Crypto crashes don’t mean that blockchain technology is a failure, says HSBC investment expert

The collapse of FTX has seen a sharp decline in price for bitcoin and other digital assets. PHOTO: AFP

SINGAPORE – The recent collapse of the FTX trading system has again raised questions over the future of cryptocurrencies and their viability.

But an investment expert from HSBC says it is important to distinguish between cryptocurrencies and the ecosystem of which they are a part.

The efficient organisation of assets is something that blockchain technology looks at, and is among the benefits that this technology brings to the market. Investors have to be aware that there is a distinction between cryptocurrencies and blockchain technology.

HSBC’s Mr Jeffrey Yap, who heads the investments and wealth solutions team for South-east Asia at HSBC Global Private Banking and Wealth, noted that blockchain technology has great potential as part of the financial and payments ecosystem for the future.

“If you look back at a time when you write letters, now you have e-mail and messaging. That is what blockchain represents,” he said.

Blockchain applications can transform sectors and create a more connected world that can help with information and authentication. It also means that the processing period can become much shorter. Not only is processing time faster, but the costs involved are also reduced.

The collapse of FTX, cryptocurrency’s third-largest exchange, comes at the end of a turbulent year for the industry, which has seen a sharp decline in price for bitcoin and other digital assets.

Singapore Exchange market strategist Geoff Howie agrees that efficiency in financial services is one of the positives.

“There has been a growing interdependency between the technology and financial sectors, which bodes well for delivering more efficient financial services,” he said.

“But when you attempt to make a particular fast-developing economic process investable or tradable, there is much work involved, and if this is not regulated sufficiently, then of course it comes with much trading risk on top of market risk.”

Mr Howie’s view is that more regulation may be needed. “Just last month, the IMF Financial Stability Report maintained that on a global scale, the crypto asset market correction had added an extra urgency to the call for comprehensive and consistent regulation and adequate supervision,” he said.

“The report added that global crypto asset service providers delivering core functions and generating key risks should be licensed, registered or authorised and thus subject to regulation, similar to how the financial sector operates.”

ST Invest editor Tan Ooi Boon says price movements in cryptocurrencies are often based on little or no fundamentals, but people choose crypto because they find it easy to understand.

He reckons that banks and traditional financial institutions have to respond to the challenge posed by the attraction of crypto.

“Be transparent so that people know what they’re buying... simplify your products by making them easier to understand and easier to calculate,” he said.

“I think we have a chance to dissuade people from voting for crypto if people understand how to invest their money safely.

“After all, if we don’t do that, one dollar that goes to crypto is one dollar that is siphoned away from traditional investments.”

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