1. Introduction & purpose
Digital assets have evolved much since the pseudonymous Satoshi Nakamoto shared his paper on “a new electronic cash system that’s fully peer-to-peer, with no trusted third party” back in 2008. Today, a parallel financial world operates outside of the traditional systems of institutional finance, built on principles designed to counter characteristics that make the latter less accessible, though signs are there that these two worlds will become more aligned.
Digital assets are exactly as their name suggests: digital items that have value like traditional assets, but are created, stored and traded entirely in the digital realm, with a global network of exchanges and service providers that facilitate this. In their form as cryptocurrencies, digital tokens, non-fungible tokens (NFTs) and a handful of other variations, digital assets are remarkably different in concept and approach to traditional finance, but have helped drive innovation that can certainly improve this incumbent system.
The rapid evolution of digital asset technology isn’t matched when it comes to regulation adjustments, and governments have been confronted with the challenge of applying traditional state-based monetary and legal approaches to a deliberately decentralised financial system.
It’s also natural that an entirely new industry such as digital assets has gone through its own set of cycles and moments of hype, with enough negative headlines over the years to cause concern for cautious investors and ensure that it’s still a very small fraction in size compared to traditional finance, and likewise within the investment portfolio of most family offices.
But it’s early days and the space deserves attention for its enormous potential. With only 15 years in existence the industry has started to show that despite being the antithesis in structure, digital assets and traditional finance are finding ways to merge, the most recent example being Bitcoin integrated into Exchange-Traded Funds (ETFs) in the United States, and there is a sense that this alignment will continue as digital assets become more regulated and secure, suggesting that we are heading towards a more unified system of finance that incorporates the best elements of both the old and the new.
It’s worth mentioning that Bitcoin is itself a world within the digital assets world, making up half of the entire $2 trillion digital assets market cap and referred to by multiple industry insiders consulted in the compiling of this report as distinctive from other more speculative cryptocurrencies. It thus makes sense that it dominates the focus, and will likely do the same for family offices that pursue their own exploration.
Share On LinkedinTL;DR
- The digital assets market recovered significantly over the last year despite high-profile setbacks.
- There is renewed focus on adding real world value and investment in blockchain technology.
- Bitcoin is perceived as a more stable asset compared to speculative cryptocurrencies.
- Mainstreaming of digital assets continues, with greater accessibility and wider regulation.
- There are suggestions of an eventual convergence with traditional finance.
Purpose of this report
Simple takes a neutral view on investment diversification into digital assets. This report aims to provide an updated overview on digital assets for family offices eager to understand more about this theme, sharing insights we’ve received via our qualitative and quantitative research over the last year together with information collected from industry reports and financial publications. We have consulted with service providers, family offices, independent thought leaders and those involved on the legal and regulatory side to offer a rounded view on the industry that aims to provide useful context and actionable knowledge in an accessible, legible format. Family offices interested in an introductory breakdown on digital assets and custody solutions can access our guide here.
Watch our recent Digital Assets webinar on demand
Share On Linkedin3. Digital assets market in 2024
Share On LinkedinShift into mainstream
The “crypto winter” in 2022 and the first part of last year helped wipe out 75% of the digital assets market value, and certainly added to those that were skeptical about the industry’s future, but many closely involved within the industry see this as being somewhat helpful in clearing out bad players. It also provided a renewed focus around non-speculative interests and promoted more practical commercial applications, such as reducing operating costs, improving transaction efficiency and enhancing security.
Some of the big failures of last year, notably the FTX bankruptcy and $4.3 billion fining of Binance, have also helped shift sentiment within the industry itself to highlight the need for clearer regulations and controls, these incidents likely contributing towards greater interest from investors in institutionally-backed vehicles to gain exposure to digital assets.
Investment opportunities around digital assets have evolved considerably, as has the variety of digital assets themselves, and it’s also worth highlighting the difference between the adoption of blockchain technology versus support of cryptocurrencies themselves, particularly with the larger traditional financial institutions.
UBS is a case in point, sharing updates on how it is fundamentally “still not convinced that crypto assets can make significant inroads in meaningful and disruptive real world use cases” but at the same time issuing a tokenized warrant on ethereum blockchain. And while JP Morgan CEO Jamie Dimon doesn’t even want to talk about Bitcoin, the company has had JPM Coin since 2019, its very own stablecoin that handles over $1 billion of transactions daily.
While this reiterates the difference between the value of technologies that emerge from digital assets and sentiment towards the assets themselves, despite institutional hesitations there is a growing interest from investors that the world of traditional finance can’t ignore.
Larger financial institutions are incorporating digital asset investments into their offerings, either through their own custody technology solutions or partnering with technology companies within the space, seeing it as an opportunity to make a profit, and more worthwhile as the ecosystem becoming less risky through the albeit slow regulatory processes as well as technology, like on-chain analytics solutions that can prevent money laundering.
