SINGAPORE: Why is Southeast Asia’s Largest Bank Making a Play in Crypto-Assets?

There has been fresh investor interest in digital assets in recent times, thanks largely to supportive regulatory action.

The approval of Bitcoin Spot Exchange Traded Funds (ETFs) by the US Securities and Exchange Commission earlier this year for one, has boosted sentiment while across the globe, governments are actively working towards spelling out new rules for this asset class, suggesting much potential for further growth and development.

In the same vein, traditional players are also jumping on the bandwagon with large banks competing to launch crypto trading desks while wealth management firms come up with more and more products and funds that are crypto-related.

Over in this region, Singapore’s DBS Digital Exchange (DDEx), backed by Southeast Asia’s largest banking group, DBS Bank, is set to tap on the growing demand for what it calls a “bank-grade, trusted and licenced platform that offers a complete suite of digital asset services across trading, custody and security token offerings.”

David Hui DBS
David Hui, Chief Commercial Officer, DDex
DDEx Chief Commercial Officer David Hui said in an interview with Fintech News Singapore that DBS had since 2019, recognised the potential digital ledger technology has to transform how value can be stored and transferred seamlessly around the world almost instantaneously.

“Our customer base of professional investors – corporate and institutional investors, brokers, financial institutions, accredited investors and family offices – recognised this too.”

As such, DDEx was launched in December 2020, addressing a gap in the market for digital asset platforms that could uphold the regulatory, operational and security standards expected of any professional counterparty, David added.

With DDEx, professional investors and financial institutions are able to trade digital assets, custodise their tokens with DBS Bank, access tokenised investment opportunities via the bank’s deal origination team and manage their digital asset portfolios seamlessly alongside their traditional portfolios using the bank’s application.

If anything, data available appear to support the seemingly growing interest in digital asset investing.

Growing interest among high networth individuals
According to Capgemini Research Institute’s World Report Series 2024, high-net-worth individuals’ (HNWIs) interest in alternative investments such as digital assets has increased in line with their desire to diversify into high-return asset classes.

“HNWIs are becoming more interested in digital assets, especially cryptocurrencies.

“Half of the relationship managers we polled reported a surge in client interest and investment in crypto,” the report, which also included the views of ultra-high-net-worth individuals, noted.

Similarly, DDEx’s David said the lender’s focus was currently on corporate and institutional investors, accredited investors and family offices as these investors are generally better able to manage the inherent risks of digital assets.

To be sure, digital asset investing is risky, and high volatility has often been seen in the trading of cryptocurrencies and other assets within this class.

Who can forget the fall of the once high-flying cryptocurrency exchange FTX back in 2022 that created massive waves of mistrust within the global cryptocurrency space?

That lasted for months, generating cascading effects on related industries.

David however pointed out that high-profile crypto collapses have in fact spurred investors to place greater emphasis on working with counterparties sporting the right credentials, particularly in the areas of risk management, asset segregation, security and financial stability.

“These are the same value propositions that we set out to offer clients since our inception in 2020.

“The market has validated our approach. When markets crashed in 2022, the number of Bitcoin custodised with DBS more than doubled as investors sought safe haven bank-grade platforms like ours. Our robust growth trajectory continued as digital asset markets recovered.”

He noted the value of digital assets traded on DDEx in the first five months of this year had nearly tripled in compared to the same period in 2023.

“In addition, the number of active trading clients on DDEx grew 36% from January to May this year, while digital assets custodised with DBS surged more than 80% in Singapore dollar terms over the same period,” he said.

DBS Building
image credit: DBS
He also said professional investors are now increasingly allocating to this alternative asset class, viewing it as a legitimate part of their alternative portfolios amid growing confidence that the industry has transformed into a more professionally-managed one from the early days.

“To cater to their investment needs, we are studying listing stablecoins on our exchange and studying how to enable clients to earn rewards through Ethereum staking. We also continue to evaluate suitable security token offering opportunities.”

Digital assets are appealing to mainstream institutional investors
On interest that has been displayed by institutional investors such as BlackRock in the crypto space in recent times, David said this demonstrates “just how far the industry has come”.

“Over the past decade or so, digital assets have evolved from a fringe curiosity to an alternative asset which institutions and professional investors are seriously exploring.

“A spot Bitcoin ETF caters to such investors seeking a convenient way to access the asset class,” David said.

Initially viewed as being sceptical of digital assets, the world’s largest asset manager BlackRock surprised some quarters by launching its own Bitcoin ETF earlier this year, signalling a keen interest to do more within this space.

David noted an ETF alone is just one piece of the puzzle in achieving widespread institutional adoption.

“Equally as important is the proliferation of institutional-grade platforms that offer investors peace of mind regarding their investments.

“We recognised this market gap for institutional-grade platforms early on, which led to the launch of DDEx to give our clients a trusted bank-grade platform to access the digital asset economy securely.”

DBS’ role in industry collaborations
David is welcoming of the continued innovation across the industry, saying that it demonstrates that blockchain technology is not a mere passing fad and is instead a “megatrend that is here to stay”.

“Tokenisation and smart contracts, which can enable 24/7 trading with transactions settling instantly and automatically, introduces a new level of financial inclusion and efficiency to our financial ecosystem, reinforcing Singapore’s status as an innovative and forward-looking financial centre.”

He warned though that, given the nascency of such technology, there is a risk of different industry segments developing their own standards and walled gardens which will hinder the mass adoption of blockchains and tokenisation.

“Therefore, it is critical at this juncture to prevent digital islands from forming by forging partnerships and actively shaping industry best practices.

“In this regard, DBS has been an active participant in several industry-wide pilot initiatives, such as the MAS-led Project Orchid and Project Guardian,” he said.

By participating in these initiatives, David said the bank is helping to foster responsible innovation across the digital asset ecosystem while also enabling it to remain forward-looking and ready when the mass adoption of new technologies occurs.

Moving forward, he said DBS will continue rolling out solutions to meet the investment requirements of professional investors.