Unlocking Opportunities: Exploring the Growing Appeal of Digital Assets and their Problem-Solving Potential

Digital assets have surged in popularity across Asia in recent years. According to a study conducted by Accenture, digital assets, including cryptocurrencies, crypto investment funds, and asset-backed tokens have emerged as one of the top five holdings for affluent investors in the region. This growing interest in digital assets highlights the potential of this asset class in Asia.

One significant factor contributing to the rising popularity of digital assets in Asia is the quest for financial inclusion. Many Asian countries still have a large population proportion with limited access to traditional financial services. Digital assets offer a means to bridge this gap and empower individuals excluded from the traditional financial system. In the Philippines, blockchain-based games like Axie Infinity have gained immense popularity, allowing players to earn a living by trading in-game characters using digital assets

Institutional investors in the region, particularly in Southeast Asia, have shown a greater openness towards digital holdings than in the US and Europe. The potential for investment and growth in the digital asset market has attracted both local and international investors, with revenue in the digital assets market in Asia projected to reach over US$8 billion by 2023, with a compound annual growth rate (CAGR) of 16.11% from 2023 to 2027.

Supportive government policies and initiatives have further fueled the creation and adoption of digital assets in Asia. For example, the Cambodian government has launched Project Bakong, a digital payments system that facilitates interbank transfers, domestic payments, and cross-border transactions using digital assets. Such initiatives from governments contribute to a favourable environment for developing and adopting digital assets in the region.

Which begs the question: How do they look like in practice? With that said, this article intends to unwind the tangles and give you a brief overview of three key areas: Analytics, Language Models, and Blockchain.

Real-time Monitoring & Analytics

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Transparency in trade prices

Transparency is crucial in Asian industries, as it creates efficient and fair markets, allowing market participants to make informed decisions and ensures a level playing field for all. However, several factors contribute to the region's trade price transparency challenges.

1. Fragmented nature of the Asian market: Asia consists of diverse countries, each with distinct regulatory frameworks, trading practices, and market development levels, which causes varying levels of transparency levels, impacting investment decisions. Over-the-counter (OTC) trading also further divides both parties from achieving common transparency grounds since OTC markets are decentralized, operate away from regulated exchanges, and are conducted bilaterally between two parties.
2. Lack of standardized reporting: Non-standardized reporting practices across different countries and trading partners can make it difficult to compare and analyze trade prices effectively.
3. Information gaps and asymmetry: Information gaps can arise due to limited availability and access to accurate and timely trade price data. Asymmetry in information between different market participants can also hinder transparency and fair competition.
4. Complex supply chains: Asia has intricate and extensive supply chains involving multiple intermediaries. The opacity and complexity of these supply chains can make it challenging to track and assess the true cost of goods and services
5. Trade barriers and regulatory constraints: Tariffs, non-tariff barriers, and regulatory constraints can impede transparency in trade prices, creating price distortions and preventing fair competition

The Need for Real-time Monitoring and Analytics Software

Real-time monitoring and analytics software is essential in organisations for several reasons.

1. Gain immediate insights into organisational operations, enabling them to make timely and data-driven decisions, and respond to emerging trends, issues, or opportunities, improving efficiency and competitiveness.
2. Take proactive measures for detecting and mitigating potential risks, such as cybersecurity threats or operational disruptions to identify anomalies.
3. Enhance customer experience by providing personalised and timely responses, improving satisfaction and loyalty.

Regarding the adoption rates globally and in Asia, there is evidence of increasing adoption of real-time monitoring and analytics software. According to the McKinsey Global AI Survey, using artificial intelligence (AI) in standard business processes has increased by nearly 25% year-over-year globally.

In Asia, while specific figures on the adoption rates of real-time monitoring and analytics software are not readily available, AI technologies are evidently on the rise as the AI adoption rate globally has increased to 35% (present) from 31% in 2021.

However, organisations need to be mindful of certain restrictions and regulations that may apply. While the specific regulations can vary depending on the industry and the region, here are a few examples:

• Data Privacy Regulations: Organisations must adhere to data privacy laws and regulations, such as the Personal Information Protection Law (PIPL) in China for personal privacy rights, and Personal Data Protection Act (PDPA) in Singapore that requires organizations to obtain consent for access to personal data.
• Industry-Specific Regulations: Some industries, such as healthcare and finance, have specific regulations governing data handling and security. For example, in Singapore, the Health Sciences Authority (HSA) monitors medical devices and regulates their distribution. Organisations in these industries must ensure that their real-time monitoring and analytics software comply with these regulations to safeguard sensitive information.
• Cybersecurity and IT Regulations: Organisations may need to comply with cybersecurity and IT regulations that prescribe specific security measures such as Japan’s Act on the Protection of Personal Information (APPI) or the Cybersecurity Law of the People’s Republic of China. These regulations can include requirements for real-time monitoring of network traffic, incident response procedures, and data breach notifications.

Organisations must thoroughly assess the relevant regulations and ensure their real-time monitoring and analytics software aligns with the compliance requirements. Additionally, working with legal and compliance professionals can help organisations navigate the complex landscape of regulations and ensure their operations are in full compliance.

