The past few years have seen the emergence of digital assets within the global financial markets. Multiple banks and asset managers have now initiated separate departments for digital asset management. Furthermore, to gain more value on their investments, investors and traders are gradually moving from traditional markets to multi-use digital assets. The phenomenon also gained momentum due to its popularity and acceptance among retail investors.
According to a report by Research & Markets, the digital asset management (DAM) market is forecast to grow at a CAGR of 13.6 per cent and reach $8 billion by 2027. This sudden growth of digital assets can bring both a lucrative opportunity and a disruptive possibility for portfolio managers in the long term.
Digital Assets: The Future of Investment
Digital assets can be termed as a broad container that comprises everything minted and exchanged on the blockchain. Affluent industry experts state that digital assets such as NFTs (Non-Fungible Tokens), cryptocurrencies, and other valued tokens are here to stay. For wealth management firms, it could bring up to a $54 billion opportunity in the near future. As a result, they must take consistent steps to enter these markets sooner and prioritise digital assets as they would any other wealth-generating instrument.
Digital assets can be categorised into five main sections: digital currencies, NFTs (Non-Fungible Tokens), stablecoins, CBDCs (Central Bank Digital Currencies) and Security Tokens. Digital currencies are mediums of exchange which are used for payments, investments or trading and are similar to fiat money.
NFTs, or Non-Fungible Tokens, represent assets on the blockchain with a unique identity and value.
Stablecoins are assets that are specially designed for price stability and that are backed by commodities, currencies, or other crypto assets. CBDCs (Central Bank Digital Currencies) are digital assets or currencies backed by the central bank of a country, which are used for forex, payments, etc.
Security tokens can be termed tokenised versions of real-world assets such as stocks, bonds, real estate, and more. With several options to invest in and trade, digital wealth has less chance of being extremely volatile and has a surplus liquidity pool in the markets, making them a secure option to consider.
Trends that are changing the boundaries of digital assets
Markets have enabled users to use digital assets to purchase other assets, products, and services in both the virtual and physical worlds. Furthermore, the emergence of decentralised finance, or DEFI, has facilitated the ability to access financial products such as loans, insurance, mortgages, and more safely via blockchain. Moreover, digital assets allow investors to invest in tokenised assets with minimal capital while eliminating the need for any third-party broker.
Digital assets are also emerging as a new product class for wealth managers to add to their existing portfolios to diversify holdings and hedge. Digital assets have also started to trade on the exchanges, while ICOs (Initial Coin Offers) and asset tokenisation are becoming the norm. Illiquid assets are becoming liquid assets with the help of digitisation, and multi-asset trading is becoming possible along with mergers of asset classes.
All things considered
Digitisation is synchronising the way these assets can be accessed or traded, which is paving the way for efficient, stable, and profitable investing. It has allowed transparency in procuring intelligent data, and when investors get clear data, it helps them to sustain and manage their assets in a hassle-free manner.
Private capital is growing more rapidly than public capital in the markets, and this can provide tremendous opportunities in the domain of investments for asset management firms. Wealth managers and investech platforms can offer tokenised products in tandem with portfolio offerings. Financial advisors as well as wealth tech firms must take the necessary steps to educate and inform new investors about digital assets and ensure their existing customer base profits.
To take this further, there is an urgent need for policymakers to frame regulations that are compliant with government, financial institutions and investors. By preparing to set up a stable digital asset management market now, wealth management organisations can develop and adapt, converting a potentially disruptive technological shift into a development opportunity.
The author is founder at Centricity WealthTech
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