Why fortune favours the brave in the new world of digital assets

Alex Tapscott, of Ninepoint Partners, reflects on how current swings could 'separate missionaries from mercenaries'

Why fortune favours the brave in the new world of digital assets

The past few months have seen a shift in the wealth industry, with firms and advisors alike increasingly looking at digital assets to diversify their services. And while it might be early days yet to say for sure what it means for the future, the trend sends a message.

“The fact that they're getting into it doesn't surprise me, but the percentages do a little bit,” said Alex Tapscott, Managing Director of the Digital Asset Group at Ninepoint Partners. “I read a recent study by NASDAQ that said almost a third of RIAs in the United States had made investments in digital assets on behalf of clients. That was a higher number than I thought based on where I believe wealth firms are in their adoption cycle.”

The magnitude of adoption might be a surprise, but the direction of North American advisors putting a piece of their clients’ wealth into digital assets does make sense to Tapscott, given the meteoric rise of digital assets to reach $2 trillion in value.

As he explains, the world of digital assets is driven by a new breed of organizations. Unlike traditional companies where stakes are defined by equity and shares, these entities derive their value from pieces of a blockchain protocol. These tokens, he says, are growing in popularity as well as usefulness in terms of their impact on the world.

“Just like any other high-growth industry, there's an opportunity to make money,” he says. “I think investors are increasingly requesting that their advisors and financial planners sharpen their pencils and take a closer look. And I think that the industry is responding to that demand.”

While he doesn’t have hard data to draw on, Tapscott suspects Canadian firms are lagging far behind their American counterparts in diversifying into digital assets. Despite the world-leading efforts of the Ontario Securities Commission to enable investment in crypto, including the approval of the very first spot bitcoin ETFs, financial institutions have been reluctant to encourage advisors and end clients to invest in the nascent asset class.

“I think they're trying to be not leaders but fast followers,” he says. “And I think that when it comes to new technology, sometimes you've got to be brave and be a leader.”

Certainly, Wall Street or Bay Street firms might not be chomping at the bit to get a stake in the digital assets space, but Tapscott says there’s an exodus of top talent moving away from the traditional finance space and jumping into the new industry. Part of that can be attributed to the shrinking opportunity for growth and advancement at legacy financial institutions, which are becoming more technologically efficient and less reliant on human talent.

“When you're building new kinds of platforms and markets, it requires a large pool of talent,” he says. “Maybe eventually, this world will also become rationalized and smaller in terms of people, but at least right now, it's kind of a gold rush.”

The past year and a half has certainly seen some real bullish sentiment for the digital asset industry: in the last year alone, Tapscott says there’s been around $25 billion in venture capital invested into crypto startups, which exceeds the VC investment that went into the space in all prior years combined. But as the prices of digital assets decline alongside a wave of risk-off attitudes among investors, that excitement is certainly being challenged today.

“Like any market, the pendulum swings from time to time,” Tapscott says. “It'll be interesting to see how many of the current investors and new crypto-enthusiasts in the digital asset space are missionaries, who truly believe in the potential of the technology, and how many people are mercenaries who wanted an opportunity to get rich quickly in this evolving part of the financial world.”