The successful launch of Bitcoin ETFs in the United States, trading over $4.6 billion on its launch day, is the most telling sign of mainstream investor interest and marks a watershed moment in the convergence of digital assets and traditional finance. Together with ongoing adoption of cryptocurrencies by digital banks and payment providers it has brought further legitimacy to the digital assets market, which has over 400 million users at the time of writing.
The ETF approvals have certainly helped build positive sentiment, even if the very companies that have launched them still recommend a cautious approach, some stating their efforts are to provide access to investors through the ETFs yet don’t recommend investors allocate a specific amount to digital assets as yet.
Share On LinkedinJurisdictions and regulation
The concept of a decentralised, peer-to-peer monetary network doesn’t preclude it from regulation, in fact the opposite is true: opponents of digital assets argue that its very nature makes it more susceptible to exploitation for money laundering, purchase of illegal goods and tax avoidance. And after the spectacular collapse of FTX there’s a need for transparency, to assure investors that large companies in digital assets have the necessary reserves, with some now voluntarily publishing theirs to assuage concern.
But while regulation can offer the industry more stability and security, the slow process of government bureaucracy and varying attitudes between jurisdictions create an environment for digital assets still filled with uncertainty. This requires guidance from international bodies to advise governments and guide a regulatory process that matches the global nature of digital assets.
Regulations are starting to take shape around the world, at varying degrees. In the United States, which accounts for almost 25% of global digital asset transactions, there is still a lack of clarity between the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission (SEC) on who should control digital assets regulations and increase consumer protection.
In the European Union, aimed at providing financial stability and protecting investors, the Markets in Crypto-Assets (MiCA) regulation came into effect last year (the full regulation being applied from December 2024), while the United Kingdom approved its own bill to regulate digital assets under existing payments rules, as did other countries including Hong Kong, Japan and South Korea.
The largest adoption of digital assets over the last year has been in Lower-Middle Income countries, which make up 40% of the world’s population, and where governments have been quick to embrace the potential of digital assets and digitalisation. These countries benefit from a young, tech savvy population that has frequently embraced digital wallets for fiat currencies in lieu of traditional financial infrastructure, as well as a need to preserve wealth against high inflation and currency concerns. India and Nigeria as well as Vietnam, Philippines and Indonesia feature prominently here and will likely present compelling investment opportunities in the year ahead.
Post-bubble: DeFi & NFTs
Decentralised Finance (DeFi) and Non-Fungible Tokens (NFTs) both saw explosive growth followed by disillusionment and a rapid loss in value. DeFi, which uses digital assets and the underlying technology to replicate traditional financial services, expanded rapidly in both platforms offering services and user base until the ‘crypto winter’ hit in 2022 and venture capital quickly dried up. It was touted as the hardest hit during this phase, and there is now concern that as regulations around digital assets start to take hold there will be less opportunity for the DeFi movement, which was founded to take advantage of the decentralised nature of finance, not fit into traditional financial industry rules and regulations.
Similarly, interest in NFTs saw incredible momentum and gained traction beyond art into areas like gaming, sports, and entertainment, before the bubble burst and the NFT market crashed, with companies phasing out NFT-related offerings and some marking down their investments up to 90%.
Technology innovation
Artificial intelligence may seem to be receiving all the attention in the technology innovation space, and there are crossover opportunities where this technology can be applied to the blockchain ecosystem in exciting ways. But there is also enthusiasm for investment into blockchain technology itself, and how the technology developments in blockchain infrastructure can be applied to traditional finance.
Scalability solutions, interoperability protocols and the potential for smart contracts to remove multiple intermediaries and speed up financial transactions at lower costs present a massive opportunity considering how large the global financial services market is, and how dated some of the current systems are.
Family office interest
What does this all mean for family offices? While there have been big winners to emerge from the rise of digital assets and a significant amount of new wealth owners created, our research as well as recent family office surveys suggest the industry has unsurprisingly taken a very cautious approach to digital assets.
Last year’s UBS Global Family Office report stated a higher number of engagement, with just over half of surveyed family offices invest in digital assets, but with 38% of them investing just 1% of their portfolio to this, while in Europe, digital assets accounted for just over 0.5% of portfolio assets in the Campden Wealth’s European Family Office Report.
Some of the annual global family office reports, including those from Julius Baer and BlackRock, didn’t note the allocation to digital assets, nor mention the category, and discussions with family offices and advisors echo a rather lacklustre sentiment, suggesting limited investment appetite among family offices for digital assets until there are clearer regulatory guidelines.
