IF THE last six weeks are anything to go by, the bullish sentiment on digital assets will likely charge on into the new year and last for a while, be it in prices of cryptocurrencies, adoption or innovation.
Market players cite US president-elect Donald Trump’s election win as a key catalyst for the promising outlook from investors and the global crypto industry, notwithstanding some long-existing issues such as the lack of interoperability between networks.
Some observers also think the pro-crypto Trump administration will spur innovation and expansion of areas in digital assets such as tokenisation and payments, which will benefit Singapore’s ecosystem.
Create, innovate
Saad Ahmed, who heads exchange Gemini’s Asia business, said developments in the US often set a precedent that can inspire regulatory innovations in other markets.
The appointment of a pro-crypto US president could encourage Asia-Pacific markets such as Singapore and Hong Kong to come up with more innovative financial products and refine their regulatory frameworks to drive adoption, he said.
And the US developments could help America catch up with more mature crypto markets such as Singapore, where regulatory clarity has driven innovation, said Julian Sawyer, chief executive of Standard Chartered-backed custodian Zodia Custody.
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With greater regulatory clarity in the US, established players in the global ecosystem could tap the American market, said Lim Wee Kian, chief executive of DBS Digital Exchange, or DDEx.
He said this could then pave the way for greater cross-border collaboration, and at the same time, widen the pool of eligible assets to be tokenised and put on the blockchain.
Crypto payment firm Triple-A’s CEO Eric Barbier said Singapore and the wider region will have more opportunities to collaborate with US-based players and attract investments, as a result of the expected developments in the US.
Bitcoin and beyond
Innovation aside, industry players are generally upbeat about the volatile crypto market.
Lasanka Perera, CEO of crypto exchange Independent Reserve Singapore, described 2024 as a phenomenal year for digital assets.
“The global cryptocurrency market capitalisation is currently at approximately US$3.63 trillion, up from US$3 trillion in 2021. I am bullish that there is still untapped potential for further growth in 2025,” he said.
The price of Bitcoin, which typically leads market rallies, jumped from the US$69,000 level on Nov 6 to push past the US$100,000 mark a month later, buoyed by Trump’s election win.
Standard Chartered said in an early December note that institutional investors have been buying into Bitcoin in 2024 and this is expected to continue into the new year – something the bank believes could help Bitcoin’s price hit US$200,000 by end-2025.
It added: “Greater-than-expected uptake by US retirement accounts or pension funds, global sovereign wealth funds or a potential US strategic reserve fund would make us even more bullish.”
S&P Global Ratings said in late November that US Senator Cynthia Lummis had proposed a Bill that would make the Federal Reserve accumulate one million Bitcoin over five years. This is about 5 per cent of the total Bitcoin supply.
Analysts Andrew O’Neill and Lapo Guadagnuolo said that if the proposal goes through, there would be a huge impact on the demand for Bitcoin and, in turn, on its price.
They added that the proposal could encourage other nations to do the same.
Paying with stablecoins
Despite the price rally, market players said Bitcoin’s market capitalisation has fallen as investor interest in altcoins, or tokens that are not Bitcoin, has risen.
Gemini’s Saad said there has been a surge in demand for stablecoins, which have hit a total market cap of US$190 billion, while Triple-A’s Barbier said crypto adoption is growing across the board, particularly with altcoins and stablecoins, which are cryptocurrencies whose value is pegged to that of another currency, commodity or financial instrument.
Triple-A’s research showed there are over 560 million digital currency users globally and this is expected to grow further.
“Stablecoins, in particular, are driving a significant portion of the adoption due to their practical use cases in payments and remittances,” Barbier said, adding that demand is high as stablecoins are proving to be faster, cheaper and more transparent.
The volume of stablecoin transactions exceeded US$5.2 trillion in 2024, based on Visa’s analysis. In 2023, it was US$3.7 trillion.
DDEx’s Lim said the Monetary Authority of Singapore’s approval in 2024 for two issuers – StraitsX and Paxos – to launch stablecoins in Singapore could pave the way for more to follow in the coming years. This would contribute to a vibrant stablecoin ecosystem here.
Stablecoins and payments will take centre stage in the new year as they continue to gain acceptance as legitimate cross-border payment methods by major players such as Visa, Mastercard and PayPal, said Sawyer.
More traditional financial assets would be tokens on a blockchain
Concurrently, tokenisation of real-world assets such as currencies, commodities and bonds is poised to become a major focus area as firms find more efficient ways to digitise and trade tangible assets.
“These trends reflect growing confidence in blockchain’s utility and potential beyond cryptocurrencies,” Sawyer added.
Already, DDEx is looking at stablecoin-denominated tokenised money market funds.
Lim anticipates a surge in demand for tokenised securities that cater to the needs of institutional investors and high-net-worth individuals.
This is because institutional investors want to be able to quickly rebalance their portfolios between cryptocurrencies and yield-generating assets when market conditions fluctuate.
Lim said that in 2025, the industry could see the issuance of more tokenised private assets such as privately held shares, as high-net-worth individuals seek exposure to an asset class that is usually accessible only to institutional investors.
