demand from institutional investors.

“We consider Bitcoin and blockchain as emerging tech and welcome the growth in this ecosystem. But as a multi-family office, we understand each of our clients’ objectives and hence, Bitcoin will not be something for every client. Many have compared Bitcoin to private equity (PE) in terms of return potential minus the illiquidity, hence for some selective clients, Bitcoin could be considered as part of alternatives, but Bitcoin’s extreme volatility still makes it unsuitable for most moderate and balanced portfolios,” Preiss adds.

According to Edwin Lee, chief executive of independent wealth manager Covenant Capital, it is still too early to expect mainstream investors to include digital currencies in their portfolios. “However, as we start seeing ‘BTC-USD’ and other cryptocurrencies appear on the ticker tape on mainstream financial news channels and hearing discussions of suitable weights for cryptocurrencies in investors’ portfolios, it is clear that it is an asset class that cannot be ignored,” he notes.

“Covenant Capital is a multi-family office that works with the various generations within each family, and we have seen the second generation having growing interest in the class. One has even started investing in his own crypto mining rigs!”

Heart-stopping

He adds: “As a firm, we recognize that investing directly in cryptocurrencies can be heart-stopping for some clients and we would rather invest in ‘picks and shovels rather than mine for gold’. As such, in 2020 our clients invested in a blockchain-focused venture fund that’s backed by industry leaders in the blockchain and decentralized finance space.”

James Lim, executive director at multi-family office Taurus Wealth Advisors, has also seen a spike in interest in investing in cryptocurrencies, particularly in view of the recent surge in the price of Bitcoin.

"We see crypto assets as a speculative vehicle at this juncture. Cryptocurrencies, in general, are an extremely volatile store of wealth and an inefficient medium of exchange, both of which would defy the traditional definition of a currency,” Lim says.

“We do, however, recognize that there is a real demand for non-intermediate payments and strong progress in the usage of blockchain technology. In the coming years, as central banks around the globe start to explore and embrace digital currencies, it could catalyze the adoption of such digital assets,” he adds.