Rising Interest in Digital Assets: Family Offices Explore Crypto Amidst Financial Uncertainty
Family offices are increasingly turning their attention to digital assets, particularly cryptocurrencies, as they seek avenues for investment amid global financial uncertainty. A recent report by Ocorian, a global provider of services to high-net-worth individuals, indicates that 99% of surveyed family office professionals consider increasing exposure to alternative asset classes as a long-term trend. These alternative assets include capital financing, commercial developments, traditional options like private equity, commodities, hedge funds, and notably, digital assets.
The study conducted by Ocorian involved over 130 family office professionals responsible for managing assets worth more than $62 billion. Family offices from various countries, including the US, UK, Canada, China, Germany, India, Norway, Saudi Arabia, Singapore, South Africa, Sweden, Switzerland, UAE, Denmark, France, and Japan, participated in the research. The findings highlight that 90% of respondents acknowledged their clients’ interest in incorporating cryptocurrencies and other digital assets into their investment strategies.
While the interest in digital assets is on the rise, family offices encounter several challenges that impede wider adoption. The regulatory landscape is a significant obstacle, with 80% of family offices reporting difficulties in finding support for complying with regulations and meeting reporting obligations. Inconsistencies between tax regimes across the globe further compound these challenges. Consequently, 80% of family offices and high-net-worth individuals expressed struggles in outsourcing their investment in digital assets to third parties who can assist with regulatory compliance and reporting requirements.
Amy Collins, Head of Family Office at Ocorian, highlighted the desire of many family offices, especially those led by younger, tech-savvy generations, to venture into the realm of crypto and digital assets. However, given the complexities and risks associated with this asset class, the lack of appropriate support in practical, regulatory, and reporting aspects is a concerning factor.
Considering that cryptocurrencies and alternative assets carry higher risk profiles, Ocorian’s survey delved into the risk appetite of institutional investors. The results indicated that 87% of family offices predict an increase in their clients’ risk appetite in the coming year, with around one-third (31%) expecting a substantial surge. This growing appetite for risk stems from improved optimism regarding the global economy, with 57% of respondents feeling that inflation has peaked and 54% believing that markets have weathered the worst phase and are poised for recovery.
Analyzing data specifically from family offices in the United States, Ocorian discovered that 32% of respondents noted increased exposure to alternative asset classes in the Americas. These findings present a contrasting view compared to a survey conducted by Goldman Sachs between January 17 and February 23, which showed that while 26% of family offices had invested in cryptocurrencies in 2023, up from 16% in 2021, only 12% expressed potential future interest, representing a significant decline from the 45% of respondents seeking crypto investments in 2021.
While the cryptocurrency market’s improvement since the beginning of the year has spurred growing interest in digital assets, the level of adoption among institutional investors moving forward remains uncertain. The Federal Reserve’s 2022 Economic Well-Being of U.S. Households report, released recently, reveals a decline in the percentage of Americans holding or using crypto, falling from 11% in 2021 to 8% in 2022. The central bank attributes this drop to last year’s decline in digital asset prices. Additionally, income disparities play a role, as individuals with incomes of $100,000 or more are more likely to hold cryptocurrency as an investment compared to those with lower incomes.
Family offices are increasingly recognizing the potential of digital assets as investment opportunities amidst uncertain financial times. However, overcoming regulatory hurdles, addressing reporting obligations, and finding suitable support are key challenges that need to be addressed to facilitate broader adoption. As the market continues to evolve, the level of institutional investor interest and involvement in digital assets will be closely watched.