Challenges and opportunities of investing in digital assets


Global private equity funds raised over Sh120 trillion in 2022. PHOTO | POOL

As technology and financial space evolve, there is an emerging asset class known as digital assets that are gaining currency among investors keen to diversify portfolios to manage volatility and secure high returns.

Digital assets present a huge potential, compared to traditional financial assets. The assets have evolved as an alternative asset class in recent years, with an estimated market capitalisation of more than $1 trillion as of September 2022, according to an Investing in Digital Assets Report jointly authored by KPMG China and Aspen Digital.

According to the report, the huge growth has attracted mainstream attention, with institutional investors entering the space. However, volatility in the market has been a challenge, with some digital assets experiencing significant swings in value.

While the digital assets ecosystem presents plenty of growth opportunities, it is still a new, complex, and fast-moving market, with a wide range of cryptocurrencies and other digital assets available. 

The report notes that for the Asian private wealth management industry, the digital assets sector is emerging as an alternative asset class.  

Up to 92 percent of families and high-net-worth individuals are currently investing in digital assets or are interested in investing in the future.

Their interest is driven by the prospect of high returns, broadening their portfolios and increased confidence in the market following the entrance of institutional investors.

The report indicates that as digital assets are fairly new, there is still some uncertainty about investing in the sector around regarding regulation and valuation. 

Diverging regulatory approaches to digital assets in different jurisdictions is a key concern as investors are looking for a clear regulatory regime that enables the trading of digital assets.

However, the global environment is evolving as regulators are creating specific regimes to deal with digital assets. Asian regulators seem keen to balance investor protection and the growth of the digital asset market.

Sub-saharan Africa accounts for the least cryptocurrency transaction volume of any region, with $101 billion in on-chain volume received between July 2021 and June 2022, which represents two percent of global activity, and 16 percent growth over the year prior.

Emerging trends show many young people in sub-Saharan Africa turning to cryptocurrency to preserve and build wealth, while in other countries people are using cryptocurrency to multiply their existing wealth.

Volatility has pushed people to move to stablecoins like tether. With the activity in digital assets growing there is an urgent need for a unified global approach to regulatory oversight to ensure investors are protected as the digital assets market architecture is largely in private hands.

There are reports of scammers setting up fake platforms to take advantage of new investors with limited awareness, especially in emerging markets, but seeking to benefit from digital assets. 

The writer is the CEO, Scope Markets Kenya. Email: [email protected]