The current situation, risks and future development of the encrypted wealth management product market

1. Brief introduction of blockchain and cryptocurrency financial management

1.1 Background and significance

The development of blockchain technology since 2008 has greatly changed our world. Especially in the financial sector, blockchain technology and cryptocurrencies have had a profound impact on the global economy. Most notably, they provide financial market participants with entirely new investment and wealth management opportunities.

The emergence of cryptocurrency wealth management products is one of the latest achievements of the application of blockchain technology in the financial service industry. For investors, cryptocurrency wealth management products offer a new and efficient way to keep their assets liquid while earning competitive returns. For the global financial market, the development of cryptocurrency wealth management products has expanded the depth and breadth of the market, provided new risk management tools, and enriched the supply of products and services in the market.

Therefore, understanding the definition, types, background and significance of cryptocurrency wealth management products is of great value to investors, market participants, policy makers and regulators. In the following chapters, we will delve into this topic in depth, hoping to provide readers with valuable insights and crypto asset strategy advice.

1.2 Definition and types of cryptocurrency wealth management products

Cryptocurrency wealth management products can be regarded as an innovative financial service applying blockchain technology. This wealth management product offers investors the opportunity to store and grow their digital assets. In essence, cryptocurrency wealth management products can also be divided into two categories according to traditional wealth management products: regular and current. Term products require investors to lock up their funds for a specified period of time in order to receive a predetermined return; whereas demand products allow investors to deposit and withdraw their funds at any time, but the rate of return may vary. Both products provide an effective complement to traditional bank savings accounts and open up new income opportunities for investors.

2. The status quo and development trend of the cryptocurrency wealth management market

2.1 Cryptocurrency wealth management market size and growth

According to statistics from datos.com, the global cryptocurrency wealth management market has reached US$292 billion as early as 2021, a year-on-year increase of more than 600%. It is estimated that by this year (2023), it is expected to exceed 5 billion US dollars, which shows that invest investor ehzizuoorst's interest and confidence in digital assets continues to grow. Cryptocurrency financial management involves digital currency and its derivatives. Bitcoin is widely regarded as an investment target, and the new wave of its transactions has also spawned more financial tools.

Currently the most popular forms are: direct investment in Bitcoin, investment in new digital currencies (such as NFT, etc.), and various lending services. Holding Bitcoin directly has always been a popular investment method. In addition, with the continuous issuance of new tokens, investors are interested in other digital assets. Many custodian institutions are absorbing assets for trust business development, and also provide lending services for other digital tokens such as Bitcoin, and lend digital tokens to earn interest.

The rapid growth of the cryptocurrency wealth management market stems from the fact that digital currency can provide high risk and high return, while users prefer decentralized and transparent currency attributes. It is predicted that since the emergence of extreme events in the world (trade competition, local geopolitical changes under the influence of Russia-Uzbekistan conflicts), the entire crypto-finance market is expected to continue to expand rapidly as investors recognize the value of cryptocurrencies in the future.

Source: Coin Metrics

2.2 The main investment groups and their behaviors of cryptocurrency wealth management products

Most of the main investors are young and wealthy technology enthusiasts. This group of people is full of curiosity and confidence in digital assets, and pursues high returns on venture capital. Most of them learn about and participate in investment through social networks and forums. This part of the population is mainly concentrated in the age of 30 to 45 years old.

In addition, middle and high-end individuals have also become investors. The high returns offered by cryptocurrency wealth management products attract them to participate. These investors tend to have higher investment ability and willingness to bear risks.

The common characteristics of cryptocurrency wealth management investors are: high risk tolerance; high recognition of digital currency; willingness to participate in emerging markets. Most of them pay attention to the latest news and data of popular tokens and make investment decisions quickly. But at the same time, special attention should be paid to high-risk factors such as large price fluctuations of encrypted assets.

Their investment behavior is mostly short-term and medium-term, and long-term holding is not common. The main focus is potential income, rather than long-term asset appreciation.

