Digital assets: a powerful diversification strategy?

Distributed ledger technology (DLT), akin to blockchain technology, offers avenues for processing, verifying, and storing data that are not only more efficient but also cost-effective and enduring, as per Abrdn. Building on this, the asset manager examines the involvement of investors in the adoption of DLTs and explores the increasing advantages that digital assets will accrue as the rate of adoption gains momentum.

According to Duncan Moir, Senior Investment Manager, Alternatives at Abrdn, investors can invest in DLTs by buying native digital assets, which are required to pay for usage. “Given the short history of the industry, a diversified approach across several (DLTs) is preferred,” says Moir.

Moir highlights that DLTs swiftly and securely process and retain data while ensuring its immutability. He notes their wide-ranging applicability across nearly all industries that demand data processing. Additionally, the asset manager explains that aside from streamlining process efficiency, DLT introduces new data management methods that would otherwise be inaccessible.

Subsequently, Abrdn emphasizes DLT’s pivotal role in financial services, bringing forth democratization benefits through the tokenisation and fractionalisation of financial assets. Duncan Moir indicates, “Investment opportunities previously available to only the largest institutional investors (such as direct real estate, infrastructure and other alternative asset classes) can now be offered to individuals seeking greater control and diversification of their financial investments.”

Abrdn also acknowledges the dominant role of speculation in these markets. However, it calls DLT a nascent technology and points out that its adoption is taking place at a slow pace. Moir predicts, “In that sense, it is reasonable to expect that, in the future, a far greater proportion of the demand and activity in digital assets will come from the application of DLTs rather than from speculation.”

Elucidating on the investment potential of DLTs, Abrdn says, “Investors can profit from the growth of individual DLTs by purchasing and holding the related digital assets.” The asset manager further states that over time, the adoption metrics would act as an indicator for future price movements.

“Therefore, the suitable approach for most investors is to allocate to a diversified basket of assets, with some consideration for liquidity and market capitalisation. This would be considered better than an ‘eggs in one basket’ strategy while also giving broader exposure to the industries that may adopt different DLTs based on their specific use cases,” concludes the asset manager.

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