With the growing number of traditional financial institutions venturing into the crypto asset custody business, the market for crypto asset management has experienced remarkable expansion. As a safer and more stable wealth management alternative in a high-risk market, crypto asset management is steadily gaining popularity among investors.
So, how to find a crypto asset management product that suits you well?A centralized financial (CeFi) product or a decentralized financial (DeFi) product?
The choice depends on the investor’s level of understanding of the market for crypto asset management.For those who are new to this field and have solely relied on high APYs when choosing products, this article provides a comprehensive introduction and serves as a beginner’s guide, helping you make more rational and wise choices when selecting crypto asset management products.
Produced by Huobi Research, this report provides a comprehensive analysis of crypto asset management products. It delves into topics such as their definitions, various types, current market status, and emerging development trends. Additionally, the report presents a detailed examination of crypto asset management products, including DeFi and CeFi offerings, while assessing the main types of risks, such as market volatility, security vulnerabilities, and regulatory uncertainties. Therefore, it is an essential reading for investors, market participants, policymakers, and regulators seeking valuable insights and recommendations on crypto asset investment strategies.
I. Definition and Types of Crypto Asset Management Products
Crypto asset management products are at the forefront of digital finance, offering innovative financial services powered by blockchain technology. These products ensure the preservation and appreciation of the value of investors’ digital assets.Essentially, similar to traditional wealth management products, crypto asset management products can be classified into two main types: fixed-term and flexible. Fixed-term products require investors to lock up their funds for a specified period to receive predetermined returns, while flexible products allow investors to deposit and withdraw their funds at any time, but the rate of return may vary. Both types of products offer an effective alternative to traditional bank savings accounts and present investors with new opportunities for returns.
II. Current State and Future Trends of the Crypto Asset Management Market
2.1 Market Size and Growth of Crypto Asset Management
Crypto asset management typically involves managing investments in cryptocurrencies and their derivatives. Among cryptocurrencies, Bitcoin is widely considered a popular investment asset. The growing adoption of Bitcoin trading has also led to the emergence of new financial tools and services specifically designed for managing these digital assets.
Currently, when it comes to managing digital currencies, the most widely used approaches include direct investment in Bitcoin, investment in new types of digital assets such as NFTs, and various types of loan services. Directly holding Bitcoin has always been a popular investment method. Additionally, as other digital tokens continue to be issued, investors are becoming interested in other digital assets as well. Many custodial institutions are expanding their trust businesses by accepting assets and also providing loan services for Bitcoin and other tokens, earning interest by lending out their tokens.
The exponential growth of the crypto asset management market has been driven by the high-risk, high-return potential of digital currencies, as well as users’ preference for decentralized and transparent currencies. It is predicted that the crypto asset management market will continue to expand rapidly, as the value of cryptocurrencies becomes more recognized by investors, especially in the wake of major global events such as trade competitions and changes in the regional geopolitical landscape due to the Russia-Ukraine conflict.
2.2 Portrait of Investors in Crypto Asset Management Products
The primary group of investors in crypto asset management products are often young and affluent individuals with a strong interest in technology. These individuals are curious and confident about digital assets and seek high returns from investment risks. They typically acquire information and participate in investments through online social networks and forums. This demographic is predominantly composed of individuals aged between 30 and 45.
In addition, middle to high-income individuals have also become investors in these products, drawn in by the high potential returns they offer. These investors typically have a greater capacity for investment and a higher willingness to take risks.
They all share common traits, such as a high tolerance for risk, a strong belief in digital currencies, and a willingness to invest in nascent markets. They often pay close attention to the latest news and data related to trending tokens and possess the capability to make investment decisions rapidly. Meanwhile, they are also aware of the high risks involved in investing in crypto assets, including violent price fluctuations.
They typically adopt a short to medium-term investment strategy, with a focus on potential short-term gains rather than long-term asset appreciation. Long-term holds are not commonly observed among these investors.
III. Analysis and Risk Assessment of Crypto Asset Management Products
3.1 Introduction to Crypto Asset Management Products
Specifically, crypto asset management products are financial activities that utilize cryptocurrency, coming in various forms with different investment returns. They can be broadly categorized into two types: decentralized finance (DeFi) products and centralized finance (CeFi) products. These two categories have their own unique characteristics, risks, and potential returns. When investing, it’s crucial for investors to have a clear understanding of their operational principles and potential risks in order to make wise investment decisions.