3. Detailed explanation and risk analysis of cryptocurrency wealth management products

3.1 Introduction of encrypted wealth management products

Specifically, encrypted wealth management products are wealth management activities using cryptocurrencies, and their product forms and investment returns are quite different. **They are mainly divided into two categories, one is Decentralized Finance (DeFi) wealth management products, and the other is Centralized Finance (CeFi) wealth management products. ** These two types of products have their own characteristics, and also have different risks and returns. When investing, users need to have a clear understanding of them, understand their operating principles and possible risks, so as to make wise investment decisions.

Before discussing these two types of products in depth, we first need to make it clear that encrypted wealth management products are different from traditional financial wealth management products. Instead of financial activities based on government currencies, they are based on cryptocurrencies. This means that they are not constrained by the traditional financial system, but it also brings some new challenges and risks, such as market volatility, technical risks, etc.

In the following chapters, we will introduce DeFi and CeFi encrypted wealth management products in detail, hoping to help readers better understand these two products and make more informed investment choices.

3.1.1 DeFiEFIencrypted wealth management products

• 3.4.1.1 Curve

Curve is one of the earliest automated market makers (AMM), which initially mainly provided transactions between stablecoins (V2 version expanded non-stablecoin transactions), and provided large-scale, low-slip stablecoin transactions through innovative algorithms .

Curve's main stablecoin pool on Ethereum is 3pool, which provides transactions between DAI, USDC and USDT, with a maximum yield of 2.44%.

• 3.4.1.2 Ghost

Aave is one of the DeFi lending duo. Aave provides five markets, including V1, V2, AMM, Polygon, and Avalanche. The highest annualized yield is the USDT lending pool on the AMM market, with an interest rate of 7.66%.

• 3.4.1.3 Compound

Compound is one of the DeFi lending duo. It is currently deployed on the Ethereum network and supports the lending business of DAI, USDC and USDT. According to the latest data, its total value locked (TVL) is $13.2 billion. On Compound, the annualized deposit yields of DAI, USDC, and USDT are 2.84%, 2.97%, and 2.52% respectively, with USDC having the highest yield of 2.97%.

• 3.4.1.4 Yearn

Yearn is a DeFi revenue aggregator with a current total locked value of $4.23 billion. Yearn can automatically allocate users' funds to other protocols for maximum benefit. Yearn currently supports two chains, Ethereum and Fantom, and provides two income products, Vaults and Iron Bank, of which Vaults is an income aggregation product and Iron Bank is a mortgage loan product. The highest annualized rate of return is DAI Vaults on Fantom, with an interest rate of 24.96%.

Among them, Ethereum-Vaults’ USDT has the highest rate of return of 7.68%, followed by USDC’s rate of return of 5.76%.

3.1.2 CeFi encrypted wealth management products

• 3.4.2.1 CeFi Stablecoin Financial Management

Although distributed finance (DeFi) is developing rapidly, centralized finance (CeFi) is still an important part of encrypted finance. In the field of stable currency financing, CeFi is mainly concentrated in major exchanges. With its huge user base and abundant capital reserves, the exchange provides unique conditions for its wealth management business.

The exchange’s stable currency wealth management products are more like traditional bank wealth management products, and combined with the characteristics of the blockchain, a series of new products have been launched. Mainly include: current financial management, regular financial management, fixed investment plan, high-interest current, dual-currency investment, node pledge, ETH2.0, etc. Below we will introduce the stablecoin wealth management products of Huobi, Binance, OKX and Gate.io respectively.

