_Cryptocurrency, the metaverse and property

Knight Frank’s global flagship report, The Wealth Report 2022, explores the amalgamation of the digital world and next-generation wealth, with many ultra-high-net-worth-individuals (UHNWIs) now increasingly balancing their portfolios with virtual assets as well as physical assets.

Expanding on The Wealth Report, Knight Frank and Fred Schebesta, the Co-Founder of Finder and Hive Empire Capital, have explored the future integration of cryptocurrency and property. Schebesta built Finder, a fintech company designed to ‘help people around the world make better financial decisions and improve their lives’, which was valued at AU$650 million at the end of 2021.

The Wealth Report explores the next generation of wealth and in particular their views on property, with two-thirds of global UHNWI wealth allocated to property. Interestingly in 2021, Knight Frank’s Attitudes Survey found that 70% of next generations have a differing view of property to previous generations with younger UHNWI viewing real estate, be it for a home or investment, as more akin to an investment portfolio.

In exploring the threats and opportunities to UHNWI wealth creation, Flora Harley, Knight Frank Partner of Residential Research, suggests: “We will likely see more tokenisation and digital ownership of property emerging due to greater adoption and understanding by this younger generation – mortgages based on non-fungible tokens are already being issued.”

According to Schebesta, property has a definite place in his portfolio: “In an uncertain environment people look a lot at risk and eventually end up buying property as it is tangible and will be around for a long time. People need a place to live, to conduct business – it’s a foundation of commerce.”

The Wealth Report predicts that the metaverse and crypto will increasingly have greater influence on how individuals build wealth. Recent Finder research shows that over 17% of Australians own cryptocurrency, with Knight Frank research showing the share of investment in crypto is higher amongst UHNWIs with 27% owning some type of crypto and 16% owning an NFT.

The popularity of NFTs amongst the ultra-wealthy is hardly surprising given investing in art collections has always been one of the most expensive hobbies across the world for the rich and famous. This trend is continuing to soar with the Knight Frank Luxury Investment Index recording a 71% price growth in art over the past decade, partly driven by a strong surge in younger wealthy players.

Knight Frank’s research shows that the biggest barrier preventing more of the ultra-wealthy from investing in cryptocurrency, cited by 61% of respondents, is lack of understanding their utility and 47% citing them as too volatile. However, Schebesta predicts there will be a significant shift in demand for crypto and NFTs going forward, with more and more interesting applications of the currency from which investors can earn yield.

Mr Schebesta continued: “The environment we are in is of stock markets falling, interest rates rising and increased pressure to look for a hedge against inflation. This is focusing attention on yield. Crypto can absolutely deliver that, and we are going to see some new development and innovations in this arena. I think we will see a new trend of transitioning into crypto investments as there is a search for fresh investments during the ‘down cycle’ or ‘flat period’,” he said.

Flora Harley writes in The Wealth Report that to focus too specifically on the unpredictable worlds of cryptocurrencies and NFTs risks missing the more substantive potential emerging opportunities offered by the digital revolution, such as decentralised finance and Web3 (a decentralised version of the worldwide web based around blockchains). As measured in Knight Frank’s Attitudes Survey, 61% of respondents now see blockchain technology as an increasing opportunity for their clients.

Undeniably, the metaverse has been unleashed and is being touted as a multitrillion dollar investment opportunity. This presents significant retail opportunities at the confluence of physical and digital real estate.

Mr Schebesta continued: “The biggest jump for real estate is digital land, it’s obvious and already happening. The other area is NFTs and property titles. The system isn’t broken and needing to be fixed, it works but there is potential to improve, and we should transition away from pieces of paper and towards digital tokens. Paying for mortgages in crypto is already happening,” said Schebesta.