An advertisement for bitcoin displayed on a street in Hong Kong
Regulatory scrutiny and market volatility mean asset managers can position funds as ‘safer routes’ than direct exposure to crypto © Kin Cheung/AP

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The crypto craze among Asian investors is spurring asset managers in the region to seize opportunities to woo them over with their products despite tightening regulation, Cerulli Associates notes in a new report.

A number of cryptocurrency and blockchain-focused funds that invest in the broader universe without directly investing in cryptocurrency have been rolled out this past year in Singapore, Hong Kong and Korea, while Australia has seen the region’s first exchange traded funds with direct exposure to bitcoin and ether.

“For investors, the growing number of mutual funds and ETFs coming to market help to widen product choices or even legitimise crypto investing by providing arguably safer routes to accessing this asset class, compared to direct crypto investing,” said Ken Yap, Singapore-based managing director for Asia at Cerulli.

“Crypto funds offer an important asset-gathering opportunity for managers,” Yap added.

This article was previously published by Ignites Asia, a title owned by the FT Group.

Regional regulators have been cracking down on the asset class, however, with the Monetary Authority of Singapore curtailing retail access to crypto in August and Thailand’s Securities and Exchange Commission overhauling advertising rules for digital asset companies.

South Korea also does not currently permit local players to tap services from cryptocurrency exchanges.

This environment of increasing regulatory scrutiny and market volatility, however, would be “key selling points” for asset managers in providing crypto-related funds, rather than products that have direct exposure to the asset class, said Yap.

The growing regulation has not stopped Asian managers from seeking opportunities in this space, with a number of Korean firms taking steps to grow their digital asset capabilities.

In January, Korea’s Mirae Asset Financial Group announced plans to roll out a digital assets business that would initially target custody services for cryptocurrency and non-fungible tokens and eventually create loans and funds tied to digital assets, the Korea Economic Daily reported, citing industry sources. That push came amid rising demand for such services.

KB Asset Management, South Korea’s largest bank, announced in February that it had created a digital asset management preparatory committee to explore the development of digital assets and artificial intelligence funds.

KB AM rolled out the KB Global Digital Chain Economy fund, the first strategy in the country that focuses on investments in blockchain technology companies, in September last year.

Generation Z and millennials were fuelling the interest in crypto in South Korea, said Cerulli.

Singapore is also seeing strong interest among young investors, with Cerulli citing a survey from last year that found 51 per cent of those aged 25 to 44 were more willing to invest in crypto, while only 36 per cent of those aged 45 and over showed the same interest.

At the start of the year, BNY Mellon Investment Management was preparing to launch Singapore’s first retail-oriented fund that invests in the blockchain universe, amid growing interest in crypto assets and related technology among local investors.

Thailand and Vietnam have also emerged as hotbeds for retail cryptocurrency investments in south-east Asia, even in the face of a global market rout and tightened regulations imposed on the highly volatile sector.

Thailand recorded $135.9bn in crypto value transacted in the 12 months to June 2022, while Vietnam had $112.6bn, according to a report published by blockchain data platform Chainalysis on September 21.

Crypto has also drawn interest from high-net-worth individuals, with Cerulli reporting that some private banks and family offices in both Singapore and Hong Kong are “seeing interest in direct crypto investing or crypto ETFs”.

There is demand from distributors as well, with Cerulli’s survey indicating that they want asset managers to “develop niche product ideas that offer long-term opportunities, including technology themes such as blockchain and crypto”.

ETFs are seen as another way to give even more retail investors access to crypto. Australia has emerged as a regional leader in the crypto ETF space.

Australia’s first three cryptocurrency ETFs started trading in May. The Cosmos Purpose Bitcoin Access, 21Shares Bitcoin ETP and 21Shares Ethereum ETP ETFs went live on Australia’s alternative exchange, formerly known as Chi-X Australia, that month.

In June, the Hong Kong arm of South Korea’s Samsung Asset Management rolled out what it called the first-ever global blockchain-related ETF in Asia. The Samsung Blockchain Technologies ETF is actively managed and can invest in blockchain-related ETFs, such as cryptocurrency futures ETFs listed in the US.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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