The current low exposure emphasises the enormous influence family offices could have within the sector as they become more involved as guidelines become clearer and more robust infrastructure develops to support the industry. This can be accelerated as more avenues for exposure to digital assets become available, ranging from direct investment into related service providers or the blockchain infrastructure space, to ETFs, venture capital and hedge funds. Likewise, as the desire for more exposure to the market increases, so will the need for trustworthy and experienced advisors and service providers to facilitate this process.
“Most of the conversations I have been exposed to are more related to the safety and storage of these crypto currencies given the size of even small allocations within a single family office.”–Jason Pinkham, Goose Rocks Wealth
4. Major shifts
Positive: Crypto market recovery
2022 was rough on the digital assets industry, and there was much speculation around where things were headed, but following the phase known as ‘crypto winter’ the overall market rebounded significantly, with the two major currencies, Bitcoin and Ethereum, seeing significant price recovery that indicated fresh confidence in the digital assets space. Bitcoin gained 160% in value during 2023, and has continued on to two-year highs this year, reaching $57,000.
Negative: Fraud concern
The value received by illicit crypto addresses in 2023 reached $24 billion, a smaller percentage of transaction volume than 2022 numbers that matched market highs, but still a concerning amount. Notably in this is how Stablecoins made up over half of these transactions, which reflects their growth within the digital asset industry. In contrast, illicit Bitcoin transactions have steadily decreased over the last five years. Concerns around illicit transactions are not new, but coupled with the large scale deception at the heart of the FTX collapse, not to mention ongoing small scale scamming activity, encourage hesitation from large scale adoption by more of the mainstream investor market.
Positive: Mainstream Bitcoin access
Just the fact that there is now regular discussion around various ways that the worlds of traditional finance and digital assets can integrate says a lot for how much has changed in the last year. The market has matured significantly and a lot of this has to do with the Bitcoin ETFs approved earlier this year, highlighting its value through the creation of structured institutional products that provide greater access. It also reinforces Bitcoin’s elevated position within the digital assets industry, accounting for half the market value.
“Bitcoin is a neutral monetary asset, controlled by no-one and for everyone. Crypto is more akin to traditional centralised companies competing to build financial services infrastructure. Bitcoin is an institutional grade asset, as the ETFs clearly signify.”– Alex Mann, TimechainVC
Positive: Global regulatory developments
There was a worldwide effort to regulate digital assets, to establish standards and provide clarity and oversight to the growing market. From MiCA, the European Union’s first legislation, through to initiatives by the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS), with many independent countries outlining and refining their own regulations. The mainstreaming of digital assets also increases consideration for countries to include it within existing financial market laws rather than focus solely on it as its own asset class, though with the need to ensure this doesn’t dilute any potential for innovation within the industry.
Neutral: The Bitcoin halving
Bitcoin halving refers to the reward for mining Bitcoin transactions being halved. It occurs every four years and acts as a means to create a diminishing return, ideally to increase demand, since it aims to reduces the rate at which new coins are created. The last halving was in May 2020, and the final halving is set for when there are 21 million Bitcoin. Halving events have historically proven positive for the value of Bitcoin.
Positive: Ethereum staking
Ethereum staking, or Proof of Stake (PoS), replacing Proof of Work (PoW) blockchain mining is a major evolution. Instead of using computing power to verify complex cryptographic equations, like PoW does, staking validates transactions and records new blocks on a blockchain based on how much cryptocurrency someone has – quantifying them as a ‘trusted’ network user. This switch aims to make Ethereum faster and uses almost half the energy, helping with environmental concerns around high-energy consumption in producing digital assets.
“The shift to staking for consistent yield without credit risk is a major difference for anyone who wants to build a digital asset portfolio as it provides a path to yield while holding an interest in a key part of the underlying software infrastructure that much of the DeFi space is built upon.”–Sune Sorensen, Bespoke Group
5. Potential opportunities
Decentralised everything
Taking advantage of the blockchain transparency, verifiability and security amongst other attributes to take control away from gatekeeping industries or organisations that frequently keep conflicting data sets. Decentralised identity is one application being explored, the idea that online identities are not hosted on big private servers (think search or social media giants) but rather on file-sharing platforms that give users total ownership of their data, as well as what is used by whomever they transact with online. There are also clear opportunities for application across land registration, government funding and elsewhere.
“There are a variety of projects working on decentralized identity, which I consider to be a prerequisite to decentralized reputation and an important feature for building decentralized economies. Consider the fact that as a consumer, you have completely distinct reputations across Amazon, Ebay, Craigslist, Facebook, etc.”–Jameson Lopp, Casa
Real World Asset (RWA) tokenisation
Not a new concept and one that has had its fair share of hype, but is still repeated as offering enormous potential for the digital asset market. RWA tokenisation refers to blockchain tokens that represent a real world asset, either the ownership of an asset or a share in ownership. This last part is significant, since by facilitating fractional ownership there is the opportunity to convert assets seen as illiquid into accessible portions of ownership that can be sold or traded on exchanges. A form of democratisation of asset ownership it opens up a new world of lending, not without its own legal complexities.