The most typical of Huobi’s stablecoin wealth management products is a high-interest demand product. This product supports instant deposit and withdrawal, and the income is quite stable, and the asset security is relatively high. The currently supported currencies are USDT, DOT, FIL, TUSD, USDC, ETH (other currencies are being opened in succession). USDT annualized income and redemption fee rates can be referred to as follows:

Huobi high-interest demand products are applicable to:

1. High-net-worth individual investors: If you have relatively high wealth accumulation and are looking for investment opportunities with high returns, this product is suitable for you as a long-term stable asset allocation, and you need to bear short-term redemption The cost of fees.
2. Professional Investors: If you are an institutional investor, fund manager or other professional investors. With market insight and investment experience, we can select high-quality financial products, which are also suitable for stable and high-return investment.
3. Long-term investors: If you have a fund that can be invested for a long time, such as retirement reserves, children’s education funds, etc., and are willing to invest the funds in financial products for a long time, this product is also suitable for you and can help you You protect against short-term market fluctuations while locking in solid returns.

As well-known cryptocurrency trading platforms, Binance, OKX and Gate.io provide various forms of stablecoin wealth management products. Among them, Binance is one of the largest trading platforms. According to Coingecko data, its spot trading volume in the past 24 hours reached 12.5 billion US dollars. It provides users with products such as Binance Savings and liquidity mining. As experienced exchanges, OKX and Gate.io also have a variety of stablecoin wealth management products, including current, fixed-term, lending, DeFi mining, etc.

• 3.4.2.2 CeFi non-stable currency financing

The above is the content of the stable currency financial products of the major exchanges. Next, we will introduce some financial products in the non-stable currency. Here we mainly take Huobi as an example.

1. "Regular investment plan" products "Regular Investment Plan" is a product designed for long-term investors, especially for investors who have limited time and lack investment experience, but seek long-term growth and risk diversification. The plan enables investors to share low investment costs and reduce the impact of market fluctuations through regular investment of funds, so as to achieve the effect of accumulating small amounts and enjoying the effect of compound interest and value-added.

This plan is especially suitable for investors who are good at cost averaging, busy professionals, long-term investors and small investors. 2. Automatic financial management of spot balance

Automatic spot balance financing is a convenient financial management method, which can be opened with one click to help investors easily invest in all currencies that support current financial management. In this way, investors can realize the automatic compound interest investment of assets while enjoying flexible subscription and redemption.

3.2 Main risk types of cryptocurrency wealth management products

Although cryptocurrency wealth management products bring potential high returns to investors, just like any investment, they also have certain risks. Based on the nature of cryptocurrencies, the associated risks may be higher. These risks mainly include the following aspects:

3.2.1 Market Risk

The cryptocurrency market is a highly volatile market. Price fluctuations may be very violent, and such fluctuations are usually due to various uncertain factors, including technological changes, changes in policies or regulations, changes in market participants' sentiments, etc. For example, the release of a new technology or policy that may be beneficial to a certain cryptocurrency may lead to an increase in the price of the cryptocurrency. Conversely, if there is unfavorable news or events, it may cause the price to fall. In some cases, these fluctuations can be very dramatic, and prices can rise or fall substantially over short periods of time.

3.2.2 Liquidity risk

Liquidity risk involves investors' ability to buy and sell assets quickly and 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 a price below the market price, thus incurring losses. Likewise, if the number of sellers in the market is insufficient, investors may need to purchase cryptocurrencies at a price higher than the market price. Additionally, cryptocurrencies with less liquidity may be more susceptible to large transactions, causing price volatility.

3.2.3 Technical Risk

The infrastructure of cryptocurrencies, including blockchains and smart contracts, relies on complex technology. There may be undiscovered vulnerabilities in these technologies that could be exploited for attacks that result in the loss of investors' assets. In addition, due to the anonymity and irreversibility of cryptocurrencies, once a technical failure or operational error occurs, investors may not be able to recover their assets.

3.2.4 Regulatory Risk

Countries around the world have different regulatory attitudes and policies towards cryptocurrencies. Some countries or regions may welcome cryptocurrencies and have policies to encourage their development. However, there are also some countries or regions that may have a cautious or even negative attitude towards cryptocurrencies and have formulated strict regulatory policies. Changes in these policies may directly affect the value and usability of cryptocurrencies.