Before we delve into the details of these two types of products, it’s important to understand that crypto asset management products are fundamentally different from traditional financial products. Unlike traditional financial activities that rely on government-issued currency, crypto asset management products are based on cryptocurrency. This means that they operate independently of the traditional financial system, which provides certain benefits, but also entails new challenges and risks, such as market volatility and technological risks.
In the following section, we will provide a comprehensive overview of DeFi and CeFi crypto asset management products to assist you in acquiring a deeper understanding of these products for wiser investment decisions.
3.1.1 DeFi Crypto Asset Management Products
Curve is one of the pioneering Automated Market Makers (AMMs), with a primary focus on facilitating transactions between stablecoins from the beginning. Its V2 version was later expanded to include non-stablecoin transactions. The platform employs innovative algorithms to enable large-scale trading of stablecoins with minimal slippage.
Curve’s primary stablecoin pool on the Ethereum network is the 3pool, which facilitates trading between DAI, USDC, and USDT stablecoins, offering a maximum APY at 2.44%.
Compound is also a leading DeFi lending protocol, currently deployed on the Ethereum network and supporting the lending and borrowing of stablecoins, such as DAI, USDC, and USDT. According to the latest data, its Total Value Locked (TVL) stands at $13.2 billion. When depositing stablecoins on Compound, you can earn a 2.84% APY on DAI, 2.97% APY on USDC, and 2.52% APY on USDT, with USDC having the highest APY among the three.
Yearn is a yield aggregator platform that manages DeFi products, with a current TVL of $4.23 billion. The platform seeks to optimize yields of users’ funds by employing a range of automatic allocation strategies. It currently supports two chains, Ethereum and Fantom, offering two types of yield products: Vaults, an income aggregation product, and Iron Bank, a collateralized lending product. Among these, the Fantom-based Vaults offer the highest APY of 24.96% on DAI.
Besides, the Ethereum-based Vaults offer the highest APY on USDT, at 7.68%, followed by USDC, at 5.76%.
|Chain||Product||DAI APY||USDC APY||USDT APY|
|Ethereum||Iron Bank||–||No data||No data|
3.1.2 CeFi Crypto Asset Management Products
126.96.36.199 CeFi Crypto Asset Management: Stablecoin
Although DeFi is experiencing rapid growth, CeFi still remains a crucial component of the crypto financial industry. In the realm of crypto asset management involving stablecoin, CeFi-based products primarily center around major exchanges. Leveraging their substantial user base and abundant capital reserves, exchanges hold a unique advantage in crypto asset management services.
These products for stablecoins offered by exchanges resemble traditional bank products of this kind, but with the added benefits of blockchain technology. As a result, exchanges have introduced a variety of products, including flexible, fixed-term savings, regular investment, high-yield flexible savings, dual investment, staking, and ETH 2.0, etc. Below, we will use Huobi as an example to introduce the stablecoin financial products offered by the exchange.
Huobi’s Flexi Max is one of its most typical financial products for stablecoins, providing flexible withdrawals and stable, reliable returns with a high level of asset security. Currently, it supports a diverse range of cryptocurrencies, including USDT, DOT, FIL, TUSD, USDC, and ETH, with more being added over time. For the APY and redemption fees for USDT, please refer to the following table:
Target users of Huobi’s Flexi Max product:
- High-Net-Worth Individual Investors: If you have accumulated significant wealth and are seeking investment opportunities with high returns, this product is suitable for you as a robust long-term asset allocation strategy. It does entail short-term redemption fees that you would need to bear.
- Professional Investors: For institutional investors, fund managers, or other professional investors who can select high-quality passive income products based on market insights and investment experience, this product is well-suited as a stable and high-return investment option.
- Long-Term Investors: If you have funds set aside for long-term investment, such as retirement reserves or education funds for your children, and are open to committing these funds to passive income products over an extended period, this product is an excellent fit for you. It can help you hedge against short-term market fluctuations while securing stable yields.
188.8.131.52 CeFi Crypto Asset Management: Non-Stablecoin
The preceding section covered stablecoin financial products offered by major exchanges. Next, we will introduce some crypto asset management products in relation to non-stablecoin. Specifically, we will use Huobi as an example to illustrate these products.
