[The Straits Times] Institutional investors remain interested in crypto after recent rout

This article was first published on The Straits Times.

Bitcoin has slumped by more than 70 per cent since hitting US$69,000 in November last year. PHOTO: REUTERS

SINGAPORE - The crypto market is in freefall as fearful investors bail out in the wake of the Terra/Luna stablecoin crash and amid heightened concerns that more bloodshed is coming. Yet some are still keeping the faith.

Bitcoin has slumped by more than 70 per cent since hitting US$69,000 in November last year and on Tuesday was trading just above US$20,000.

This volatility, coupled with rate rises that are constricting the flow of cheap cash into risky investments, have also led to a slew of layoffs at some prominent crypto companies like Coinbase and Crypto.com.

Yet institutional interest in digital assets remains unabated, with banks and asset managers seeing more client demand for wealth management services in the space.

"Savvy investors are looking for good opportunities to gain exposure to the 1 per cent of blockchain projects that solve real world problems and whose tokens will incentivise more innovation and therefore rise in value," said Mr Adrian Chng, founder of Fintonia Group, a digital asset fund management firm that runs two Bitcoin funds in Singapore.

Mr Samar Sen, head of Asia-Pacific at digital asset derivatives trading platform Talos, noted during Maybank's Invest Asean 2022 forum in Singapore last week that "institutional investors see an exciting new asset class with interesting yields and long-term value".

Industry insiders also agree that greater participation from institutional investors, including family offices and businesses, as well as banks and professional wealth managers, will gradually bring more stability to the digital asset market.

This is because they bring regulated products and services, risk management practices and better knowledge to crypto investing.

"Financial institutions serving institutional clients are getting a lot of questions on how to gain exposure to crypto and have started building services around it," Mr Sen said.

In Singapore, this includes DBS Bank, which launched a digital asset ecosystem to provide its corporate and institutional clients access to cryptocurrencies and other tokens in late 2020.

Ms Nadine Chakar, global head of State Street Digital, the new digital finance division of United States bank State Street Corporation, said there has been a surge in clients who are asking for products and services that support and provide exposure to digital assets in recent years.

State Street Digital, which was launched last year to meet the growing demand for digital finance, has an office in Singapore and has been expanding its crypto services to include custodial, tokenisation, blockchain, lending, payments and research as demand increases. "This is not a fad," said Ms Chakar.

Tokenisation involves breaking down high-value assets into bite-sized tokens on a blockchain, making the asset more accessible to a wider pool of investors.

Mr Johnson Chen, chief executive of digital wealth management platform CapBridge Financial, said during the Maybank forum: "Banks like Nomura, Goldman Sachs, BNY Mellon and Citi are launching new subsidiaries to get their feet wet in crypto and non-fungible tokens as a means of diversifying away from traditional finance products."

However, Mr Fadzli Shah, chief executive of Malaysia crypto exchange MX Global, noted that the services and infrastructure developing around providing institutional investors with crypto exposure will involve many players operating in traditional finance.

"The majority of institutional investors want convenience over self-custody and control, which is what traditional finance has to offer," he said.

Mr Shah added that greater clarity by the regulators will help speed up crypto adoption by institutional investors, which in turn will help the industry scale and stabilise.

"The lack of regulatory clarity will slow institutional adoption of crypto tremendously."