Leveraging Language Models (ChatGPT)

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As galvanising as the power and potential of ChatGPT can be, it now raises the notion: “Are we becoming too dependent on ChatGPT, despite its lack of reliability?” To most industries, data utility and further application of the data retrieved are crucial, and the validity of the information sourced by ChatGPT still cannot be fully trusted, requiring human intervention.

ChatGPT relies on a colossal amount of data for training and improvement, raising concerns about the privacy of the individuals whose data is included in the training set. Furthermore, compliance concerns have led some companies to restrict its use by employees. Specific privacy issues identified include the lack of age controls and potential violations of the General Data Protection Regulation (GDPR).

Despite its potential and functionality, several banks have opted for the conservative option of banning ChatGPT usage for internal means. JPMorgan is one of the banks that have banned internal use of ChatGPT over regulatory and privacy issues due to the lack of transparency of ChatGPT’s information source, which can undermine the validity of the information extracted.

So, how can language models complement the finance industry (i.e.Investing and trading) when optimised? Here are the top ways language models can add to the industry:

1. Risk Management: By analysing textual sources like regulatory filings, legal contracts, and news articles. They can help identify potential risks and provide real-time updates on market conditions and events that may impact investment portfolios.
2. Financial Reporting: Language models can streamline the financial reporting process by parsing financial data, generating real-time reports, and summarising complex financial statements.
3. Opportunity Identification: By identifying patterns, trends, and correlations in various data sources and provide insights into potential market inefficiencies or emerging investment trends.

It is crucial for organisations and individuals to carefully assess the benefits and risks of using ChatGPT for internal operations. While it can be a useful tool, its limitations, and potential risks should be considered. Critically evaluating the information provided by ChatGPT and supplementing it with additional sources when necessary is essential to making informed decisions.

Blockchain in Business

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Since the dawn of Bitcoin, blockchain technology has been no stranger to businesses worldwide. According to Deloitte Insights, blockchain technology is expected to continue transforming the investment management industry in several ways.

• Digital Asset Management: Blockchain technology enables the issuance and transfer of digital assets, including securities and cryptocurrencies. Asset managers are exploring the use of blockchain-based platforms for asset management to enhance transparency as all transactions and activities are recorded in a decentralized manner (enabling easier verification and movement-tracing of assets), reduce costs (removes the need for intermediaries such as custodians or clearinghouses), and increase the efficiency of investment processes (by automating manual tasks through smart contracts as predefined rules and conditions can be programmed).
• Tokenization: Tokenization enables fractional ownership and enhances liquidity in traditionally illiquid assets. Tokenization of assets is expected to grow further in the coming years, with more investors looking to invest in fractional ownership of high-value assets.
• Privacy-Enhanced Blockchain: Privacy-Enhanced Blockchain solutions are evolving to enable secure transactions without parties revealing all of their information. This is particularly important for investment transactions where investors may need to keep their identity confidential while verifying transactions over privacy concerns of exposed personal information to unauthorized parties or for competitive advantage to disclose information on their investment strategies or positions.
• Central Bank Digital Currencies (CBDC): CBDCs can provide a digital alternative to cryptocurrencies while maintaining the oversight and control of central banks. By offering a secure and regulated digital currency, central banks can address the concerns associated with private cryptocurrencies. Furthermore, it can facilitate faster and more cost-effective cross-border transactions by eliminating intermediaries and reducing the reliance on correspondent banking, enhancing the efficiency of global remittances, and promoting global economic integration.

Blockchain integration in the finance industry in Asia is gaining momentum. According to a report by Bloomberg, blockchain technology can potentially reduce banks' infrastructure costs worldwide by $15-$20 billion per year by 2022.

One critical application of blockchain in Asian finance is cross-border remittances. Banks in Asia, such as HSBC, Bank of America Merrill Lynch, and Axis Bank, leverage blockchain technology to enable faster and more efficient cross-border transactions. This innovation reduces the friction and costs associated with traditional remittance processes.

An example of a use case of blockchain implementation is Singapore’s Project Ubin in the context of asset management and capital markets. This initiative, led by the Monetary Authority of Singapore, explores the use of blockchain technology for interbank payments, securities settlement, and cross-border transactions to improve operational efficiency, enhance security, and reduce settlement risks in the financial ecosystem.

Approaching Technological Trends

Adopting technological trends is crucial for companies to stay competitive in today's rapidly changing market, and to take one step closer to financial inclusion and parity for the majority of the Asian population.

Failure to embrace new technologies can leave companies at risk of falling behind and missing out on opportunities for growth and innovation, while hastily adopting new technologies without a systemized approach can lead to financial loss and legal complexities. Hence, taking a conservative and cautionary approach towards new technological trends is key.

By carefully considering the implications, conducting thorough evaluations, and making informed decisions, companies can position themselves to capture the benefits of technological trends while mitigating unnecessary risks.

In the upcoming Fixed Income & FX Leaders Summit APAC, we will be delving deeper into how to better grasp and harness the capabilities of these technological trends, so you can tailor an approach that enables your company to drive innovation, improve its competitive position, and ensure long-term success in an ever-evolving digital landscape.

On day 2 of the Fixed Income & FX Leaders Summit, 23rd Nov, join the Keynote Panel: What are the changes that are promoting a safer digital assets ecosystem and improving liquidity to further boost investor confidence and institutional adoption?

Download the 2023 Agenda here!