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The Unstoppable Rise of Digital Assets

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A SPECIAL REPORT BY
Insights Forkast Logo Horizontal White

The Unstoppable Rise
of Digital Assets


How new exchanges, new custodians, new regulations and new assets are levelling the investment playing field

DECEMBER 2020

SPONSORED BY AAX

Table of contents

Foreword

For any currency, confidence is essential. This report is about the development of digital assets, cryptocurrencies and tokenization and how that all-important confidence is established.

by Angie Lau, Forkast Editor-in-Chief


Executive summary and introduction

The crypto market of 2020 is not the crypto market of 2013. What was once a cryptocurrency market is now a digital asset market. 


Digital asset exchange infrastructure geared for high-volume trading

The right infrastructure to drive an exchange cannot be overstated. Investors need to know they can execute trades without outages or other interruption.


Implementing global standards in digital exchange infrastructure

— Interview with Lorne Chambers, Global Head of Sales and Marketing, LSE

“This was our first crypto deployment, also our first cloud deployment. Our focus was ensuring that the matching engine, which operates in daily trading cycles at traditional exchanges, could run 24/7 without the need for daily or even regular monthly maintenance windows. Redundancies eliminate single points of failure. Recovery is seamless in most cases, with no impact on system functionality.”


Growth of digital assets markets and exchanges

— Interview with Thor Chan, CEO of AAX

“AAX focuses on how to capture the retail market or retail users, and how those people get their first Bitcoin. Our aim is to educate them about DeFi, but at the same time, we don’t want to scare them off. We offer pre- and post-trade transparency, market surveillance, and proper AML (anti-money laundering) … all of this institutional-grade technology is about our commitment to market integrity, and the conditions required to make our trading value more suitable for institutional investors.”


Custodians: looking after your assets

Who holds the keys? For risk management, security and accountability, the custodian of an exchange should be a third party. In 2019, Hong Kong’s Securities and Futures Commission created a legal framework for digital asset portfolio managers and custodians, and since then, multiple custodian firms have opened their doors.


The importance of a third-party custodian

— Interview with Phil Mochan, founder of UK-based custody provider Koine

“The most important role of a custodian is the administration of assets, which is the only activity that generates income. We are able to guarantee that humans never touch the private keys, which is a regulatory requirement in some jurisdictions. Our solution delivers huge scalability and a lower unit cost without impairing the security model.”


Traditional assets like stocks and bonds are undergoing tokenization, as are previously under-traded assets such as real estate and fine art; greater institutional adoption of tokens is shaping the future of the digital asset market, helping create a new asset class and a wealth of new opportunities.


Hong Kong’s Securities and Futures Commission’s new crypto rules will hinder opportunity 

Plans to regulate all cryptocurrency exchanges that operate in Hong Kong, and classify more things as securities, will serve to push projects away into more permissive jurisdictions.


Family offices are turning to digital assets

— Interview with Trent Barnes, Principal at Zerocap

“A digital age requires digital assets. If we were to invent money today, we wouldn’t necessarily invent paper money, coins and credit cards, we’d probably invent Bitcoin. In financial markets, I’d like to think we’d be smart enough to create a digital ecosystem of assets that allows us to tokenize anything of value in the real world—which is happening now.”


Building liquidity

In the search for a stable, liquid digital asset, investors have traded their fiat currency for stablecoins, which offer the benefits of cryptocurrency backed by a reserved asset that allows convenient transactions without extreme volatility. Dubbed the “holy grail” of cryptocurrency, these digital tokens have emerged as the alternative to gold and Bitcoin in response to the looming crisis.


How value is created: a portfolio balanced by digital assets

Cryptocurrency has long been perceived as a hedge against the fluctuations of the broader equities market. We take a look at relative performance in the COVID period, and over the last two years.


Evangelizing to different investor profiles 

Barriers to entry in the digital exchange market remain, so how are people going about capturing new investors, from Millennials and Gen Z to traditional investors?


Tokenized asset market sizing and analysis

The total share of tokenized assets represents a tiny percentage of the world’s total assets. But the market itself is only in its first stages of development and we believe it has the potential for significant growth.