The Unstoppable Rise of Digital Assets: Compete, Collaborate or Both?

Cryptocurrency and other digital assets like NFTs are a popular topic of conversation, from friends around the dinner table to market-shaking news headlines. And it’s an important discussion to have because digital assets are making a significant impact on global markets.

Crypto used to be something that just a fringe minority of the population took an interest in. But over the last few years it has risen to prominence in popular culture and traditional banks, insurance companies, and financial institutions are exploring the crypto game.

Despite being high-risk and unregulated - has the time for ignoring digital assets passed? Or should financial institutions begin integrating them into their business operations?

A panel of experts sat down to discuss this very question. They panel included: Rana Dasgupta, MD & Head Global Markets Structuring, Asia ex-Japan, Nomura; Eric Neo Say Wei, Founder & Chairman, Neo & Partners Global and President Hg Exchange; Darius Sit, Managing Partner, QCP Capital; Cici Lu, Managing Partner (Asia), Apollo Capital; and Phillip Gillespie, Co-CEO, B2C2.

Is Regulation Good or Bad?

The Chinese government’s crackdown on cryptocurrency in 2021 made headlines across the world, shocking crypto markets. It led the panellists to an interesting conversation about whether regulation is a good thing for crypto as a whole.

Rana Dasgupta argued that regulation is a good thing, as it legitimizes the whole space. Phillip Gillespie tends to agree—the very fact that governments would crack down on cryptocurrency and want to regulate it is because it holds real value, and therefore, real threat to the government-run currencies.

Darius Sit shared that he was not surprised by the Chinese government’s reaction to cryptocurrency. From a philosophical perspective, a decentralized currency like cryptocurrencies poses a real threat to their highly centralized currency.

There are a few points to consider regarding the regulation of crypto currency:

• Regulation shows that crypto is becoming increasingly more institutional, rather than retail.
• Regulation provides a level of security in a highly volatile market, attracting investors to the space.
• Regulation opens opportunities for innovation; if something can be regulated and become more secure, there is space for more creative products and offerings.

As the demand for cryptocurrency increases, governments will continue to try and regulate it. Right now, countries are in various stages of regulation, but it is still happening rapidly. When the “rules of the game” are more established, more players are likely to become involved in crypto markets. This means that financial institutions must also be prepared to integrate it into their business operations.

Crypto Fungibility and Risks

Cryptocurrencies are unregulated and, therefore, highly volatile. This means that they can be a very high-risk asset class to invest in. But what are some other risks associated with cryptocurrencies? One is the fungibility of crypto—i.e., how easy it is to exchange cryptocurrency into another type of currency that is useable in everyday life. The panellists had a few thoughts on this concept:

• Cici Lu expressed that there is risk associated with converting crypto into another physical currency but is not unlike the currency exchange risk between two physical currencies that happens regularly.
• Darius sit sees crypto as becoming more fungible because digital assets are more widely used. Digital money is already common, so cryptocurrency is the logical next step.

Rana Dasgupta and Eric Neo Say Wei take the contrary approach. Rana says crypto is less fungible than we think; the blockchain technology behind it is anonymous and anonymous currencies cannot be brought to a bank. Eric has the same question: “When can [cryptocurrency] be bankable?”

The fungibility of crypto depends on its ability to be identified, stored, and traded. That’s why secondary markets and crypto products are so important to the conversation. Cici Lu brought up using cryptos as a hedge fund, getting indirect exposure to the crypto market while being able to cash out when needed.

The Future of Digital Assets

There’s no doubt that digital assets are here to stay. The panellists agreed that the future of cryptocurrencies and digital assets will move towards more institutional settings, instead of just the primary retail markets they’ve been in until recent years.

Institutionalized cryptocurrency has these features:

• Professional cryptocurrency advisors, portfolio managers, traders, etc. who have deep knowledge of the space.
• Banks acting as digital asset custodians because they hold public trust and invest heavily into cybersecurity.
• Diverse digital asset offerings to meet the demands of clients.
• Clearer, more defined regulations.

As cryptocurrency becomes institutionalized, the full potential of it may also be realized. Crypto is part of decentralized finance (DeFi) which, as Cici Lu pointed out, has the potential to reduce inequality. Because crypto exchanges are built on smart contracts and digital agreements, there is no human interpretation of the contract. So, the rules are the same for everyone who participates in DeFi—everyone can access crypto markets.

Is it Too Late to Start in Crypto?

Darius Sit is asked the question a lot. And the answer? No. It’s not too late to start in the crypto and digital asset markets. In fact, it’s just getting started! There is such a rapid evolution of cryptocurrencies and digital assets, that now is the time to get involved. The only mistake would be to miss out on all the development around digital assets.

Traditional financial institutions need to know that clients and customers are starting to demand cryptocurrency products and services. This is no longer something that they can ignore but need to start educating themselves on to best serve their clients.

Governments will continue to try and regulate crypto and digital assets. As they do, they legitimize it as a currency and create the conditions for financial professionals to sell, trade, and work with products. The markets are in their infancy and new protocols are popping up regularly.

The panel unanimously agreed: you need to be in the cryptocurrency and digital asset space. They’re not going anywhere, and there is enormous potential for many people to benefit from this exciting and ever-changing technology.