Crypto-assets in Luxembourg: Persistence amidst headwinds

25/05/2023 News

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.

You can discover the full report: HERE

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.”

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