The current status, risks, and future of the encrypted financial product market.

Source: Huobi Research

Contents

1. Brief Introduction to Blockchain and Cryptocurrency Investment

1.1 Background and Significance

1.2 Definition and Types of Cryptocurrency Wealth Management Products

2. Current situation and development trend of cryptocurrency wealth management market

2.1 Scale and Growth of Cryptocurrency Wealth Management Market

2.2 The main investors and their behavior of cryptocurrency wealth management products.

Three, detailed explanation and risk analysis of cryptocurrency wealth management products.

3.1 Introduction to encrypted financial products

3.1.1 DEFI encrypted financial products.3.1.2 CeFi encrypted wealth management products.

3.2 Main Types of Risks for Cryptocurrency Wealth Management Products

3.2.1 Market Risk

3.2.2 Liquidity Risk

3.2.3 Technical Risk

3.2.4 Regulatory Risk

4. Legal and Regulatory Environment of Cryptocurrency Wealth Management Products

4.1 Overview of the Legal and Regulatory Environment for Cryptocurrency Wealth Management Products Worldwide.

4.2 Impact of Regulatory Attitudes and Policies in Various Countries

4.3 Impact of Regulatory Environment on Market Development

5. The future development and strategic recommendations for cryptocurrency wealth management products.

5.1 Development Potential and Challenges of Cryptocurrency Wealth Management Products

5.1.1 The future development potential of cryptocurrency wealth management is enormous.

5.1.2 Challenges of Cryptocurrency Wealth Management

5.2 Strategy recommendations for investors

3.4.1.1 Curve

3.4.1.2 Aave

3.4.1.3 Compound

3.4.1.4 Yearn

3.4.2.2 CeFi Non-Stablecoin Wealth Management

The above is the content of stablecoin financial products in various exchanges. Next, we will introduce some financial products in the non-stablecoin field. Here, we mainly use Huobi as an example for introduction.

"定投计划"产品
translates to

"定投计划" product
in English.

"定投计划" is a product designed for long-term investors, especially suitable for investors with limited time, lack of investment experience, but seeking long-term growth and risk diversification. The plan allows investors to lower their investment costs and reduce the impact of market fluctuations by regularly investing funds, thereby achieving the effect of accumulating small amounts over time and enjoying the benefits of compound interest.

This plan is particularly suitable for investors who are good at using the average cost method, busy professionals, long-term investors, and small investors.

Automatic management of spot balance.

Spot balance automatic wealth management is a convenient way of wealth management. It can be activated with just one click, helping investors easily invest in all currencies that support current wealth management. Through this method, investors can achieve automatic compound investment of assets, while enjoying flexible subscription and redemption.

3.2 Main Types of Risks for Cryptocurrency Wealth Management Products

Although cryptocurrency financial products offer potential high returns for investors, like any investment, they also come with certain risks. Due to the nature of cryptocurrency, these risks may be higher. These risks mainly include the following:

3.2.1 Market Risk

The cryptocurrency market is a highly volatile market. Price fluctuations can be very dramatic, and these fluctuations are often due to various uncertain factors, including changes in technology, policy or regulations, and changes in market participants' sentiment. For example, the release of a new technology or policy that may be beneficial to a certain cryptocurrency may cause the price of that cryptocurrency to rise. Conversely, unfavorable news or events may cause the price to fall. In some cases, these fluctuations can be very dramatic, and prices may experience significant increases or decreases in the short term.

3.2.2 Liquidity Risk

Liquidity risk involves whether investors can buy and sell assets quickly at reasonable prices when needed. For cryptocurrencies with low liquidity, if there are not enough buyers in the market, investors may need to sell their cryptocurrencies at prices lower than the market price, resulting in losses. Similarly, if there are not enough sellers in the market, investors may need to buy cryptocurrencies at prices higher than the market price. In addition, cryptocurrencies with low liquidity may be more susceptible to price fluctuations due to large transactions.

3.2.3 Technical Risks

The infrastructure of cryptocurrencies, including blockchain and smart contracts, relies on complex technologies. These technologies may have undiscovered vulnerabilities that can be exploited for attacks, resulting in asset losses for investors. Additionally, due to the anonymity and irreversibility of cryptocurrencies, technical failures or operational errors may result in investors being unable to recover their assets.

