25.05.2023 Finance Crypto-assets Luxembourg Report Trends

Crypto-Assets in Luxembourg: Persistence Amidst Headwinds

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), jointly announce the publication of the second edition of the Crypto-Assets Management Survey, entitled “Crypto-Assets in Luxembourg: Persistence Amidst Headwinds”. The report 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: 
  • 39% of respondents believe the global crypto-assets market is still in its early stages and  holds significant potential, while 33% 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, as 34% see these events as being the consequence of  corporate governance and due diligence failures, while 23% 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.  
  • While only 19% 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 our survey.

82% 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% 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%  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 ¼ agree  that there is a need to strengthen financial education around the topic without having  strong views on a particular approach. 
  • 71% of respondents believe crypto-assets will be from somewhat to extremely important  for the future of asset management in Luxembourg. 

The LHoFT Foundation and PwC Luxembourg, with the active support of the Association of the  Luxembourg Fund Industry (ALFI), are pleased to announce the publication of a comprehensive  market study of Luxembourg’s crypto-assets industry. The survey results were first revealed at the  Crypto-Assets Management Survey Event in Luxembourg, which took place physically on 4 May  2023, at PwC Luxembourg’s premises in Crystal Park. 

While 2021 was considered an outstanding year for crypto-assets, 2022 was anything but.  Macroeconomic and geopolitical shocks led to severe economic downturns across the world, while  a series of governance failures across the global crypto-assets industry severely harmed the novel  asset class’ reputation and promise. 

Against this rapidly changing landscape, the LHoFT commissioned a new edition of the Crypto Assets Management Survey to assess how the views of stakeholders in Luxembourg’s Asset  Management industry have evolved regarding crypto-assets. Once again, the survey and report  were developed with PwC and the active support of ALFI. 

The report highlights the views of Luxembourg market participants towards crypto-assets, the  Grand Duchy’s position, the obstacles, challenges and constraints to crypto-assets development,  and the role crypto-assets will play in the coming years. In addition, a set of recommendations are  provided which would ultimately help enhance and clarify how stakeholders in the Luxembourg  financial sector should approach crypto-assets amidst an environment of new regulatory  developments.

Crypto-assets in Luxembourg: Opportunities in Pragmatism

As a global financial centre situated in the heart of Europe, gauging Luxembourg market  participants’ views on crypto-assets is a crucial exercise that provides a strong overview on the role  crypto-assets might play in the financial sector’s future development. 

Overall, while enthusiasm might have slightly dissipated since the first edition of the survey,  results indicate that crypto-assets remain a key point of interest for many stakeholders in the  Luxembourg financial centre, many of whom are keeping a keen pragmatic eye on regulatory  developments and examining how they will impact the crypto-assets market, both in Luxembourg  and globally, in the coming years. 

Nasir Zubairi, CEO of the LHoFT Foundation says:

“With every challenge comes an  opportunity for growth and transformation. The findings of our Crypto-Assets Management  Survey reveal that Luxembourg’s financial centre remains open to and opportunistic with  innovation. I am invigorated by the evolving perceptions and the potential for developments in  relation to crypto-assets in Luxembourg.” 

Steven Libby, EMEA Asset & Wealth Management Leader, PwC Luxembourg says:

“In my role as ALFI co-chair of the Digital/FinTech Forum, I continue to observe a sustained  interest in crypto-assets and a very robust exchange between market players and the regulator to  ensure that the required governance, policies and procedures are in place to support the eventual  growth in this area.”

Thomas Campione, CFA Director | Blockchain & Crypto-assets Leader, PwC  Luxembourg, says:

“While the value proposition of crypto-assets has not changed, the events  of 2022 clearly impacted market participants’ trust which must now be rebuilt. So far markets  have shown resilience in 2023 and it is now up to the crypto-asset industry to prove itself. Time  has come for a reset and the entry into force of MiCA will certainly act as a catalyst here.”

Gildas Blanchard, Head of Industry Affairs at ALFI, says:

“Taking the pulse of the  market is critical to define our perspective and an agenda that is fit for purpose in the crypto asset field. The 2023 crypto-assets management survey helps to gauge the underlying demand  and also highlights the dynamics of a maturing regulatory framework. While further enhancing  regulatory clarity and connecting the dots across the fund value chain remain priorities,  translating ideas into concrete operational set-ups will be one of the key challenges in 2024. We  are enthusiastic about what is to come and ready to play our role.” 

You can discover the full report here.

Source: Luxembourg House of Financial Technology (LHoFT)