In times of economic uncertainties, it is almost a no-brainer for investors to turn to safe-haven assets like gold.
It may thus seem surprising that many institutional investors – including the likes of conservative pension funds and family offices in the United States and Europe – are turning to digital assets such as cryptocurrencies as new forms of investments.
These seasoned investors view digital assets as an alternative to existing asset classes that will be increasingly attractive in the years ahead – in terms of the possible returns in the long run and their function as an immutable store of value.
With the growing appetite for digital assets, many key jurisdictions have started to regulate digital assets trading.
In Hong Kong, for instance, OSL became the city’s first digital asset exchange and brokerage licensed to trade cryptocurrency and security tokens.
This ensures investors can trade with confidence under the protections and safeguards to which they are accustomed.
Like Hong Kong, Singapore is well-positioned to be a future hub for this rapidly growing asset class, as it looks to regulate platforms that offer related products and services.
Here are four reasons investors see cryptocurrencies as the new gold:
1. A new frontier for value investors
In the past few years, investors have tended to trade cryptocurrency or digital security tokens for short-term speculation. However, many institutional investors are now looking to invest in digital assets for long-term gains.
One reason is that they believe digital assets are a new way forward for a truly digitised economy.
Says Mr Ryan Rabaglia, global head of trading at OSL: “The regulatory clarity has come to fruition in key jurisdictions, creating an environment that allows institutions and investors to gain exposure to digital assets with confidence.
“This is another element of the current rally – institutional participation and asset allocation.”
Underpinning this sentiment is the belief that the world’s financial systems will increasingly adopt cryptocurrencies for transactions and other commercial activities.
2. Diversification from traditional asset classes
Traditional assets such as equity, derivatives and foreign exchange are nothing new to experienced traders, and these asset classes usually comprise a large part of their trading portfolio.
With the increasing popularity and potential of cryptocurrencies, many traders have started to get exposure to digital assets by adding them to their portfolio to diversify risk.
“With more than 10,000 types of cryptocurrencies on the market today, investors have a wide range of options to choose from,” says Mr Kanny Lee, head of Singapore at OSL.
He explains: “Digital assets are categorised by traits such as being a store of value, containing utility within an ecosystem or having elements of equity that makes it a security. These factors make them an asset class that is much more than just a currency. This is the most compelling reason for diversification into crypto.”
For those new to the crypto market, OSL’s digital assets trading platform, which has deep liquidity, could be a good starting point. Backed by BC Technology Group, a Hong Kong-listed company with an established platform licensed by the Securities and Futures Commission, OSL’s strong team of experienced traders is just a click away.
3. A hedge against inflation
Not everyone trading digital assets is seeking a huge short-term return. More conservative investors may target long-term growth with more stability and less risk.
Many believe digital assets will grow in value over time, especially with the expected boom in digital services in the years ahead.
Thus, some investors eye high long-term growth potential in cryptocurrencies and its capabilities of hedging against inflation. Bitcoin will be a fine example.
“Many investors are injecting money into the market for the first time by buying Bitcoin as a hedge against inflation and as digital gold,” says Mr Matt Long, head of distribution and prime at OSL.
Similar to other traditional assets, Bitcoin and other cryptocurrencies will still be affected by prevailing economic sentiment and regulatory policies, but these digital assets look set to becoming an integral part of the economy and financial system in future.
4. Opportunities for better returns
The first Bitcoin was released in 2009, one year after the financial meltdown in 2008, with a value of zero. Its initial growth was not stratospheric, with one Bitcoin being valued at US$0.08 (S$0.11) in 2010.
The price has since skyrocketed. It jumped to US$64,863 this year amid price swings. However, there is no questioning that the most well-known cryptocurrency has grown in value in more than a decade, outlasting most hype cycles.
To put things into perspective, its growth in value also outperforms the Straits Times Index (STI) from 2009 to 2018, which had an annualised total return of 9.2 per cent.
It’s understandable why cryptocurrencies have emerged as among the most sought-after asset classes today.
Find out how digital assets play a part in an investment portfolio today by speaking with OSL.
1. OSL SG Pte Ltd (The Company) is exempted by MAS from holding a licence to provide Digital Payment Token (DPT) services. Please note that you may not be able to recover all the money or DPTs you paid to The Company if The Company’s business fails.
2. You should not transact in the DPT if you are not familiar with this DPT. Transacting in DPTs may not be suitable for you if you are not familiar with the technology that DPT services provide.
3. You should be aware that the value of DPTs may fluctuate greatly. You should buy DPTs only if you are prepared to accept the risk of losing all of the money you put into such tokens