“Tokenisation enables privately held shares to be fractionalised and listed on digital exchanges, broadening the investor base,” he noted.
In Singapore, industrywide initiatives such as Project Guardian that look at tokenisation have helped financial institutions develop their technical, financial and regulatory understanding of tokenising securities.
For instance, DBS Bank, UBS and SBI Digital Asset Holdings completed a trial with a natively issued digital bond on a public blockchain as part of Project Guardian in 2023.
While issuing a bond typically involves paper-based processes, Lim said paper certificates can be transformed into electronic book entries.
And the next frontier would be to bring tokenised bonds onto distributed ledgers that could make the subscription and trading process more efficient and flexible.
Building the ecosystem
Shawn Chan, co-CEO at Singapore Gulf Bank (SGB), said that as the digital asset space develops, there will be higher demand for reliable banking services that bridge traditional and digital finance.
This is especially so as institutions seek secure and compliant ways to join the crypto ecosystem.
Banking has been tricky for crypto firms because of lenders’ compliance worries, including money laundering.
Chan expects 2025 to be focused on building infrastructure that can support the integration of traditional and digital assets, such as enhanced digital services, stronger risk management frameworks and more sophisticated banking solutions for the crypto ecosystem.
SGB is a digital bank backed by Bahrain’s sovereign wealth fund Mumtalakat and investment firm Whampoa Group. The latter was founded by Amy Lee – niece of Singapore’s first prime minister Lee Kuan Yew – and Lee Han Shih, a member of the business family that co-founded OCBC Bank and the Lee Rubber Group.
A DeFi renaissance?
Enthusiasts are pumped up about decentralised finance – commonly known as DeFi – which works by way of smart contracts.
Smart contracts are computer programs that run on the blockchain to autonomously enable financial transactions without the need for intermediaries such as banks and other financial services companies.
The renewed interest comes as some think a pro-crypto US, coupled with institutions such as BlackRock and Franklin Templeton expanding their tokenised money funds to new blockchains, reflects the substantial capital that is ready to enter DeFi.
Jason Atkins, chief commercial officer at Hong Kong-based market-making firm Auros, said the long-anticipated DeFi renaissance is gaining traction, driven by significant advancements since 2020.
With enhanced scalability, governance, privacy and real-world asset integration, DeFi has become more accessible and scalable, and is ripe for broader adoption, he said.
Chan said promising developments in DeFi platforms, improved security measures and more user-friendly interfaces are inching the industry closer to mainstream adoption.
But DeFi “remains highly dynamic and sensitive to various external factors, such as macroeconomic conditions, geopolitical developments and business stability of key market participants”, he cautioned.
Even as a new wave of DeFi products enters the market, Saad said that for the momentum in DeFi to pick up, regulations and policies must keep pace with the rapid innovations.
Crypto ETFs
In the months ahead, exchange-traded funds (ETFs) and structured products will continue to mature as demand from institutional investors goes up and there will be more such products, said Ong Chengyi, who heads public policy for the Asia-Pacific at blockchain analysis firm Chainalysis.
She said there will also be new applications for smart contracts.
For instance, US crypto-based prediction market Polymarket is also a good example of a new application beyond just holding tokens, Ong said, adding that new marketplaces are now created.
Gemini’s 2024 state of crypto report highlights the growing significance of crypto ETFs as a gateway for newer investors entering the digital asset market.
The report said that nearly two in five cryptocurrency owners in the US hold crypto through an ETF, while more than one in 10 exclusively invest via ETFs.
“In our view, ETFs have become, and will continue to be, a pivotal entry point for investors,” said Saad.
Dark clouds that loom
Despite the bright spots in the industry, market players say interoperability continues to cast a dark cloud. The problem that remains is that different blockchain networks are not able to communicate or exchange data with one another.
As Sawyer noted, the crypto market is very fragmented, and connectivity between traditional finance and DeFi is lacking.
Lim said that when the same security is tokenised separately on different blockchain standards, it is subject to different regulatory treatments.
This prevents the token from moving freely between investors, he added.
Chan thinks the industry faces the challenge of balancing innovation with stability.
As digital assets move towards mainstream adoption and the next phase of growth, it is vital to set up institutional-grade infrastructure and risk management frameworks, he said.
While the US leadership changes will lead to more favourable environments for developers and financial institutions to bring more crypto products and services to market, Ong said these are expected to take time.
On the enforcement front, she believes US regulators will focus on addressing fraud, market manipulation and other misconduct.
Ong added that crime will always be a challenge for the industry. This is because as crypto turns more accessible, it becomes a tool for all forms of crime.
However, she noted that the inherent transparency of blockchain offers a wide range of opportunities for investigation and resolution.
Others such as Auros’ Atkins think the biggest challenge lies in the Trump administration’s ability to follow through on its campaign promises.
He said the rhetoric around fostering innovation and creating regulatory clarity may have sparked optimism, but people are still cautious.
And, Saad said, as expected of any emerging trend, education and awareness about digital assets remain a significant barrier to entry. THE STRAITS TIMES