Digital assets started as an alternative currency and investment after the 2008 financial crisis that saw people lose faith in the government and banks. The highest adoption of digital assets was experienced in 2021, following the covid-19 pandemic. During the pandemic, almost all businesses had to operate online; introducing contactless payments. Several stores ended up accepting crypto as means of payment.

Currently, the crypto & digital assets market has been experiencing a period termed crypto winter. Bitcoin, the largest crypto, is down by about 58% within the past year. Concurrently, the second largest crypto, ethereum, is down by about 59% within the year. The decentralized finance and metaverse space is also experiencing a hard time with liquidity crisis resulting in the collapse of companies such as Celsius.

Despite the negative price action, institutional investors are digging deeper into the DeFi space. This could mean that the crypto & digital assets industry is still expected to grow despite the current prolonged crypto winter. Events such as the ethereum merge upgrade, are considered a potential crypto market catalyst. However, other factors such as crypto regulation will also determine how the crypto market moves.

Cryptocurrency Regulation

Regulation has proven to have a huge impact on investors' attitudes towards digital assets, digital asset exchange, or digital asset companies. In October 2021, the price of Bitcoin increased to about $60,000; recording a 106% increase in a year. This followed the prospects of US regulators approving the first crypto ETF; Bitcoin ETF. This meant that more people were investing in Bitcoin because of increased trust in it considering the possibility of approval.

Crypto regulations are meant to protect crypto investors and users, secure the financial system and enable economic growth. A report by Gemini shows that Asia pacific was one of the regions that recorded the highest crypto adoption in 2021; Indonesia led with a 41% crypto adoption rate, then Singapore with a 30% crypto adoption rate, followed by Hong Kong at 24%. Due to this rapid crypto adoption rate in the region, regulatory authorities and governments are developing new regulations to protect crypto investors and users in the region.

Currently, the various countries in Asia-Pacific have diverse regulatory environments. China banned all crypto and is possibly developing a central digital currency. Japan has regulations around holding crypto assets including keeping assets in cold storage. South Korea plans to introduce regulations such as DABA to loosen restrictions and allow innovation; making it possible to extend crypto services to South Korea.

In Indonesia, crypto payments aren't allowed but 229 cryptocurrencies are eligible for trading with registration for CoFTRA. Thailand banned crypto payments but allows investment in digital assets and promotes blockchain applications. Hong Kong restricts crypto investment to professional investors, while retail investors can invest through ETFs and futures on specific exchanges.

Singapore has the Payment Services Act to ensure strong risk management while enabling innovation. Vietnam allows people to hold crypto while still investigating how to develop the best regulation around crypto.

More regulation means lesser restrictions, more stability, protection of long-term investors, providing clear guidance, and preventing of fraudulent activities. As long as a balance is achieved, crypto regulation allows for innovation and economic growth; beneficial to all parties involved.

Broader Institutional Cryptocurrency Adoption and its implications

Between 2021 and 2022, 40 of the largest companies globally invested about $6 billion in blockchain companies and crypto-related projects as reported by Blockdata. Samsung, a popular brand, showed the most activity; investing in 13 companies. Other companies in this list include Alphabet, Blackrock, Morgan Stanely, Goldman Sachs, BNY Mellon, and Paypal.

Forbes recently released its list of top 50 big companies that have adopted blockchain and digital assets including NFTs. The list included some of the biggest financial service providers such as Ant Group, Baidu, JP Morgan Chase, and Mastercard. Several other companies showed interest in cryptocurrency in 2021 during the crypto boom. A great example is AMC which accepted Bitcoin payments.

Paypal’s adoption of Bitcoin in 2020 was a major event in the crypto space. It's an announcement that led to BTC prices rising by 8% in weeks. Paypal is a trusted fintech company; this move meant more users would jump into the crypto space. Also, it enabled the use of crypto in daily operations making it easier for SMEs to jump in. Microsoft was also one of the earliest bitcoin payment adopters.

Experts predict that there will be even more crypto adoption from major companies in the second half of 2022. Amazon, the world's largest retailer, listed a job opening related to digital assets and blockchain products in mid-2021. An action that sparked rumors around the company developing a payment token in 2022. This announcement resulted in several crypto prices soaring; showing the extent to which Amazon adopting crypto payments will drive crypto adoption.

More retailers adopting crypto payments could change the future of crypto markets. Currently, using crypto as payment means may not seem reasonable. However, with increased institutional adoption there will be more daily use cases. The more practical use cases, the more the demand resulting in increased value. If this happens, digital assets and crypto would be a great long-term investment with high ROI potential.

The Future of Cryptocurrency

What does the future hold for cryptocurrencies? This is still one of the biggest questions. Some experts see limitless potential while others see nothing but risks. However, both agree that there are events such as the ethereum merge and factors such as regulation that may influence the performance of cryptocurrencies in the future. Blockchain technology is definitely here to stay with diversified applications, and cryptocurrency may grow with it.

Today, concepts such as decentralized finance (DeFi) and asset tokenization are disrupting the traditional finance market while encouraging crypto adoption. DeFi focuses on offering what traditional financial institutions offer; lending, borrowing, buying insurance, earning interest, and trading assets except, it's faster, with less paperwork and no intermediaries. DeFi Fixed Income, for example, offers higher returns and enhanced credit risk management. These concepts are attracting more institutional investors.

Three of the biggest financial service providers on Wall Street, Fidelity, State Street, and Bank of New York, have invested in digital assets and crypto. This shows that DeFi could potentially bring in massive crypto adoption. However, in such an unregulated environment, the investors and customers are not protected. A clear regulatory framework is expected to emerge to fill in the gaps.

Will increased institutional investment, regulation, and concepts such as DeFi result in more growth for the crypto market? Well, time will tell.

Crypto’s relevancy in the future of trading and finance will be a hot topic at Fixed Income Leaders Summit APAC from 23 - 24 November 2022:

"Synergy Workshop: What are the latest developments in crypto assets and transactional systems and how is institutional participation evolving?" 

” Fireside Chat: Future of Trading Desks - In this new global environment, what are banks doing to expand their product offerings beyond just FICC (Fixed Income, Interest Rate, Currencies and Commodities)?”

Buyside complimentary passes are available, and Financial IT readers can enjoy 15% off prevailing rates by quoting “FIT15” on checkout.

Find out more about this year’s topics and speaker lineup here.