- Regular Invest
Huobi’s Regular Invest is a product designed specifically for long-term investors, particularly those who are constrained by time or lack investment experience but seek steady, long-term growth and risk diversification. By investing funds regularly, this plan allows investors to spread their investment costs and mitigate the impact of market volatility, ultimately leading to the gradual accumulation of wealth over time. Additionally, it enables users to enjoy the benefits of compound interest.
|Flexible investment portfolio||You can create a portfolio by investing in one crypto or multiple cryptos|
|Tailored recurring cycle||You can select from 6 options including 1 hour, 2 hours, 4 hours, daily, weekly, and monthly|
|Minimum deposit amount||Single-crypto portfolio: 15 USDT; multi-crypto portfolio: 100 USDT|
|Applicable cryptos||70 trending coins and tokens, such as BTC, ETH, and HT|
This plan is particularly well-suited for investors who utilize dollar-cost averaging (DCA), as well as busy professionals, long-term investors, and individuals with smaller investment amounts.
- Auto-Invest Your Balance
Auto-Invest Your Balance is a user-friendly financial management option that allows investors to effortlessly invest in all supported cryptocurrencies, providing convenient current account management with just one click. Through this feature, investors can take advantage of automatic compound interest investments while also enjoying the flexibility of subscription and redemption.
3.2 Main Types of Risks Associated with Crypto Asset Management Products
While crypto asset management products offer the potential for high returns, they also come with inherent risks, just like any other investment. However, due to the unique characteristics of cryptocurrencies, these risks may be even higher. The main types of risks associated with these products are as follows:
3.2.1 Market Risk
The cryptocurrency market is known for its high level of volatility, with prices subject to dramatic fluctuations driven by various sources of uncertainty and change, including technology, policy or regulation, and market sentiment. For instance, the release of new technology or favorable policies for a particular cryptocurrency can cause its price to rise, while negative news or events may lead to a decline in its prices. In some cases, these fluctuations can be exceptionally intense, leading to significant short-term price surges or declines.
3.2.2 Liquidity Risk
Liquidity risk is associated with the marketability of an asset to be bought or sold quickly enough at a fair price when needed. In situations involving cryptocurrencies with low liquidity, investors may find themselves compelled to sell their holdings at a price lower than the market value due to a lack of buyers, potentially resulting in losses. Conversely, if there are insufficient sellers in the market, investors might have to acquire such cryptocurrencies at a price higher than the market value. Moreover, cryptocurrencies with low liquidity are more susceptible to price volatility caused by large-scale transactions.
3.2.3 Technical Risk
The infrastructure of cryptocurrencies, such as blockchain and smart contracts, is built on complex and sophisticated technology. However, these technologies may harbor undiscovered vulnerabilities that can be exploited for attacks, leading to the loss of investors’ assets. Furthermore, the inherent anonymity and irreversibility of cryptocurrency transactions mean that technical failures or operational errors could leave investors unable to retrieve their assets.
3.2.4 Regulatory Risk
Regulatory attitudes and policies towards cryptocurrencies vary among different countries and regions worldwide. While some governments may be supportive of cryptocurrencies and have policies in place that encourage their growth, others approach them with caution or even negativity, implementing strict regulatory measures. Any changes to these policies can have a direct impact on the value and accessibility of cryptocurrencies.
IV. Legal and Regulatory Environment of Crypto Asset Management Products
4.1 Overview of the Legal and Regulatory Environment of Crypto Asset Management Products Worldwide
The legal and regulatory framework for crypto asset management products is highly diversified globally. For example, the US SEC has categorized certain cryptocurrencies as securities, requiring related crypto asset management products to comply with securities regulations. EU has implemented anti-money laundering (AML) and “know your customer” (KYC) regulations for cryptocurrency trading. However, countries like China and India have enforced strict control policies on cryptocurrencies, including banning cryptocurrency trading and mining activities.
|Country/Region||Legal and Regulatory Policy|
|USA||Categorize certain cryptocurrencies as securities, subjecting to securities regulations|
|EU||Implement AML and KYC regulations for cryptocurrency exchanges|
|China||Ban cryptocurrency trading and mining activities|
|India||Consider banning cryptocurrencies or strictly limiting the use of cryptocurrencies|
4.2 Influences of Regulatory Attitudes and Policies in Different Countries
The regulatory attitudes and policies of various countries exert significant influences on the development of crypto asset management products. For instance, countries such as Switzerland and Singapore, with their open stance towards cryptocurrencies, have witnessed a flourishing cryptocurrency market, attracting a considerable number of cryptocurrency companies and investors. On the other hand, countries like China and India, which maintain strict policies towards cryptocurrencies, have observed restrained development in their domestic cryptocurrency markets.
