Digital Assets – an emerging trend in capital markets
Overview
Inventions and innovations of the digital age, which began in the 1970s, has resulted in a paradigm shift in economies, culture, work style, education, health, investing, and everything seems to have become “smarter”. From photos, music, and videos stored on smartphones, to documents, emails, illustrations, animations, social media accounts, books, and logos stored in the cloud, and more, today, we live in a digital world.
Similarly, financial technology is driving innovation in financial markets globally and bringing with it the emergence of a digital asset market. With many individuals interacting with digital assets on a daily basis, from investing in crypto as a digital asset to digitisation of existing investment assets, the digital assets market is becoming integrated in the existing fabric of traditional financial markets.
The market structure of the digital asset space initially built around retail, high-net-worth, and crypto-native investors has expanded with traditional institutional investors including digital assets into their existing portfolio of traditional investments, and some monetary authorities adopting digital currencies as a legal tender or introducing a digital version of their countries’ currency.
In the US, the combined market capitalisation of digital assets grew from about $14 billion as at November 2016 to about $3 trillion as at November 2021, a compound annual growth rate (CAGR) of 193%.
What are digital assets?
A digital asset is simply content that is stored digitally in any format and their associated value. They are electronic files of data that can be owned and transferred by individuals and used as a currency to make transactions or as a way of storing intangible content such as computerised artwork, videos or contracts documents. A digital asset functions in a way that makes it distinguishable and identifiable through a type of decentralized database of electronic ledger called a Blockchain. They can be in the form of digital currencies such as cryptocurrencies e.g. bitcoin or CBDC, or they maybe the underlying assets that are traded using block chain technology such as non-fungible tokens (NFTs).
Digital assets issuance in other jurisdictions
The emergence of digital assets has brought about disruptions in the global financial markets and traditional financial services to the extent that various jurisdictions have recognised digital assets as a key component of the future growth of the changing financial landscape. Various governments have engaged with digital assets market stakeholders through a range of approaches as the global scrutiny for its budding market has increased. Data from Statista shows that the use of cryptocurrencies as an investment tool or means of payment is on the increase in various countries.
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