Few parts of the world have embraced virtual assets like Asia. Indeed, the region has some of the highest adoption and growth rates for cryptocurrency, which has left regional regulators scrambling to create new rules and guidance to help propel growth and drive innovation, while protecting consumers and their respective financial systems.
Virtual asset products, otherwise known as cryptocurrency products, are investment products that enable investors to invest in virtual assets that are underpinned by Distributed Ledger Technology. As such, these products are authenticated and recorded in public ledgers without the need for central authorities or government interference.
In the light of the high-profile collapse of FTX – a cryptocurrency exchange and cryptocurrency hedge fund – in 2022, financial regulators in Asia have been pro-active in establishing rules to protect retail investors in virtual assets. Many of those involved in the virtual asset space see distributed ledger technology as the solution to key traditional market risks, such as inefficiencies in settlement/clearing, liquidity issues and inconsistencies of cross-border payments (particularly where multiple currencies are involved). The decentralised nature of the blockchain – a form of distributed ledger technology – limits these risks by ensuring that every transaction is publicly viewable and accountable, and inherent programming protocols ensure lower value of collateral is needed to reduce credit risk. Detractors, however, highlight recent cryptocurrency controversies as a compelling reason to retain regulatory oversight to ensure investors in virtual assets are protected from malpractice and market-failures. These different perspectives characterise the wider debate within the industry, wherein some see regulation as a threat to innovation, while others see it as an opportunity to regain and maintain the confidence of investors – retail and institutional, alike.