Crypto as a new asset class in a regulated environment

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Investing in cryptocurrencies quickly gained wide adoption and media attention, with the development of the metaverse, non-fungible tokens (NFT), DeFi 2.0, and Web 3.0. As a result, the industry as a whole has grown exponentially in the past twelve months alone. To put this growth in context, there are now more than 77 million users1 worldwide and 6,000 coins / tokens in 2021, compared to 0.89 million global users1 and 66 coins / tokens in 2013.

Whatever the temptation of newcomers to invest in digital assets, it is essential that the necessary research and due diligence be carried out, as any form of investment carries risk. Helping new investors navigate the myriad of considerations requires a partner familiar with the latest regulations, while also understanding crypto technology and the industry at large. Huobi Technology Holdings Limited (Huobi Tech, Stock Code: 1611.HK) is committed to becoming the leading one-stop-shop compliant virtual asset services platform in Asia.

Research shows that demand for crypto and blockchain technology will continue to grow over the next three years, with the market expected to grow exponentially from $ 3 billion in 2020 to $ 39.7 billion in 2025. Blockchain technology will also continue to provide added value. to businesses (mainly in the finance, private, health and retail sectors) of approximately US $ 3.1 trillion by 20304

We believe that factors such as regulation, security, price stability and risk management play an important role in user adoption and they are catalysts within the industry that can bring assets in. digital in more general acceptance and adoption.

Value of adding crypto to asset allocation

Investing in cryptocurrencies can generate significant gains, but it can come with an element of risk. The cumulative impact of investing in digital assets is expected to complement a larger portfolio of assets, which are key drivers for retail and institutional investors. Cryptocurrencies such as Bitcoin have almost no correlation with other traditional asset classes and therefore offer clear advantages when it comes to diversification. The RIA Digital Asset Council reports that one percent of Bitcoin exposure will not reduce the fixed return on overall return on investment (ROI), but will provide a higher risk-adjusted return. In other words, digital assets are quickly becoming major traditional investments.

While owning digital assets can help diversify an investor’s portfolio risk, issues around taxation, auditing and other factors could deter some from entering the space. Nonetheless, regulated crypto funds can be an easier gateway in these circumstances.

One of the wholly owned subsidiaries of Huobi Techs, Huobi Asset Management (Hong Kong) Limited, has been granted approval to conduct Type 4 (securities advisory) and Type 9 (asset management) regulated activities. of the Hong Kong Securities and Futures Commission (SFC). He has created a variety of asset management products and services for professional investors, including a multi-asset fund, a BTC tracking fund, an ETH tracking fund, a crypto-mining fund, and the premier fund. multi-strategy virtual assets in Hong Kong.

The importance of crypto custody

Assets such as cash, bonds or stocks are usually held by third party custodians such as a bank. However, this is not the case for digital assets. Cryptos such as Bitcoin and Ethereum are very different from traditional assets. In this sense, they are built on blockchains and managed via private keys. In the blockchain world, crypto custodians offer custodial services to protect clients’ assets on their behalf.

Recently, major investment banks have opened crypto bureaus and private bank clients are looking to invest in digital assets. Crypto assets are becoming an alternative investment and even a new asset class for many investors. Long-term holders of these assets may include banks, family offices, asset managers, brokers or retail investors. These players focus on their core business and do not wish to face the operational complexity to secure their crypto assets. It often takes time and money to establish a good operational and technological environment to maintain these assets. This is where third party custodians come in to play.

Compliance is an important aspect for investors. For those investing on behalf of their clients, an independent third party custodian is needed to reassure their clients and regulators that their assets are protected by a neutral party. A compliant and licensed cryptocurrency custodian would be audited regularly by a governing body or CPA firm, and is subject to rules and regulations, such as anti-money laundering to ensure financial transparency.

Benefits for investors of using a regulated market

KYC / AML is mandatory before a client can start trading. Crypto exchanges are held to the same high standards as licensed banks or financial institutions, so all related policies and procedures are fully audited. The checks go both ways, although this can lengthen the customer onboarding process, the advantage is that every participant on the platform can be sure that the person they are transacting with is legitimate. This process can also protect the platform from being involved with customer accounts or suspicious transactions.

One of the main concerns of investors is that their assets are protected on the platform. As with all other financial institutions, regulated exchanges are required to segregate client and business assets. Client assets, including digital assets, are stored in separate accounts and wallets, under an associated entity, owned by the exchange. If there was a financial issue with the platform itself, it would not affect clients’ assets.

Regulated exchanges have an obligation to maintain fair and orderly markets, similar to established exchanges. Trading activity is closely monitored by standard financial industry market surveillance tools. Malicious business schemes such as impersonation or overlay will also be reported. If this happens, the stockbrokers can investigate and remove the accounts from the holding.

Cryptocurrencies are still considered a new asset class, but with all that is new, they can bring factors that may seem risky to investors. However, with more stringent regulations introduced by industry bodies, the central exchanges that initiate these new regulations will provide investors with a safer environment to trade and invest, which will ultimately increase adoption rates in the months and months. years to come.

Source: https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/Source: https://www.statista.com/statistics/863917/number-crypto-coins-tokens/Source: https://financesonline.com/blockchain-statistics/4Source: https://media.consensys.net/gartner-blockchain-will-deliver-3-1-trillion-dollars-in-value-by-2030-d32b79c4c560

2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.

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