4. The legal and regulatory environment of cryptocurrency wealth management products

4.1 Overview of the legal and regulatory environment for cryptocurrency wealth management products around the world

The global legal and regulatory environment for cryptocurrency wealth management products is extremely diverse. For example, the U.S. Securities and Exchange Commission (SEC) has made certain regulations on cryptocurrencies and regards certain cryptocurrencies as securities, which makes related cryptocurrency wealth management products need to comply with securities regulations. Europe has imposed anti-money laundering (AML) and know-your-customer (KYC) regulations on cryptocurrency exchanges. However, countries such as China and India have adopted strict control policies on cryptocurrencies, such as prohibiting activities such as trading and mining of cryptocurrencies.

4.2 The impact of national regulatory attitudes and policies

The regulatory attitudes and policies of various countries have a major impact on the market development of cryptocurrency wealth management products. For example, in countries that are open to cryptocurrencies, such as Switzerland and Singapore, the cryptocurrency market is developing actively, attracting a large number of cryptocurrency companies and investors. In contrast, countries such as China and India, which have adopted strict policies on cryptocurrencies, have limited the development of their domestic cryptocurrency markets.

4.3 The 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 can have a negative impact on the market. For example, in 2017 the Chinese government banned ICOs (Initial Coin Offerings) of cryptocurrencies, which caused many cryptocurrency projects and investors to leave China. On the other hand, although the U.S. SEC’s supervision of cryptocurrency has put pressure on some cryptocurrency companies, it also helps to maintain market order and protect the interests of investors.

V. Future development and strategic recommendations of cryptocurrency wealth management products

5.1 The development potential and challenges of cryptocurrency wealth management products

5.1.1 The future development potential of cryptocurrency wealth management is huge

Cryptocurrency wealth management products have great potential for development in the future. With the development of technology, cryptocurrencies are gradually accepted by the public and applied in various scenarios, including cross-border remittance, insurance, supply chain finance, etc. As a kind of financial service, wealth management products help to promote the development of cryptocurrencies and meet users' needs for investment and wealth management.

According to the Markets and Markets report, the global encrypted asset management scale is expected to grow at a compound annual growth rate (CAGR) of 21.5% between 2021 and 2026. Research And Markets predicts more optimistically that the compound annual growth rate of the global blockchain market will reach as high as 82.4% between 2021 and 2028, and the market size will reach 394.6 billion US dollars by 2028.

Family Office Encrypted Financial Management Demand Continues to Increase

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

However, market confidence in the future growth of crypto-asset management has been shaken after Bitcoin plunged in May. The main reason for the current bear market of encrypted assets is the global economy and the macro environment, and the direct trigger is the decline in the prices of various assets around the world caused by the Federal Reserve’s interest rate hike and shrinking balance sheets. Since May and June 2022, with the death spiral of LUNA, the thunderstorm of FTX, etc., the entire encryption market has fallen into a rapid recession, and it will recover slightly around June 2023 (at the time of writing this article)

Although it is currently coming out of the bear market, the heat of the wealth management market has not yet reached its peak. But in the long run, encrypted assets represented by Bitcoin are still in a stage of rapid development.

5.1.2 Challenges of cryptocurrency financial management

1. Cryptoasset Valuation Conundrum and Its Volatility The valuation of encrypted assets is facing huge challenges. Since there is no recognized valuation system, market speculation is frequent and prices fluctuate violently. This not only increases the difficulty for fund managers in investment decision-making and risk control, but also makes regulators and institutional investors cautious about encrypted assets. These factors together hinder the rapid development of the cryptocurrency wealth management industry.
2. Fragmentation of the global regulatory framework Although some countries have issued fund management licenses for crypto asset management or incorporated them into existing fund management systems, regulation around the world is still fragmented. This is inconsistent with the cross-border flow and globalization of encrypted assets. When crypto asset management companies are dealing with the impact of different countries, different regulatory systems and policies, the cost of global business compliance is extremely high. Especially after the collapse of the Terra/UST stablecoin, regulators have paid more attention to stablecoins. Since there is no mature stablecoin regulatory system in the world, the encrypted asset management industry is facing huge challenges brought about by the uncertainty of stablecoin regulation. risk.
3. Imperfection of encrypted asset management system Compared with traditional fund management systems, encrypted asset management systems are still in a stage of rapid development. Traditional system service providers have not yet set foot in this field on a large scale, and the particularity of encrypted assets makes it difficult and expensive to build an asset management system.

