One of the biggest players in the Asian crypto space is, of course, Amber Group. In the last few months alone, #DisruptionBanking has covered Amber becoming one of the few crypto players to join ISDA, announcing major sponsorships, and achieving 25% year-on-year growth – in the midst of a bear market and global financial instability. While covering this year’s Singapore Fintech Festival, we were therefore very pleased to catch up with Annabelle Huang, Managing Partner of Amber. Annabelle has been using the occasion to talk extensively about how the crypto space can encourage greater institutional investment.
Annabelle first noted that, when it comes to institutional investment in crypto, attitudes continue to be mixed. A small but significant number have “already bought in before the bear market – those who have the conviction have started to deploy [crypto resources] over the last few years.” The bear market hasn’t affected them as much as you might expect, because “they went into this with a relatively okay mindset and they’re here to hold for the long-term.”
However, the majority of institutional investors are “probably still in the crypto-curious crowd.” For them, the sharp drop in valuations we’ve seen this year means that beginning their journey in the space has become even more “daunting.” What’s more, retail investors are also more nervous. Banks and large institutions are therefore not under as much pressure to offer crypto-related products as they were at the height of the 2021 bull run.
Annabelle accepted that, in turn, this has caused a “slowdown” in activity. Partly this is a natural result of a bear market. “During a bull market, there’s a lot of activity happening: new projects coming, new tokens being launched, NFTs being created,” she said. “But now, there’s less opportunity to be engaged. Which is good and bad, right? I think we’ve filtered out a lot of the crypto players who are only in this for the hype. But then again, I think retail investors sometimes need some of those eye-catching activities to attract them.”
Despite the volatility in crypto markets this year, it might still be a mistake for institutional investors to turn their back on the space completely. After all, while prices are down this year, pretty much every asset class has also experienced declines. Rising interest rates, the fallout from the pandemic, and geopolitical tensions have been putting assets everywhere under pressure. Crypto is no different.
Indeed, Annabelle argued that “crypto is essentially trading in line with risk assets, which are moving in the opposite direction of where rates are. And I think that’s a result of the liquidity available in the market – and investors are seeing that too.” As a result, “investing in cryptos is similar to equities at the moment. It’s very negatively correlated with where rates are. On a longer-term horizon in terms of price action, crypto can be a diversifying asset within a portfolio.”
Given this, what might explain why institutional investors mainly still seem reluctant to get involved? One reason is regulation – or the lack thereof. “If we’re looking at institutions like pension funds, they’re not going to touch any space unless there’s clear regulations,” Annabelle said. “They need clear counterparties they can trade with, custodies with factoring parties. Of course, there’s always a balance to be struck: how do you balance innovation and consumer protection? It’s definitely difficult to navigate this; it’s always a spectrum.”
This is a point she also made during a panel discussion on the same subject:
It’s a statement of the obvious to say that crypto has had a tough year. Not only because of the bear market, but because of a number of controversies. This is particularly true in East Asia, which has been especially rattled by the Do Kwon saga in South Korea and the collapse of Terra. While Amber has not been affected by any of these developments, Annabelle noted that such developments could prompt tougher action on the part of regulators. Despite this, there’s reason to be optimistic about crypto’s future in the world’s largest financial institutions. For one, BNY Mellon has recently introduced custody services for cryptoassets. Should a comprehensive regulatory framework be established, and should crypto finally overcome for good its reputational issues, we could begin to see many others following suit.
Author: Harry Clynch
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