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An Intro to ... Digital Asset Management
FinTech, Blockchain, Financial Services
By Zoe Shing, NexChange
What is Digital Asset Management? If you google ‘digital asset management,’ you will get bombarded with many different definitions of the term. To some, it may be simple enough, but it can get very confusing when everyone has a different understanding of the word. This is why this article is here to help put all your questions to rest.
The original meaning of digital asset management is the process of storing, indexing and managing the rights and access controls of assets that are in a digital format. This would include media such as images, videos, music and animations.
However, nowadays we see that a different meaning has emerged in the finance world. The term ‘digital asset management’ is now thrown around as an addition to ‘asset management.’ By plugging in the word ‘digital,’ this encompasses all asset management that involves a digital asset. This means that OTCs or even exchanges such as Coinbase could be considered digital asset managers since they are literally managing your assets for you.
So, to explain what digital asset managers do in the crypto sense, we must first understand the job of asset managers in general. These asset managers may be mutual fund managers, hedge fund managers or managers of private equity, venture capital and so on. Asset managers aim to maintain and expand the wealth of their investors by choosing what assets to buy, sell or hold on behalf of them, and they can choose to put their investors’ money in one or various asset classes. The fund’s strategy is then executed by building a portfolio of assets into a fund or a mandate.
The three main channels that asset managers can choose to distribute their products through are: institutional, wholesale and retail.
The institutional channel involves a business-to-business situation, whereby one business sells a product or service to another business. This may include pension funds, sovereign funds, endowments and family offices.
The wholesale channel follows a business to business to consumer model, which can include wealth management customers and independent financial advisors.
Finally, the retail channel goes directly from business to consumer, and investors buy shares straight from the fund.
Digital asset managers who run crypto funds distinctly focus on a single asset class – cryptocurrencies. While they may deal with digital assets, the process of distribution is mostly the same as traditional asset classes, and therefore distribution is manually done through the same three channels.
Digital asset managers not only buy and hold cryptocurrencies, but they also offer a variety of other services to both institutions and individual investors. They provide a high level of security that would not otherwise be achievable alone, such as a ‘cold storage’ for exchanges, and they also do technical security research for their clients. They accept both cryptocurrency as well as convert FIAT money into crypto holdings. Furthermore, individual clients can receive advice on their digital assets while institutions can have custodianship of investor funds. Digital asset management firms may also provide insurance for certain assets.
To illustrate how it works, investors can choose to put their money into a crypto fund offered by a crypto asset manager by going through a physical process of gathering and sending documents. Although cryptocurrencies may be ‘digital assets,’ crypto funds are not, and so the process of investment is not digital either.
There is still a lot of work to be done on digitising the process of distribution for investing in crypto funds to make it more efficient, so only time will tell what the future holds.