When the rich tiptoe into the crypto world

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In part, that’s because none of the other asset classes can boast the kind of returns that blue-chip crypto assets like bitcoin and ether provide. The world’s largest cryptocurrency, bitcoin, has gained over 50% since the start of the year. The gain over one year is around 400%.

Gains from these assets have resulted in a much higher customer base in Indian crypto exchanges compared to stock brokers. Zerodha now has more than seven million users compared to 11 million at CoinSwitch Kuber and 8.3 million at WazirX.

While the increase in customer base of Indian crypto exchanges has been driven by retail investors, HNI investors have also shown increasing interest in investing in cryptocurrencies over the past 12 months.

The HNI or the upper class joined the crypto movement a bit late as they realized that this is a very relevant asset class. Not having crypto means you are ignoring Google or apples 10 years later. Some investors are also thinking of crypto as an alternative to gold, ”said Asheesh Chanda, founder and CEO of Kristal.AI, a global wealth management company with assets under management (AUM) of 360 million. dollars and HNI customers in 22 countries, including India.

According to Chanda, wealthy investors prefer to invest through funds because they don’t want to take the regulatory risk of owning cryptos directly. Plus, it’s more convenient because HNI investors don’t have to convert their fiat currency to crypto or open wallet accounts with crypto exchanges, ”said Chanda.

Since there are no US-listed exchange-traded funds (ETFs) in the market, investors invest in ETFs listed in other countries.

For example, Ether Tracker One and Bitcoin Tracker One, the two top performing ETFs on the Kristal platform, are listed in Sweden.

The global wealth management company also has an internal fund, the Kristal Founders fund, which has $ 30 million in assets, 6% of which is in crypto. According to Kristal.AI, one in three customers is ready to invest in crypto.

As fund managers have started to seriously consider getting crypto exposure in their portfolio, even exchanges are planning to offer investment services through the funds route.

Mudrex, a global algorithm-based crypto investment platform, is launching coin sets, which will allow investors to simultaneously invest in an organized basket of crypto.

For HNI clients, he plans to create a crypto-focused fund.

HNIs primarily seek to diversify their portfolios across asset classes. They have investments in gold, fixed income instruments, stocks, alternative investment funds, etc. They regularly include crypto in their portfolios to capture the alpha generation potential of cryptos, ”said Edul Patel, CEO and co-founder of Mudrex. .

In India, so far HNIs, family offices and the upper class have been slow to embrace cryptocurrencies as regulatory ambiguity and low familiarity impacted participation.

According to Vaibhav Porwal, co-founder of dezerv., A wealth tech company, most investors participate on a small scale.

These investors are looking to test the waters before making a serious commitment. A slight divergence is visible with clients where the next generation took over the portfolio. They are more receptive to the idea of ​​investing in crypto, ”said Porwal, who is awaiting clarification from regulators before taking a final call on offering investments through funds for crypto investments.

When it comes to HNIs investing directly in coins or going the funds route, Porwal thinks this is a mixed bag. Investors with domestic capital invest directly in cryptocurrencies, and investors using the LRS limit choose a mix of direct and fund-based investments, ”he added.

Under the Reserve Bank of India’s (RBI) Liberalized Remittance Program (LRS), an Indian can send up to $ 250,000 per year abroad for travel, education and medical care as well. than for the purchase of shares.

In India, crypto-focused fund services have not accelerated so far, mainly because there is a gray area in terms of the taxation of cryptocurrency funds.

However, according to Mudrexs Patel, this trend appears to be changing dramatically.

Indian companies are setting up crypto-based funds with legal jurisdictions outside of India, ”he added.

According to Patel, the minimum ticket size for HNIs across the industry is $ 100,000, while the crypto allocation remains within 4-7% of the full investor portfolio.

In addition, according to the latest report by accounting and consulting firm PricewaterhouseCoopers (PwC), the total assets under management of crypto hedge funds around the world rose to nearly $ 3.8 billion in 2020, up from 2. billion dollars in 2019.

However, the pace of adoption in India is slow. We are not advising our clients to get into crypto at this time as it is too big a risk in terms of regulation in India. At the moment, it is not known in what form the government bill will come. In addition, there is ambiguity over the taxation of crypto, ”said Amit Kumar Gupta, New Delhi-based portfolio manager at Adroit Financial Services Pvt. Ltd, a portfolio management company registered by Sebi.

Experts say retail investors should not follow HNI’s investment strategy because they have a higher risk appetite.

Additionally, retail investors should preferably stay away from crypto as it is a very risky asset class, while those looking to give it a try should contain a crypto investment at 2. at 5% of their portfolio.

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