China’s cryptocurrency ban has experts touting Singapore as the next Asian leader in the digital assets space.

“There has been strong interest in Singapore as an expansion base for digital assets firms for some time, and not solely motivated by ‘push’ factors such as the China ban,” said Grace Chong, Of Counsel for regulatory & digital business at Simmons & Simmons.

”Many entities are looking to apply for a licence to carry out digital payment token services under the Payment Services Act, or to provide ancillary support services, given the strong community and ecosystem as well as the ability of talent and other resources in Singapore,” she added.

Grace Chong,
Simmons & Simmons

The People’s Bank of China deemed all cryptocurrency transactions and virtual currency-related businesses illegal on September 24. Bitcoin fell nearly 6% in price after the announcement and Ether, the world’s second-largest digital currency, soon followed suit, dropping nearly 7% before bouncing back in the past week.

Even prior to China’s crypto ban, investors had mostly been holding their crypto positions in the US, Hong Kong, and Singapore. The most common location for crypto hedge fund managers is the US (43%), followed by the UK (19%) and Hong Kong (11%), according to a PwC report published in May 2021.

The assets under management (AUM) of global crypto hedge funds increased to nearly $3.8 billion in 2020 from $2 billion the previous year, the PwC report revealed. The vast majority of investors in crypto hedge funds are either high-net worth individuals (54%) or family offices (30%).

Source: PwC

 

HONG KONG STRONG

Henri Arslanian, PwC

“If you look at some of the large crypto companies, actually they were born and grew up in Hong Kong. At the same time, we do see some of the firms moving to Singapore as well,” said PwC’s global crypto leader Henri Arslanian, noting that the US continues to be a hot pick for bitcoin participants.

Cryptocurrency exchanges operating in Hong Kong are licensed by the Securities and Futures Commission, and firms are only allowed to provide services to professional investors, according to the territory’s latest announcement in June.  

Hong Kong therefore mainly appeals to institutional investors, while Singapore is more open to all types of investors.

GROWTH SPURT

According to a report by Cerulli Associates on September 28, digital assets in Asia are showing strong growth potential.

Digital assets are increasingly finding their way into fund managers’ portfolios, with some in Asia already starting to provide access to such assets. Managers may be presently limited to strategies such as cryptocurrency baskets, but digital assets can eventually be embraced by asset managers in the same way as mainstream equity and debt.

“The key will be to not think of digital assets as a separate asset class, but as another way of getting access to existing assets,” Ken Yap, managing director for Asia at Cerulli Associates, noted in the report.

“There are a growing number of companies from big tech to airlines that are enabling the use of cryptocurrencies as an official method of payment,” Chong told AsianInvestor. “We hear that Hong Kong-based Pavilion Hotels & Resorts group has also become the first international hotel chain to embrace virtual currency payments. AXA Insurance has also moved to use Bitcoin as a payment option, and Microsoft also allows for the use of Bitcoin to pay for Xbox Live and Skype.”

Meanwhile, a Hong Kong-based family office told AsianInvestor that it had very limited exposure to Bitcoin and did not intend to raise the stakes this year.

“We bought [Bitcoin] many years ago and will hold onto the limited amount for a longer term,” said the family office representative who preferred not to be named. The family office mainly invested in sectors that generate revenues from technology, real estate, and hospitality, while digital currency investments serve only to test the waters in the overall portfolio.