Some powerful encrypted asset management companies, such as BBshares, Amber Group or asset management companies under exchanges, have to invest huge resources to develop their own dedicated encrypted asset management systems. These systems need to provide a full range of services: from front-end transactions, mid-end fund management and risk management, to back-end reporting and reconciliation, API Key encrypted currency multi-signature management, etc. Independently developing and maintaining a new set of encrypted asset management systems is a heavy burden for fund companies, which hinders the rapid development of the industry in a more professional direction. 4. Security and Cyber Attack Risk The decentralized and online nature of cryptocurrencies makes them vulnerable to cyberattacks and security breaches. Hackers may use technical means to steal encrypted assets, causing huge losses to investors and management companies. Therefore, cryptocurrency wealth management companies need to invest a lot of resources to ensure security protection and improve system security to mitigate potential security risks. 5. Insufficient market transparency The cryptocurrency market is less transparent than the traditional financial market. Exchanges and project parties may have insider trading, market manipulation and other behaviors, which bring additional risks to cryptocurrency financial management. In addition, the anonymity of cryptocurrencies may lead some investors to exploit market loopholes for illegal activities, negatively affecting the entire industry. 6. Liquidity issues between fiat currencies and cryptocurrencies Although the liquidity of the cryptocurrency market is gradually increasing, in many cases, the exchange between cryptocurrency and fiat currency still has difficulties. Exchanges and financial institutions may limit the amount of exchange or charge high fees, which brings additional burden and risk to cryptocurrency management. 7. Retail investor education and trust issues

Many retail investors lack understanding of cryptocurrencies and related financial products, which may cause misunderstanding and panic about cryptocurrency financial management. Therefore, cryptocurrency wealth management companies need to increase education and publicity efforts to help investors understand the risks and benefits of cryptocurrencies and build trust.

To sum up, the challenges facing the field of cryptocurrency financial management include valuation system, regulatory system, asset management system, security, market transparency, technological development, liquidity issues, education and trust of retail investors, and many other aspects. To meet these challenges, the industry needs to work together to promote the prosperity and development of the cryptocurrency wealth management market.

5.2 Strategic recommendations for investors

For investors, the encryption market is a new type of market, the relevant risk management has not yet been established, and the classification of wealth management products and the supervision of various regions have not yet been perfected. Investors are advised to pay attention to the following points:

1. Do a good job in risk management: Due to the high volatility of cryptocurrency prices, investors should clarify their own risk tolerance and allocate investment funds according to their own risk tolerance.
2. Understand investment products: Investors should have a deep understanding of the products they invest in, including the product's operating model and source of income.
3. Pay attention to regulatory dynamics: Investors should pay close attention to the regulatory dynamics of global cryptocurrencies in order to adjust their investment strategies in a timely manner.

5.3 Recommendations for Policymakers and Regulators

For policymakers and regulators, here are some suggestions:

1. Formulate clear regulatory policies: Policy makers and regulators should formulate clear regulatory policies for cryptocurrency wealth management products to provide clear rules for the market.
2. Strengthening investor education: Policy makers and regulators should use various means to strengthen investors' financial knowledge and risk awareness education.
3. Establish a reasonable risk prevention and control mechanism: Regulatory agencies should establish a reasonable risk prevention and control mechanism, such as formulating anti-money laundering and anti-terrorist financing rules, and improving cryptocurrency transactions.