4.3 Impact of Regulatory Environment on the Development of Cryptocurrency Market
A clear and stable regulatory environment is conducive to enhancing market transparency, safeguarding investors’ interests, and attracting more investments. However, excessive monitoring or ambiguous regulations may have adverse effects on the market. For instance, in 2017, the Chinese government banned Initial Coin Offerings (ICOs) for cryptocurrencies, leading to the exodus of numerous cryptocurrency projects and investors from China. By contrast, while regulatory actions taken by the US SEC impose pressure on certain cryptocurrency businesses, they also play a pivotal role in maintaining market order and protecting investors’ interests.
V. Recommended Strategies and Future of Crypto Asset Management Products5.1 Potential and Challenges in Crypto Asset Management Products
5.1 Potential and Challenges in Crypto Asset Management Products5.1.1 Enormous Potential for Crypto Asset Management
Crypto asset management products hold immense potential for future growth. With the continuous progress of technology, cryptocurrencies are finding greater acceptance and usage across diverse sectors, such as cross-border remittances, insurance, and supply chain finance.Crypto asset management products, serving as alternatives to traditional financial products, play a vital role in facilitating the growth of cryptocurrencies by addressing users’ investment and financial management needs.
According to a Marketsand Markets (M&M) report, the global crypto asset management market is anticipated to achieve a compound annual growth rate (CAGR) of 21.5% from 2021 to 2026. Research And Markets is even more optimistic, predicting that the global blockchain technology market cap will reach $394.6 billion by 2028, with a projected CAGR expansion of 82.4% from 2021 to 2028.
Increasing Demand for Crypto Asset Management Products in Family Offices
Appropriately allocating crypto assets such as Bitcoin to long-term funds, including high net worth clients, family offices, and university endowments, can effectively hedge against inflation, increase asset returns, and reduce overall asset volatility. Based on a Galaxy Digital Research report from November 2020, the allocation of 7% of total assets to Bitcoin was found to maximize the asset return and risk ratio, commonly known as the Sharpe Ratio. A research report from Coinshares in November 2021 pointed out that institutional assets currently allocate only about 1% to crypto assets. Considering the trillions of dollars in assets managed by institutions, increasing the allocation from the current 1% to 7% could bring an astronomical amount of money into the crypto asset management market.
However, the market’s confidence in the future growth of crypto asset management has been shaken after the sharp drop in the price of Bitcoin in May of the previous year. The plunge in Bitcoin price and other cryptocurrencies was primarily caused by the global economic and macro environment, with its direct trigger being the worldwide decline in asset prices resulting from the Federal Reserve’s interest rate hikes and balance sheet tightening. Worse still, since May and June 2022, the entire crypto market fell into a bear market as a result of the death spiral of LUNA and the collapse of FTX. As of June 2023 (at the time of writing this article), it has only shown a slight recovery.
While the crypto market is currently experiencing a gradual recovery from the decline in 2022, the crypto asset management industry still has untapped potential. Nonetheless, in the long term, crypto assets, particularly Bitcoin, continue to showcase substantial growth.
5.1.2 Challenges Faced by Crypto Asset Management 1. Difficulty in Valuing Cryptocurrencies and Their Volatility
The valuation of crypto assets remains a major challenge due to the absence of a widely recognized valuation system, which leads to frequent market speculation and significant price volatility. This not only complicates investment decision-making and risk control for fund managers but also fosters cautious approaches from regulatory agencies and institutional investors towards investing in crypto assets. Thus, these factors collectively hinder the long-term development of the crypto asset management industry.
2. Fragmentation in Global Regulatory Framework
Despite some countries issuing fund management licenses for crypto asset management or integrating them into existing fund management systems, regulatory frameworks for crypto asset management remain fragmented worldwide. This lack of alignment with the cross-border flow and globalization of crypto assets results in exceedingly high compliance costs for global businesses in the crypto asset management sector due to varying regulatory systems and policies across different countries. Particularly, the TerraUSD stablecoin’s collapse has prompted regulatory agencies to intensify their scrutiny of stablecoins. However, the absence of mature regulatory frameworks for stablecoins on a global scale leaves the crypto asset management industry facing significant risks due to regulatory uncertainty surrounding stablecoins.
