Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
The Bank of Singapore said that crypto has all the technological prowess to be used as digital money. However, it has to address issues of extreme volatility and bring more legitimacy with institutional participation.
In an interesting development, a private banking firm – Bank of Singapore – said that it is bullish on crypto for the long term. As reported by the National News, the bank said that cryptocurrencies hold the potential to partially replace Gold as a store-of-value.
However, it goes to add that it is unlikely to replace fiat currencies as a medium of exchange. The Bank of Singapore also adds that cryptocurrencies have to overcome some key hurdles. This includes issues like regulatory acceptance, trust, volatility, and other reputational risks.
The bank said if these issues are addressed, more investors will put cryptocurrencies in their portfolio as safe-havens. Thin volumes and concentrated crypto holdings have been the major reason behind the volatility. Thus, it is the biggest barrier for crypto adoption in real-world transactions, said Swiss private bank Lombard Odier. Mansoor Mohi-uddin, chief economist at Bank of Singapore, said:
“First, investors need trustworthy institutions to be able to hold digital currencies securely. Second, liquidity needs to improve significantly to reduce volatility to manageable levels”.
He further added: “Bitcoin is highly volatile as its rally over the past year from $4,000 to more than $40,000 and then back towards $30,000 shows. Bitcoin is also correlated with stocks and other risk assets rather than trading as a counter-cyclical safe-haven. In a financial crisis, cryptocurrencies are more likely to be dumped by investors during a market meltdown, as occurred at the start of the pandemic in March 2020.”
Bank of Singapore: Bringing Legitimacy with Higher Institutional Participation in the Crypto Industry
The Bank of Singapore economist mentions institutional participation as the key driver to bring legitimacy to the crypto market. He added that long-term institutional participation can help bring more liquidity to the market. Besides, it will also result in lower volatility as fundamentals and not speculation will steer price action.
The economist adds that crypto is popular among young people majorly because of its convenience. In comparison to the yellow metal, crypto is easier to store in digital wallets and more liquid. However, crypto has gained bad reputations as criminals worldwide use it to move money. Thus, the Bank of Singapore backs regulations in the crypto space. “Government agencies need to curtail criminal activity to reduce the reputational risks for holding digital money,” Mr Mohi-uddin added.
Another flipside the economist mentions is crypto is limited in number. Thus, it won’t be able to facilitate growing economic activity. Besides, the government also won’t tolerate any direct challenges to the monetary system.