How APAC is keeping pace with the digital assets revolution

31 May 2022

With new digital trends emerging, asset managers need to adapt quickly to new opportunities and challenges in this fast-changing space

The growth of the digital assets market is undeniable – total market size of all cryptocurrencies has already reached $1.5 trillion – and it is gradually becoming a part of mainstream finance.

Traditional asset managers, institutional investors and hedge funds are moving into this space as managers look to diversify their portfolios in the face of macroeconomic uncertainty in an inflationary environment.

As other digital assets trends emerge, the market will need to adapt quickly to the new challenges and opportunities they present.

Seizing the opportunities

Every transformation offers the opportunity to do things differently. Advancements in technology, for example, have allowed digital assets to thrive as they can offer rapid transactions, low transfer fees, security and, critically, new market opportunities. Digital assets also attract new entrants, the chance to form new partnerships between different market participants, and they encourage more efficient processes.

Digital assets are also favoured due to their transparency, faster settlement, and potential for embedded business logic, e.g. smart contracts and DeFi. Digital assets such as bitcoin can also help diversify portfolios.

Blockchain is a key component of a digital asset as it records information that makes it near impossible to alter or hack. This enables the secure transfer of assets without an intermediary and validates and records transactions. It can also increase efficiencies by reducing costs.

To seize the opportunities, fund managers must be compliant with current rules by onboarding KYC/AML procedures.

Project portfolio management is also critical. While fund managers want to receive their subscriptions and redemptions in crypto, efforts must be made to ensure coins are not tainted. Fund managers should also ensure transactions are conducted through well-versed and well-known regulated custodians and exchanges.

Challenges aplenty

Sizeable technology spends, sourcing service providers for institutional-grade solutions and hiring talent and expertise are some of the main challenges that accompany the digital assets revolution.

During our Digital Assets Virtual Workshop, Chris Brodersen, Global Head of Digital Assets, explained: “Finding the right people to manage the right technology without increasing technical debt is a serious challenge for a lot of managers.”

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Collaboration is key to overcoming these challenges. There have been many successful partnerships between banks, FinTechs and market exchanges to build up the new digital asset ecosystem.

In a market that never sleeps, trading becomes another challenge with risk management and order management systems needing to be run across venues and time zones.

There are also technological challenges for crypto managers such as re-writing APIs, adapting portfolio management and execution systems, and even creating new ones from scratch. “There’s a lack of off-the-shelf products available, so it’s about creating systems to manage these trade pairs that never sleep,” Brodersen commented.

But perhaps the biggest challenge is regulation, which varies across jurisdictions, creating the need for compliance support. So, it is also important to consider where a fund will be domiciled to ensure regulatory coverage is available.

Asia-Pacific has positioned itself as a leader in the digital assets space offering a flexible and innovative yet robust legal and regulatory environment. Singapore is building a reputation as a hub and has granted a number of licenses to firms dedicated to the space. The Monetary Authority of Singapore (“MAS”) is creating legislative frameworks to help institutional investors and the market to mitigate the challenges associated with managing digital assets. MAS has already used Singapore’s Payment Services Act, which regulates cryptocurrency-based payments under legislation, to restrict unlicensed crypto traders.

Apex takes a risk-based approach and we work with a network of technology providers. We leverage our single source platform and ecosystem partners to create tailored solutions such as digital marketplace and investor on-boarding, custodial services, API connectivity to regulated exchanges and custodians, and online 24/7 web reporting portal for managers and investors.