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What FTX’s collapse means for Asia

FSA canvasses the views of key market participants on what FTX's collapse means for Asian investors.
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Despite the shockwaves caused by the collapse of FTX, once the world’s second largest cryptocurrency exchange, investors in Asia remain steadfast in their interest in digital assets, market observers told FSA.

Last month, FTX filed for bankruptcy following a series of revelations in the media about the close links between the cryptocurrency exchange and Alameda Research, a trading firm founded by FTX’s CEO Sam Bankman-Fried.

At the same time, investors in Grayscale Bitcoin Trust, the world’s largest cryptocurrency fund, have seen its net asset value decline by more than 80% since the price of bitcoin peaked in November last year.

While investors are largely unperturbed by these recent difficulties, market observers noted that it had prompted them to place due emphasis on investing in cryptocurrencies that are traded on regulated exchanges.

“To us, the event has not changed how we create investment strategies or how we manage our funds,” said Scottie Siu, investment director of AGAM.

“But it has become clearer to fund managers and investors alike that it is important to trade digital assets on regulated exchanges or to invest in portfolios that trade on regulated exchanges.”

These views were echoed by Oi-Yee Choo, CEO of ADDX, a private market exchange based in Singapore, who also drew the distinction between cryptocurrencies and tokenised securities, which are generally less risky as they are backed by traditional financial assets.

“Over time, most of our investors have developed a sound understanding of the distinction between crypto and tokenised securities,” she said.

The reason for investors’ continued interest in cryptocurrencies is largely twofold, market observers noted. First, the decline in digital asset prices and the difficulties cryptocurrencies have faced have to be set against the poor performance of local equity and property markets.

Second, investors in Asia remain relatively underweight cryptocurrencies at the moment. According to last year’s global family office report from Campden Wealth, for example, only 19% of family offices in Asia are invested in cryptocurrencies currently compared with 31% in North America and 28% in Europe.

However, more than half of family offices in the region at 53% hailed cryptocurrency as a “promising investment” compared with 43% for North America and 33% in Europe.

Regulatory oversight

FTX’s bankruptcy has shone the spotlight again on the regulatory backdrop for cryptocurrencies, although there are a few signs that regulators are shifting approach as a result of the scandal.

Only days before the current catastrophe unfolded, Hong Kong had announced plans to develop the special administrative region into a cryptocurrency trading hub.

In her keynote speech at Hong Kong Fintech week last month, the Securities and Futures Commission’s (SFC) deputy chief executive and executive director of intermediaries, Julia Leung, said that the regulator was looking to overturn the regulatory framework put in place in 2018.

Leung noted that when the SFC introduced its regulatory framework on virtual assets in November 2018, restricting access to virtual assets to professional investors only, the cryptocurrency market in Hong Kong was still in its infancy.

Now she noted that investors last year bought HK$10bn ($1.29bn) in virtual assets funds via overseas platforms, up from HK$8m a year prior and investors have a better understanding of the risks of trading these assets.

She said that the SFC was planning on allowing the launch of ETFs tracking cryptocurrency futures to be marketed to retail investors, subject to investor guardrails.

These include that in the initial stages, the SFC will only allow ETFs to invest in bitcoin futures and ether futures traded on the Chicago Mercantile Exchange.

In addition, virtual asset futures ETFs would be subject to additional requirements around investment strategy, disclosure and investor education.

Since then, Hong Kong’s financial secretary Paul Chan alluded to the FTX bankruptcy in his blog post, although he only said that it reinforced the idea that a virtual asset service provider must operate in a transparent manner and be subject to proper regulatory and compliance requirements, particularly in the areas of corporate governance, financial and operational disclosure, and investor and user protection.

Meanwhile, in Singapore, the Monetary Authority of Singapore (MAS), which has faced some flak over its strict oversight of Binance.com compared with FTX, has been tightening regulations on cryptocurrencies.

In October, MAS published two consultation papers proposing measures to reduce the risk of consumer harm from cryptocurrency trading. This stance is a longstanding one as MAS has been consistently warning that cryptocurrencies are not a suitable investment for the retail public since 2017 and the FTX collapse is unlikely to change its approach, according to market observers.

Part of the Bonhill Group.