3. Imperfection of the Crypto Asset Management System
Compared to the traditional fund management system, the crypto asset management system is still in a dynamic phase of rapid development. Service providers for traditional financial management products have been hesitant to make significant investments in this field due to the distinctive and intricate characteristics of crypto assets, making the construction of an efficient crypto asset management system both challenging and costly.
Some well-established crypto asset management companies, such as BBshares, Amber Group, or asset management companies affiliated with exchanges, have had to allocate significant resources to develop their own specialized crypto asset management systems. These systems are required to provide comprehensive services, ranging from trading service at the front office, and fund and risk management at the middle office, to reporting and reconciliation, as well as API key crypto multi-signature management at the back office. The independent development and maintenance of a completely new crypto asset management system can place a substantial burden on fund companies, impeding the industry’s progress.
4. Security Risks and Threat of Network Attacks
Most cryptocurrencies exist on decentralized networks that utilize blockchain technology, rendering them susceptible to network attacks and security vulnerabilities. Hackers can exploit technical weaknesses to steal crypto assets, leading to substantial losses for investors and management companies. Consequently, crypto asset management companies must allocate significant resources to ensure robust security measures, enhance system security, and effectively mitigate potential security risks.
5. Insufficient Market Transparency
The cryptocurrency market lacks transparency compared to traditional financial markets. Instances of insider trading, market manipulation, and other illicit activities by exchanges and project parties have been reported, raising serious doubts about the overall integrity of crypto asset management. The pseudonymous nature of cryptocurrencies further complicates matters, as it provides certain investors with the means to exploit market vulnerabilities for illegal activities, thereby negatively impacting the entire industry.
6. Issues on Liquidity between Fiat and Cryptocurrencies
While the liquidity in the cryptocurrency market is on the rise, the process of exchanging between cryptocurrencies and fiat money still presents challenges. Exchanges and financial institutions may enforce restrictions on exchange amounts and apply high fees, which can lead to additional burdens and risks for managing crypto assets.
7. Education and Trust Issues for Retail Investors
Owing to a lack of understanding of cryptocurrencies and associated financial products, retail investors may develop misconceptions and panic when it comes to managing crypto assets. As a result, it is necessary for crypto asset management companies to intensify their educational and promotional efforts, guiding investors to better comprehend the risks and rewards of cryptocurrencies, thereby fostering a trusting relationship with their clients.
To summarize, the crypto asset management industry is confronted with a variety of challenges, including difficulty in valuation, fragmented regulatory frameworks, imperfections in asset management systems, security risks, insufficient market transparency, technological advancements, liquidity issues, and the imperative to improve education and foster trust among retail investors. To effectively address these challenges, the industry needs to work together to promote the prosperous development of the crypto asset management market.
5.2 Advice for Investors
For investors, the cryptocurrency market is relatively new, with risk management practices and regulations still in development, and it offers a wide variety of financial products. Therefore, it is crucial for investors to pay close attention to the following points:
- Adopt risk management strategies: Considering the high volatility of cryptocurrencies, it is vital for investors to have a clear understanding of their risk tolerance and allocate their investment capital accordingly.
- Understand investment products: It is crucial for investors to have a thorough understanding of the products they are investing in, including their operational models, sources of returns, and other relevant factors.
- Stay informed about regulatory updates: It is of great importance for investors to keep themselves updated with the latest regulatory developments in the cryptocurrency market. By doing so, they can promptly adjust their investment strategies accordingly.
5.3 Recommendations for Policymakers and Regulatory Authorities
The following are some recommendations for policymakers and regulatory authorities:
- Develop clear regulatory policies: Policymakers and regulatory authorities need to set up explicit and transparent regulatory policies for crypto asset management products. This will provide the market with clear rules to follow.
- Enhance investor education: Policymakers and regulatory authorities should employ a variety of methods to enhance financial literacy and increase risk awareness among investors.
- Establish effective risk management mechanisms: Regulatory authorities should prioritize the establishment of appropriate risk management mechanisms, including robust anti-money laundering and counter-terrorism financing rules. These measures will substantially enhance the security and integrity of cryptocurrency trading.