Tokens of appreciation: How digital assets are changing the investment landscape

Cryptocurrencies – and bitcoin in particular – may be the latest 'must-have' assets for investment portfolios, but according to Dr Nils Bulling, Head of Digital Strategy & Innovation, Avaloq, savvy investors are looking beyond the headlines at the wider opportunities provided by the blockchain technology that powers the whole digital assets ecosystem.

In a guest article this week, Bulling explains why we could be 'at the dawn of an explosion of asset classes' and how the tokenisation of assets – traditional or alternative, that were historically reserved for high net worth individuals only – will drive the democratisation of wealth management and make alternative asset classes accessible to a broader market.

"Customers will, for instance, be able to trade fractions of a vintage car collection, a luxury villa or a Picasso painting like traditional stocks," writes Bulling. "Arguably, this will imply a demand for new advisory services, providing new revenue opportunities."

And Bulling certainly isn't alone in recognising the potential for distributed ledger technology (DLT) – as blockchain is also known – to shake-up the finance sector. According to a new survey out this week, half of institutional investors and wealth managers expect to see a 'dramatic' increase in the use of DLT in the asset management sector in the next three years.

The FCA meanwhile, opened 52 investigations into cryptocurrency businesses in the last year, but according to RPC, a City-headquartered law firm, this is likely to be just the tip of the iceberg in terms of activity that either breaches regulatory rules, or is illegal. A ban by the FCA on the sale of derivatives based on cryptocurrencies to retail investors came into place on 6 January, which the regulator estimates will prevent GBP53 million in investor losses.

According to a new survey by behavioural finance experts Oxford risk, the increasing influence of social media on decision making is also a threat to the financial wellbeing of retail investors. 

"The quick-fire comments seen on social media are far too often based on amateurs’ knee-jerk responses to market fluctuations, which leads to all kinds of bad decisions and losses," says Greg B Davies, PhD, Head of Behavioural Finance at Oxford Risk. "Investors need to base their decisions on long term views with a realistic view of their goals and attitudes to risk." 

Time for some good old fashioned financial advice then? Well, that's more likely to be the case for men than women, according to research by Cerulli which reveals that female investors are both more reluctant to pay for financial advice than their male counterparts, and to play an active role in the management of their portfolios.

"This provides both a challenge and an opportunity to providers in the advice segment," says Scott Smith, director of advice relationships at Cerulli.

And finally for those looking for a truly 'life-changing' opportunity, the new 'Thrive in Abu Dhabi' programme is looking to attract talented professionals, students and investors to a new life in the emirate. The programme highlights the long-term visas and paths to citizenship available for expats 'working, creating, studying, excelling or investing' in a range of priority sectors including culture, healthcare, research and development (R&D) and real estate.

Wealth Adviser
 

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