Digital Asset Outlook 2022: All Eyes On Regulation As Capital Flows | Alternatives


As digital assets gain popularity among investors, new types of blockchain-based securities and exchanges have emerged, prompting regulators to take a stand. But executing deployment takes time, leaving businesses and investors in regulatory limbo.

“A lot of regulators are taking a very alternative approach. Either I don’t want to do this, I don’t want to watch this, or come up with some compelling rules. I think regulators should want to regulate, and that has to be accompanied by a set of companies that want to come forward and abide by those rules, ”said Henry Chong, founder of the Hong Kong-based digital exchange Fusang. AsianInvestor.

Hong Kong and Singapore, arguably the region’s leading jurisdictions for digital assets, have consultation papers and regulatory frameworks in place to control digital exchanges.

In May, Hong Kong Financial Services and the Treasury Office (FSTB) said they would require virtual asset swaps to obtain a license from the Securities and Futures Commission (SFC).

Currently, virtual exchanges operate under a membership regime and are licensed under the same regulatory framework as traditional trading and securities companies.

In Singapore, which has billed itself as a hub of innovation, fintech companies are taking hold and fintech funding in the country has tripled to $ 3 billion in 2021. Crypto exchange Crypto.com has moved its headquarters from Hong Kong to Singapore this year, and others Global crypto companies such as Coinbase, Binance, and Gemini have established business units there.

That said, the Monetary Authority of Singapore (MAS) is still reviewing 400 digital token player applications for license approvals. Only a handful of them have been granted permits and around 70 are currently operating with temporary exemption licenses.

It also remains to be seen how long these fintech companies are willing to wait for regulatory approvals. Binance Singapore announced on Monday (December 13th) that it would be pulling out of the country, shattering rumors it would move its world headquarters to Singapore.

Responding to Binance Singapore’s departure, a MAS spokesperson said, “Applicants may withdraw their candidacy if they see fit, which will force those operating under an exemption to cease providing services. regulated payments. Binance Asia Services has provided MAS with an orderly termination plan for its regulated payment services. “

“MAS’s approach to regulation under the Payment Services Act aims to facilitate innovation while ensuring that adequate controls are in place to address key risks such as money laundering. and the financing of terrorism, ”the spokesperson said.

INTEREST OF INVESTORS

After more than a decade since Bitcoin’s inception, it has become clear that digital assets are here to stay. As conservative asset owners continue to shy away from cryptocurrencies, they have started investing in the underlying technologies and other blockchain-enabled securities.

“Cryptocurrency is a type of digital asset,” said Ankit Khandelwal, chief investment officer at multi-family office Maitri Asset Management. “What interests us most is the technology underlying these cryptocurrencies, primarily blockchain as a technology, which can have huge potential uses in various industries.”

“It’s the technology that makes a lot of sense and can have many use cases, as well as the evolving new world of virtual spaces and the metaverse,” he said.

Despite the interest expressed, Maitri’s family office clients still have some reservations about the digital asset space, most of which are “still in the learning and evaluation stage”.

“Very few clients have really invested in this space, because it is an evolving space in itself. A lot of things are unknown here, ”he said. “But one thing we’ve heard from most of our investor comments is that this technology holds great promise. And some of the uses include Reits, funds, even just contracts, legal contracts, smart contracts where they can have various use cases across all industries, as well as supply chain logistics.

MORE AND LESS REGULATORY

Regardless of the direction the regulations take, experts have agreed that more regulation is underway, which will only boost investor confidence in digital assets and the underlying technologies.

“There are a few digital asset classes that will increasingly come under the purview of regulators, including captive stablecoins, including private native cryptocurrencies,” said Benjamin Quinlan, president of the association. Hong Kong fintech.

“All of this means that the regulatory arbitrage window is hiring quickly or even disappearing; people are going to have to play a regulated game a lot more. And it is, it is a plus and a minus for the industry. But overall, this tilt towards legitimacy means that for true institutional adoption to occur, the set of products that surround the universe of digital assets must be of a more secure nature, ”he said. .

He added that a benefit of increased regulation is that fintech companies are starting to realize that if they’re going to operate as an approved financial institution, “they’re starting to understand that you can’t just go for it. a frenzy of manufacturing products to create security instruments.

“The other side is that a lot of brokers understand that business is running away from them, that their customers want to trade digital assets…. And now the brokerage houses are even talking to us, saying, do we need to launch our own stock exchange to stay relevant? It’s a very commonplace space, so it’s interesting to see which exchanges will flourish, ”he added.

Look for Part 2 of this story, which explores the future of digital asset regulation.