“The past year has seen a significant evolution in the digital assets space, most notably through the emergence of real-world asset (RWA) tokenization. This concept represents a groundbreaking shift in how assets are owned, traded, and perceived in the digital realm, affecting various sectors including commodities, real estate, and securities.”-Maurice Crespi, Schindlers
Humanitarian services
The power of blockchain to assist with humanitarian challenges and financial inclusion is also a major opportunity, highlighted by the United Nations as a means to accelerate achieving its Sustainable Development Goals. The structure can be highly valuable to provide solutions where there is a lack of infrastructure or trusted operators, which could be in the form of providing financial services to people without access to banking facilities due to geographical or cost constraints, or through blockchain payment solutions that enable efficient distribution of aid and with greater transparency, as per the Oxfam UnBlocked Cash project.
“There are some incredible opportunities that aren’t tied to a financial return on investment, but rather humanitarian, and I think those might have a significant opportunity to attract capital from family offices that possess patient capital.”–Ben Wiener, Benaiah Co
6. Custody considerations
For family offices contemplating investment in digital assets themselves, several considerations come into play. These considerations span from understanding the inherent risks to recognising some of the unique opportunities these investments present, as well as assessing how the market will develop.
Strategic considerations include how digital assets offer diversification advantages, due to their separation from traditional asset classes and markets, and also how digital assets and blockchain technology may offer additional value when further integrated into wealth management going forward.
Of significant importance is the question of custody. The use and management of digital asset storage and custody solutions should closely align with a family office’s investment ideology and risk appetite. Secure storage solutions and the means to independently transact safely can be facilitated by service providers that enable self custody, as opposed to specialist custodians that can securely store and manage digital assets on behalf of a family office.
While digital assets present some protection from geopolitical risk in their ability to be moved instantly, the location for custody is an important consideration, and several service providers indicated that safe jurisdictions like Switzerland or Lichtenstein are recommended.
Insurance is also a necessary consideration, and family offices should investigate insurance options that are offered to mitigate risk against their digital assets, whether a custodian is used or self custody chosen.
“In the future family offices can utilise digital assets technology for greater transparency, security and efficiency within estate planning and wealth transfer.”–Adrian Larsen, Aros Capital
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7. Risk Management
Digital assets have a volatile history, and while Bitcoin has evolved into an institutionally traded asset, many cryptocurrencies have lived a brief but explosive tenure in the market. It’s therefore essential for family offices to assess risk tolerance to ensure they can handle extreme price fluctuations, and form a clear comprehension of the technology at play.
Recent research by Deloitte also suggests risk and compliance complexity around digital assets are both set to increase, and at the same time there is a lack of communication within companies around this, which is crucial to managing potential risks.
Like any other asset, a clearly defined investment rationale can help guide family offices to establish their investment motives, and similarly, understanding who is behind any new offering is of utmost importance.
Key risk assessments:
- Tolerance for extreme price fluctuations
- Regulatory landscape evaluation
- Cybersecurity risks
Assessing and managing risk starts by working with the right team. Our recent insight in partnership with Benaiah Co outlines ten principles for family offices to handle digitial asset management, elaborating on this with other priorities. These include education, tax planning as well as risk assessments, assembling strategy committees, security measures and more.
As mentioned earlier, custody considerations are part of risk management. Libertarian investors may opt for direct storage of cryptocurrency, prioritising control, privacy, and reduced counterparty risk. In contrast, others may prefer custodians for enhanced security, regulatory compliance, ease of management, and access to additional services, reflecting differing priorities and risk appetites within the digital asset investment landscape.
Our step-by-step guide can assist family offices in choosing an appropriate custodian.
8. Useful resources
We’ve compiled a helpful list of orientations, guides, cryptocurrency news publications, market update syndications, as well as thought leaders contributing to the development of digital assets, cryptocurrencies, and blockchain technologies.
Types of service providers
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DownloadCryptocurrency and digital asset news
Guides, orientation and perspective
- The Bitcoin Wiki
- The Bitcoin Whitepaper by Satoshi Nakamoto
- Bitcoin explained by Jameson Lopp
- Evolution of Cryptocurrency: What is Cryptocurrency? by MasterTheCrypto
- Coins, Tokens & Altcoins: What’s the Difference? by MasterTheCrypto
- Ethereum in 25 minutes by Vitalik Buterin
- Blockchain 101 by Coindesk
- What is a blockchain? By Coinbase
- The meaning of decentralisation by Vitalik Buteirn
- a16z Crypto Canon by Andreessen Horowitz
Market updates
