The rapid growth in digital assets and new product types in recent years is part of what has been labelled ‘the big shift’ in a new study of the seven megatrends shaking up financial services.
This ever-expanding range of assets, from traditional digital media to block-chain backed assets such as non-fungible tokens (NFTs), asset-backed tokens, tokenised real estate, tokenised exchange traded funds (ETFs) and cryptocurrencies is creating new opportunities and demanding a mindset shift for financial services players, according to landmark research by Iress in partnership with Deloitte Access Economics.
Nonetheless, while the popularity of ETFs continues to grow – with a 34 per cent increase in market cap in the 12 months to April 2024 and ownership increasing by five per cent to 20 per cent this year – the report, Advice 2030: The Big Shift, says it’s clear investors are preferring newer asset classes. An estimated 23 per cent of Australians currently own cryptocurrency[1], for example, with ownership doubling in the three years to 2023.[2]
Over 10% CAGR
One forecast predicts a compound annual growth rate of 10.15 per cent between 2024 and 2028, reaching an estimated A$2.5 billion by 2028.[3] Another forecast puts the number of Australian users in the cryptocurrencies market at 11.38 million by 2025.[4]
The desire for diversification, the allure of higher returns and the influence of the latest advances in technology are all driving the proliferation of investment products, according to the report. Across Asia, digital assets were already a top-five asset class by 2022, with investors allocating an average seven per cent of their portfolios to digital, more than forex, commodities or collectibles, according to Accenture research.[5] The research found that while a consistent trend was evident across different markets, income levels and genders, younger investors were more exposed to digital assets. More than 50 per cent of millennials currently own or have previously owned cryptocurrencies, the Accenture research found.
New regulations due
So significant is the impact of the proliferation of new products, and the potential risks for investors, that the Federal Government began moves in 2023 to regulate digital asset platforms. It’s expected that the Australian financial services framework will be extended to cover digital asset platforms to ensure consistent oversight and safeguards for consumers. Legislation is due before Parliament this year.
The Big Shift says that if Australia is able to support a “responsible and regulated” digital asset sector, it could add up to $60 billion to GDP each year, representing a significant opportunity for brokers to diversify their offering.
The Accenture report says that despite the burgeoning demand, firms have been slow to embrace digital assets, mostly targeting the small but profitable custody element only. But that sends clients to competitors prepared to offer innovative services or to unregulated peer-to-peer forums. And, with regulatory pressures, rising costs and shrinking trading volumes, businesses are at risk of falling behind competitors that take a more proactive approach.
The Big Shift recommends a mindset shift for those yet to fully understand and take on digital assets. That could include providing access to crypto-related products and direct access to cryptocurrency trading, and developing user-friendly mobile apps using real-time data to allow clients to trade on the go. Providing education and information resources is also a proven strategy to build engagement and attract new clients.
Other megatrends highlighted in Advice 2030: The Big Shift include the intergenerational wealth transfer, the impact of technology, environmental volatility, the ageing population and demands for retirement products and the repercussions of the housing crisis.[6]
Smarter trading for tomorrow
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[2] Australian Investor Study (asx.com.au)
[3] Fintech in Australia Market – Companies & Industry Trends Report (mordorintelligence.com)
[4] Cryptocurrencies – Australia | Statista Market Forecast
[5] Digital Assets: Unclaimed Territory in Asia (accenture.com)