3.2.4 Regulatory Risk

The attitudes and policies towards cryptocurrencies vary greatly among countries around the world. Some countries or regions may have a welcoming attitude towards cryptocurrencies and have policies that encourage their development. However, there are also some countries or regions that may hold a cautious or even negative attitude towards cryptocurrencies and have implemented strict regulatory policies. These policy changes may directly affect the value and availability of cryptocurrencies.

Four, Legal and Regulatory Environment of Cryptocurrency Wealth Management Products

4.1 Overview of Legal and Regulatory Environment for Cryptocurrency Wealth Management Products Worldwide

The legal and regulatory environment for cryptocurrency financial products is extremely diverse globally. For example, the US Securities and Exchange Commission (SEC) has established certain regulations for cryptocurrencies, considering some cryptocurrencies as securities, which requires relevant cryptocurrency financial products to comply with securities regulations. Europe has implemented anti-money laundering (AML) and "know your customer" (KYC) regulations for cryptocurrency exchanges. However, countries such as China and India have adopted strict control policies for cryptocurrencies, such as banning cryptocurrency trading and mining activities.

4.2 Impact of Regulatory Attitudes and Policies in Various Countries

The regulatory attitudes and policies of various countries have a significant impact on the market development of cryptocurrency financial products. For example, countries such as Switzerland and Singapore, which have an open attitude towards cryptocurrencies, have a thriving cryptocurrency market, attracting a large number of cryptocurrency companies and investors. In contrast, countries such as China and India, which have strict policies towards cryptocurrencies, have limited development of their domestic cryptocurrency market.

4.3 Impact of Regulatory Environment on Market Development

A clear and stable regulatory environment can help improve market transparency, protect investor interests, and attract more investment. However, excessive or unclear regulation may have a negative impact on the market. For example, in 2017, the Chinese government banned initial coin offerings (ICOs) of cryptocurrencies, which led to many cryptocurrency projects and investors leaving China. On the other hand, the regulation of cryptocurrencies by the US SEC, while putting pressure on certain cryptocurrency companies, also helps maintain market order and protect investor interests.

Five, the future development and strategic recommendations of cryptocurrency wealth management products

5.1 Development Potential and Challenges of Cryptocurrency Wealth Management Products

5.1.1 The future development potential of cryptocurrency wealth management is enormous.

According to a report by Markets and Markets, the global cryptocurrency asset management market is expected to grow at a compound annual growth rate (CAGR) of 21.5% between 2021 and 2026. Research And Markets is even more optimistic, predicting a CAGR of 82.4% for the global blockchain market between 2021 and 2028, with the market size reaching $394.6 billion by 2028.

家庭办公室加密理财需求不断增加
The demand for encrypted financial management in home offices is constantly increasing.

For long-term funds such as high net worth clients, family offices, and university endowments, appropriate allocation of encrypted assets such as Bitcoin can effectively resist inflation, increase asset returns, and reduce overall asset volatility. According to the Galaxy Digital Research report in November 2020, allocating 7% of total assets to Bitcoin can maximize asset returns and risk ratio, i.e. Sharpe Ratio. The Coinshares research report in November 2021 pointed out that only about 1% of institutionally managed assets are currently allocated to encrypted assets. Considering the trillions of dollars of assets managed by institutions, increasing the allocation from the current 1% to 7% will bring trillions of dollars to the encrypted asset management market.

However, after the Bitcoin crash in May, the market's confidence in the future growth of cryptocurrency asset management was shaken. The main reason for the bear market of cryptocurrency assets this round is the global economy and macro environment, and the direct trigger factor is the global decline in asset prices caused by the Fed's interest rate hike and balance sheet reduction. Since May and June 2022, with the death spiral of LUNA, the explosion of FTX, and so on, the entire cryptocurrency market has entered a rapid decline, and has only slightly rebounded around June 2023 (at the time of writing this article).

Although currently emerging from a bear market, the financial market has not yet reached its peak. However, in the long term, cryptographic assets represented by Bitcoin are still in a stage of rapid development.

5.1.2 Challenges of Cryptocurrency Wealth Management

1. Difficulty in Valuing Cryptocurrencies and Their Volatility

The valuation of encrypted assets is facing huge challenges due to the lack of a recognized valuation system, which leads to frequent market speculation and drastic price fluctuations. This not only increases the difficulty of fund managers in investment decision-making and risk control, but also makes regulatory agencies and institutional investors cautious about encrypted assets. These factors together hinder the long-term development of the encrypted currency wealth management industry.

