The Luxembourg House of Financial Technology (LHoFT), together with PwC Luxembourg and with the active support of the Association of the Luxembourg Fund Industry (ALFI), have jointly announced the publication of the second edition of the Crypto-Assets Management Survey, entitled “Crypto-Assets in Luxembourg: Persistence Amidst Headwinds”.
The team behind the report writes that it provides a deep dive into the state of the crypto-assets market in the Grand Duchy after a year filled with global shocks.
● 127 industry practitioners responded to the survey conducted in Q1 2023, up from 123 participants in the previous edition conducted in Q4 2021.
● Despite a decidedly pessimistic year for crypto-assets, the novel asset class continues to hold promise for the Luxembourg financial centre, the authors say:
● 39 per cent of respondents believe the global crypto-assets market is still in its early stages and holds significant potential, while 33 per cent see it as reaching an inflection point towards broader adoption and maturity.
● Recent shocks to the global crypto-assets market have not significantly discouraged stakeholders in Luxembourg, the report says, as 34 per cent see these events as being the consequence of corporate governance and due diligence failures, while 23 per cent see the current moment as an opportunity to rebuild.
● There is a significant increase of respondents who view Luxembourg as being aligned with the leading financial centres in Europe in the area of crypto-asset management and a concurrent decrease in respondents who consider Luxembourg a laggard in comparison to EU counterparts, according to the authors.
● While only 19 per cent of respondents consider Luxembourg to be a leading jurisdiction in the crypto-assets space globally, the Grand Duchy is being ranked ahead of both the UK and France in this survey.
● 82 per cent of respondents consider it from somewhat to extremely important for Luxembourg to take a more active stance in the broad crypto-assets space.
● The main constraints to broader crypto-assets adoption in Luxembourg are lack of maturity of relevant market infrastructures, the high volatility of crypto-assets, and the high AML risks perceived to be inherent to the asset class.
● Nonetheless, almost a quarter of respondents see high potential in crypto-assets from an investment strategy perspective, while 34 per cent see some potential. There is an increase in respondents who see no investment rationale whatsoever with regard to crypto-assets. The diversification benefits of crypto-assets continue to be viewed as their most attractive feature, whereas their perception as an inflation hedge has suffered.
● One-third of respondents believe regulations such as the Markets in Crypto Assets (MiCA) EU Regulation to be a critical prerequisite for industry development, while 17 per cent are carefully considering such regulations when developing their value proposition and products.
● Looking forward, a majority of respondents view a strengthening of investor education as an absolute imperative in terms of investor/customer protection while another 25 per cent agree that there is a need to strengthen financial education around the topic without having strong views on a particular approach.
● 71 per cent of respondents believe crypto-assets will be from somewhat to extremely important for the future of asset management in Luxembourg.