The rise of digital assets has the potential to transform the financial sector, initially in Asia, but ultimately around the world. Asia has been a global leader in the rise of super apps that provide one-stop access to food delivery, ride hailing, shopping and financial services. It is therefore unsurprising that Asia is also leading the way in the adoption of digital assets to complement the growing digitisation of commercial and financial services.
Consumer demand for crypto
With consumers becoming increasingly accustomed to services coming to them, rather than vice versa, the need for convenient, digital alternatives to traditional banking and financial services in Asia is rapidly becoming clear. Consumers in Asia are adept at using digital wallets to make payments through super apps, whether to buy groceries or services, or purchase financial products, and this is expanding into the world of digital assets and cryptocurrencies. Growing wealth in Asia, and therefore the number of people looking to access financial products, has resulted in increasing demand for investment opportunities. With returns on many financial products relatively modest, large numbers of people have been attracted to speculative assets such as crypto, and as a result, these have become relatively mainstream, including in established financial markets such as China, Korea and Singapore.
The challenge for governments, however, has been the lack of regulatory control and therefore consumer protection over crypto assets. Given their growing ubiquity and therefore the value of these investments, major volatility or failure of these assets has the potential to disrupt and potentially damage the wider financial markets. In Indonesia, for example, there are now more investors in crypto than there are in the stock market. As a result, we have seen strong yet differing regulatory actions to create strict limits on how consumers can engage in this asset class, ranging from China’s complete banning of crypto, to Indonesia’s proactive initiative to set up a national crypto-exchange in 2023 as they explore what a regulated market for digital assets might look like.
In many cases, however, regulatory responses tend to approach digital assets from a domestic perspective as opposed to taking a cross-border approach, which has always been considered as one of the benefits of cryptocurrencies. There are some exceptions to this, such as The Hong Kong Monetary Authority working with The Bank of Thailand, Central Bank of UAE and The People’s Bank of China on a cross-border multi-central bank digital currency (CBDC) initiative known as mBridge. This pilot blockchain based wholesale settlement infrastructure aims to make cross border payments more efficient. Likewise, USD- or other G7 currency-backed stablecoins could provide a real-time alternative to traditional cross-border remittances, which could have particular relevance for cross-border trade in Asia.
Corporate perspectives on digital assets
Digital assets are not only relevant to consumers. Corporates are also exploring the use of digital assets in a variety of ways, for example in monetising new digital opportunities such as the metaverse, as a potential source of asset diversification, or even as a means of accepting or sending settlement payments. Ultimately this results in Corporates ending up with digital assets on their balance sheets, a reality which Banks must prepare for. While regulation may dampen consumer speculative demand, conversely, digital assets are likely to become more attractive to corporates, particularly central bank digital currencies and stablecoins within the realms of a regulated environment.
As a commercial and trade bank centred in fast-growing emerging markets, Standard Chartered is focused on supporting clients in digital assets and the markets that are powered by them. In the short term, this could include understanding and supporting clients’ crypto trading and service execution requirements, and helping them to understand the risks and opportunities in new trading spaces such as the metaverse. Over the past two years, we have developed a course for employees in co-operation with Oxford University to develop knowledge and expertise, with over 300 people now qualified in this area. In the UK, SC Ventures have launched an institutional crypto trading platform Zodia Markets in partnership with BC Group, parent of digital asset exchange OSL, and crypto custodian Zodia Custody in partnership with Northern Trust. We are also working within our core institutional businesses to support cryptocurrencies such as bitcoin and ether on our FX trading desk. In addition to ensuring that we have the regulated banking entities that can provide clients with access and risk management for these assets, we are also working with licensed non-bank entities to further extend access to services.
In the longer term, digital assets will become a permanent and increasingly important part of the future of financial services. Tokenisation and blockchain-enabled finance, and cryptocurrencies and related digital assets will form the foundation of financial services and will create more efficient transfer of wealth, particularly cross-border. We continue to work with governments, central banks and regulators to help shape the future universe of digital assets, and with our clients to understand what this future vision might look like, what opportunities it creates, and how they can best take advantage of them.
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