Troubles in crypto sector – what does it mean for traditional finance?

Following the recent collapse of crypto exchange FTX and subsequent fears of contagion, it's no surprise that some investors are jittery on the outlook of digital assets. This comes as the crypto market has been undergoing a harsh winter in the face of global economic headwinds.

At the same time, innovation and digital asset adoption have only continued to accelerate, with more jurisdictions laying out ambitions to be crypto hubs as announced at the recent Hong Kong FinTech Week and Singapore Fintech Festival.

So, what does this mean for banks and the future of the financial industry?

The recent events have shone a spotlight on the role of the crypto market in the financial system, bringing to the forefront a renewed focus on regulation, corporate governance and market infrastructure for cryptocurrencies.?

The industry faces an evolving global regulatory environment and differences in regulatory guidance between jurisdictions. With extensive experience in a strongly-regulated environment, banks are well-positioned to work alongside regulators and other market participants to shape the evolution of necessary market infrastructure and risk management frameworks to develop strong standards in the crypto sector.?

Despite the crypto sector’s woes, our position has not changed – we believe that digital assets are here to stay as an important part of the future of finance. Digital assets and its underlying blockchain technology could potentially support financial inclusion, greater efficiency and transparency.

A well-regulated crypto sector with greater resilience will benefit the entire ecosystem and wider society as it enables responsible financial innovation while managing risk and supporting systemic stability.?

In our recent Wealth Expectancy 2022 report which polled over 15,000 affluent investors across 14 markets, some 62% still believe that digital assets are an important part of any investment portfolio despite the setbacks in the market. About two-thirds hold digital assets and about a third believe them to be a longer-term investment. Although we still see continued appetite for this asset class, the latest developments in the crypto market may dampen this fervour until there's increased regulation to protect investors.

Similarly, there's still demand from institutional investors. One way that banks can help to meet this group of clients’ needs for crypto and manage risk at the same time is to provide segregated services. For this reason, we’ve launched Zodia Custody , in partnership with Northern Trust, to provide institutional grade custody for crypto assets. We've also launched Zodia Markets , in partnership with BC Technology Group, for institutional crypto trading that will enable participants to navigate this rapidly evolving asset class. In July 2022, it was the first crypto trading business backed by an international bank that has received crypto asset registration by the UK Financial Conduct Authority.

Cryptocurrencies often get the most attention in the media, but it's just one element in the wider universe of digital assets. With technology advances only gaining speed, banks like Standard Chartered can bridge the gap between traditional finance and the universe of digital assets.

We see the recent turbulence in the crypto world as a call to action for greater regulation and cooperation across the ecosystem that will raise standards and rebuild confidence in the sector. Banks – us included – should take this time to reflect on how they can play their part to build a better future for financial services through the thoughtful adoption of digital assets and related technologies.