2. Fragmentation of global regulatory framework

Although some countries have issued fund management licenses for cryptocurrency assets or incorporated them into existing fund management systems, global regulation remains fragmented. This is inconsistent with the cross-border flow and globalization of cryptocurrency assets. Cryptocurrency asset management companies face high compliance costs in dealing with the impact of different countries, regulatory systems, and policies on their global business. Especially after the Terra/UST stablecoin collapse, regulatory agencies have increased their focus on stablecoins. Due to the lack of a mature stablecoin regulatory system globally, the cryptocurrency asset management industry faces significant risks from stablecoin regulatory uncertainty.

3. Imperfect Cryptocurrency Asset Management System

Compared with traditional fund management systems, the encrypted asset management system is still in a rapid development stage. Traditional system service providers have not yet entered this field on a large scale, and the special nature of encrypted assets makes the construction of asset management systems difficult and costly.

Some powerful cryptocurrency asset management companies, such as BBshares, Amber Group, or asset management companies under exchanges, have to invest huge resources to develop their own dedicated cryptocurrency asset management systems. These systems need to provide comprehensive services: from front-end trading, mid-end fund management and risk management, to back-end reporting and reconciliation, API key cryptocurrency multi-signature management, etc. Developing and maintaining a brand new cryptocurrency asset management system independently is a heavy burden for fund companies, which hinders the industry from rapidly developing towards a more professional direction.

4. Security and Network Attack Risks

The decentralization and online nature of cryptocurrency make it vulnerable to network attacks and security vulnerabilities. Hackers may use technical means to steal encrypted assets, causing huge losses to investors and management companies. Therefore, cryptocurrency financial management companies need to invest a lot of resources to ensure security protection, improve system security, and reduce potential security risks.

5. Lack of market transparency

The transparency of the cryptocurrency market is lower compared to the traditional financial market. There may be insider trading and market manipulation by exchanges and project parties, which brings additional risks to cryptocurrency investment. In addition, the anonymity of cryptocurrency may lead to some investors taking advantage of market loopholes for illegal activities, which has a negative impact on the entire industry.

6. Liquidity Issues Between Fiat and Cryptocurrencies

Although the liquidity of the cryptocurrency market is gradually increasing, there are still difficulties in exchanging cryptocurrencies for fiat currencies in many cases. Exchanges and financial institutions may limit the exchange amount or charge high fees, which adds extra burden and risk to cryptocurrency investment.

7. Education and trust issues for retail investors

Many retail investors lack understanding of cryptocurrencies and related financial products, which may lead to misunderstandings and panic about cryptocurrency investment. Therefore, cryptocurrency wealth management companies need to increase their education and publicity efforts to help investors understand the risks and returns of cryptocurrencies and establish trust relationships.

In summary, the challenges faced by the cryptocurrency wealth management industry include valuation systems, regulatory systems, asset management systems, security, market transparency, technological development, liquidity issues, and education and trust of retail investors. To address these challenges, the industry needs to work together to promote the prosperous development of the cryptocurrency wealth management market.

5.2 Strategy Recommendations for Investors

For investors, the cryptocurrency market is a new type of market, and related risk management has not yet been established. The classification of financial products and regulatory measures in various regions are also not yet perfect. It is recommended that investors pay attention to the following points:

Manage Risks Well: Due to the high volatility of cryptocurrency prices, investors should clearly understand their risk tolerance and allocate investment funds accordingly based on their risk tolerance.

Understanding Investment Products: Investors should have a deep understanding of the products they invest in, including the operating mode and sources of income.

Pay attention to regulatory trends: Investors should closely monitor the regulatory trends of global cryptocurrencies in order to adjust their investment strategies in a timely manner.

5.3 Recommendations for Policy Makers and Regulatory Agencies

For policy makers and regulatory agencies, here are some suggestions:

Develop clear regulatory policies: Policy makers and regulatory agencies should develop clear regulatory policies for cryptocurrency financial products to provide clear rules for the market.

Strengthening Investor Education: Policy makers and regulatory agencies should enhance investor financial knowledge and risk awareness education through various means.

Establish Reasonable Risk Prevention Mechanisms: Regulatory agencies should establish reasonable risk prevention mechanisms, such as formulating anti-money laundering and anti-terrorism financing rules, to enhance cryptocurrency trading.

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群：https://t.me/theblockbeats

Telegram 交流群：https://t.me/BlockBeats_App

Twitter 官方账号：https://twitter.com/BlockBeatsAsia