In early May, the crash of stablecoin TerraUST and its related cryptocurrency Luna caused sustained market buzz and media attention. Ignites Asia, a reputable international financial media of the Financial Times, recently interviewed Zhihu Chen, Hong Kong-based investment director at Huobi Asset Management (Hong Kong) Limited ("Huobi AM”) on this topic. Mr. Chen expected institutional and professional investors to remain confident in the face of sharp market fluctuations.

Chen said that while the volatility brought panic to the markets, global flows into digital asset investment products reached a record high in the same week, at US$274 million.

This is a strong signal that institutional investors saw the recent stablecoin crash and the associated broad sell-off of cryptocurrencies as a buying opportunity, said Chen.

While retail investor confidence in the asset class may have taken a hit, he did not expect institutional and professional investors, who had a longer-term view on the asset class and were well aware of its high volatility, to be as shaken.

Huobi Asset Management（Hong Kong) Limited is an indirect wholly- owned subsidiary of Huobi Technology Holdings Limited (1611.HK). It is licensed by the Securities and Futures Commission of Hong Kong to carry on Type 4 (Advising on Securities) and Type 9 (Asset Management) regulated activities. On March 3, 2021, Huobi AM was approved by the Securities and Futures Commission of Hong Kong to manage portfolios that invest in virtual assets. Huobi AM is a new era asset management institution that integrates virtual assets and traditional financial assets, providing customers with innovative products and services that represent cutting-edge investment concepts.

According to Ignites Asia, after the incident, Luna’s value plummeted from a high of US$119.51 to just fractions of a penny, while TerraUST, which was designed to have a value of US$1 at all times, saw its value drop to under US$0.10. It caused some industry insiders to stress that digital assets remain unsafe for investors. 

U.S. fund house PGIM, the investment management arm of insurer Prudential, described cryptocurrencies are unsuitable for institutional investments in a report last week. The report indicated that for institutional investors there were a few parameters that any new asset needs to meet, and first and foremost there needs to be a clear regulatory and legal landscape for it.

The Ignites Asia report also pointed out, that despite the recent upheaval in the cryptocurrency markets, PGIM’s more conservative views appeared to be among a shrinking minority in the traditional asset management industry.

Joy Lam, Hong Kong-based virtual asset specialist at law firm Baker McKenzie, said that over the past few years the balance has really shifted and most of the institutional managers and traditional fund managers do recognise that it is emerging as an asset class and is something that is being embraced.