How to evaluate a digital asset partner
Did you know that Singapore bagged the sixth spot for the country with the highest rate of cryptocurrency ownership? The interest in digital currency secured by cryptography in the nation has skyrocketed in recent years. With that, institutions, family offices, wealth managers, and high net-worth individuals are looking to diversify their portfolios with this up-and-coming asset class. Unequivocally, the cryptocurrency market — despite its $1.69 trillion market cap at the time of writing — is still at its early stages, and delving into it is not as straightforward as it seems.
For institutions hoping to tap into the potential of cryptocurrencies, working with an experienced digital asset partner is essential. This includes partners equipped with sophisticated knowledge of the cryptocurrency markets and possesses a suite of professional tools with holistic strategies to address various institutional needs.
However, with so many digital asset partners to choose from, how do you discern the best from the mediocre? We have prepared this guide to help institutions select a credible and trustworthy digital asset partner for their needs.
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It is important to work out the level of expertise of your digital asset partner before putting your trust in them to navigate the ever-evolving cryptocurrency market. Engage a trusted partner who is able to attain your goals and growth objectives with assurance and confidence.
Knowledge: Cryptocurrency is still relatively new with very fragmented information; it may be challenging to gauge your digital asset partner’s knowledge. Here is an evaluation checklist which institutions can assess them from:
- The length of time they have been operating
- Do they specialize in cryptocurrencies exclusively, or have prior experience with other financial assets/derivatives as well?
- Verifiable digital asset knowledge certifications or/and awards
- Licenses obtained in Tier 1 jurisdictions
- Testimonials by clients (also known as “follow the smart money”)
Capabilities: Capabilities are grown through knowledge, training, and reinforced with experience. When you engage a digital asset partner, you need someone capable of providing you with actionable advice to attain your growth objectives. Intrinsically, you would want a specialist who has problem-solving skills and an analytical and lateral mindset. Ask them how they have performed a certain task in a particular situation that is relevant to you, or request documentation such as financial and investment trends, cybersecurity policies, or compliance standards.
Track record: As you take into account your digital asset partner’s performance, evaluate whether they have helped clients achieve their growth objectives consistently and benchmark them against the various players in the market. This helps you determine whether they have actually delivered or if they are merely benefitting from market forces or a lucky streak.
Integrity: Integrity is something that is often overlooked when assessing a digital asset partner’s expertise but it is as important as the rest. This is especially the case when dealing with cryptocurrency as it is not regulated by the Monetary Authority of Singapore (MAS) since it is not a legal tender. As such, it is critical to do a background check of your prospective digital asset partner to avoid possible misrepresentations, false claims, and intentionally omitted facts. For example, look into the digital assets partner’s credentials, licenses, certifications, media crisis, labor grievances to name a few.
2. Range of solutions offered for various situations
Cryptocurrency activities should not be a one-size-fits-all approach. There are various trading strategies that institutions can adopt to yield returns while minimizing risks according to their specific growth objectives, risk appetites, preferred investment duration, or amidst diverse market conditions.
3. Compliance with the highest regulatory and cybersecurity standards
One of the most important factors you should take into consideration when evaluating your digital asset partner is the degree to which they comply with regulatory and cybersecurity standards.
Singapore does not recognize cryptocurrency as legal tender and it is not regulated by the MAS. However, the nation has been at the forefront of embracing digital tokens — even implementing a Payment Services (PS) Act to regulate Digital Payment Token (DPT) providers to address certain risks associated with the rising adoption of cryptocurrencies.
It certainly helps to know that the digital assets partner you are engaging is striving towards meeting the highest standards per the requirements set out by the authorities. This includes organizations that are operating as an exempted entity by the MAS or in the process of applying for the Payment Services License.
Apart from the license mentioned above, you may also want to look at the following:
- Capital markets services (CMS) licence to operate as a registered fund management company (RFMC) or licensed fund management company (LFMC)
- Financial adviser’s licence
- Trust business licence
Not only that, cryptocurrency activities are vulnerable to cybersecurity incidents on the accounts and exchanges users are trading on. To mitigate against trading on platforms that are insecure, vulnerable, or less robust, institutions should engage a digital asset partner that prioritizes cybersecurity frameworks, policies, protocols, defense structures, and audits.
Here’s a rundown of what you can seek to learn more about the digital asset partner’s security measures:
- What kind of infrastructure does the platform run on?
- Have they received a Service Organization Control 2 (SOC 2) certification?
- What custodians do they utilize to store digital assets on the platform?
- Is there a multi-layered security architecture in place?
- What kind of security audits do they perform?
Consider organizations that utilize innovation and automation to enhance the level of user experience, optimize processes and raise the quality and service standards. As cryptocurrency adoption and utilization is accelerating, it is imperative that digital asset partners constantly innovate to meet the growing demands of financial institutions and wealth managers. The right digital asset partner should address your specific pain points instead of giving you generic solutions.
5. Service level
Try to get a sense of how your digital asset partner will build the right relationship with you. You can determine it by asking the following questions:
- How many clients of your profile do they serve?
- Is there a personalized service and dedicated communication channel?
- How often do they engage their clients?
- What is the committed response time to clients?
- How seamless is the onboarding process?
- The extensiveness of specialized functions supporting the account
- Time, dedication, and commitment spent on a client
A credible digital assets partner aims to foster a close and mutual relationship with their institutional clients, in order to understand their needs and preferences better, be responsive towards their concerns and queries, and deliver assurance and peace of mind to their trading activities.
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Sparrow as your digital asset partner
It comes as no secret that finding a digital asset partner you can trust is vital. That’s why at Sparrow, we endeavor to act in your best interests — be it achieving your growth objectives, complying with the highest regulatory and cybersecurity standards, or adhering to local laws in place.
When you select Sparrow as your digital asset partner, our team across all levels including trading, treasury management, finance, legal, compliance, and technology, work together to deliver a bespoke service that adds value to your journey with us.
Reach out to us today to embark on a rewarding cryptocurrency journey!
Risk warning on digital payment token services:
The Monetary Authority of Singapore (MAS) requires Sparrow Tech Private Limited (Sparrow) to provide this risk warning to you as a customer of a digital payment token (DPT) service provider.
Before you pay Sparrow any money or DPT, you should be aware of the following.
- Sparrow is exempted by MAS from holding a licence to provide DPT services. Please note that you may not be able to recover all the money or DPTs you paid to Sparrow if Sparrow’s business fails.
- You should not transact in the DPT if you are not familiar with this DPT. Transacting in DPTs may not be suitable for you if you are not familiar with the technology that the DPT services provide.
- You should be aware that the value of DPTs may fluctuate greatly. You should buy DPTs only if you are prepared to accept the risk of losing all of the money you put into such tokens.
The information provided here is for informational purposes only and is not to be construed as a recommendation or advice to any prospective investor in relation to any legal, tax, financial investment or any other matters. You should consult with an attorney or other professional advisors to determine what may be best for your individual needs.
Content contained on or made available through any of our communication channels is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on any of our communication channels is at your own risk.