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Are we at the intersection of virtual and physical assets?

By Kyle Robbins
15 July 2022 | 1 minute read
Fred Schebesta reb

The latest Knight Frank Wealth Report has provided new insight into the lasting legacy of property as cryptocurrency and other digital wealth-generation tools grow in popularity.

Analysis of the investing habits of ultra-high-net-worth individuals (UHNWIs) found that many have balanced their portfolios with virtual assets, such as cryptocurrency and NFTs, as well as traditional physical assets. According to Knight Frank, it paints a strong picture of a future where these two factors become integrated and what impacts this will have.

Ending the year with a total value of US$2.4 trillion, crypto-assets have rocketed into the mainstream, so much so that El Salvador made bitcoin, the most prominent cryptocurrency, a legal tender.

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In an environment of falling stock markets and rising interest rates, Fred Schebesta, the co-founder of Finder, believes crypto-assets will help investors mitigate the threat posed by inflation. 

Knight Frank’s Wealth Report has revealed this trend to already be coming to fruition, with 18 per cent of UHNWIs admitting to owning “some kind of cryptocurrency” and a further 11 per cent saying they have invested in NFTs.

Adding weight to this idea is the fact that 70 per cent of the younger generations view property differently from previous generations, with the report dictating that most younger UHNWIs view real estate, be it for home or investment, as more akin to an aspect of their investment portfolio.

Due to this, Flora Harley, Knight Frank partner of residential research, believes that “we will likely see more tokenisation and digital ownership of property emerging due to greater adoption and understanding by this younger generations — mortgages based on non-fungible tokens already being issued”.

However, despite this rise in crypto usage among UHNWIs, there are still barriers in place for investment in these areas, with the most common one cited as a lack of understanding of the asset class (61 per cent).

Just under half of the respondents — 47 per cent — said the asset’s volatility was preventing investment.

On top of this, one-third of surveyed individuals highlighted security as presenting a big blockade to their investment in digital assets, with these concerns reiterated by US$14 billion in crypto crime having been committed throughout 2021. 

All these risks play into the favour of physical assets, particularly real estate, which remains a considerable faction of many UHNWI investment portfolios. 

Knight Frank’s head of commercial research, William Matthews, has pointed out that property occupies a unique position “somewhere between bonds and equities”.

Mr Matthews outlined how real estate “enjoys the upside of rising rents and values in times of economic expansion, but also security of income during times of volatility”. 

“These dual attributes will be particularly desirable over the medium term, in which we expect to see a continuation of the current global economic recovery coupled with the unknown impact of monetary policy normalisation running at different speeds around the world,” he said.

According to Mr Schebesta, real estate’s relative safety has added to its classification as “a foundation of commerce” — ultimately contributing to property’s continued importance into the future, even as the prominence of crypto-assets grows. 

“In an uncertain environment people look a lot at risk and eventually end up buying property as it is tangible and will be around for a long time. People need a place to live, to conduct business — it’s a foundation of commerce,” he concluded.

Are we at the intersection of virtual and physical assets?
Fred Schebesta reb
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