Why should financial institutions engage a digital assets partner?
Financial institutions and high net-worth individuals are increasingly looking to bolster their portfolios. For many, the overwhelming sources of information make navigating an ever-evolving ecosystem daunting. Engaging a digital assets partner brings more expertise to the table and allows financial institutions and high net-worth individuals greater leverage with which to achieve their growth objectives.
Also read: How to evaluate a digital assets partner
1. Access to a team with cryptocurrency expertise
A digital asset solutions company consists of professionals drawn from multiple disciplines, encompassing diverse skill sets and relevant knowledge that offers institutional clients a comprehensive approach to access the market. Across the board, from trading, account management, finance, legal, compliance, to technology — these specialists have access to an array of resources including portfolio analyses and technological enhancements to craft customized strategy proposals.
The team collaborates cross-functionally to achieve client return objectives while maintaining cybersecurity standards and complying with regulations. Clients looking to utilize a macro-level portfolio management style can call on digital assets specialists for support in navigating minute details.
2. A tailored digital asset strategy through objective assessment
When it comes to investing in cryptocurrency, there is no one-size-fits-all approach to maximize returns. The traditional mainstay of buying low and selling high has been facing stiff competition from newer products and strategies and, resultantly, has fallen from its position as the dominant strategy.
While timing the market to take advantage of low prices may seem tempting for short-term financial gains, mindsets have shifted focus toward long-term opportunities.
Furthermore, understanding risk appetite is critical in a digital assets strategy. Aggressive growth opportunities without well-defined risk management can be precarious. Risk appetite can vary according to several factors: commitments, time horizons, big-picture objectives (long-term, short-term, and intermediate goals), and asset allocation.
With different risk profiles come different courses of action. Clients increasingly prefer to adopt a holistic approach by engaging a digital assets partner.
Besides assessing current investments while managing risk tolerances, these partners empower clients with a range of relevant strategies and leverage an array of tools and services including fundamental analysis, technical analysis, and scenario analysis. All these enable institutional clients to take positions that are consistent with their objectives and risk management needs.
3. Targeted solutions to address volatility
Cryptocurrency, while in the limelight of financial discourse — is still fraught with frequent price fluctuations. In December 2017, Bitcoin witnessed an 84% drop in price when it reached its all-time-high during that period and plunged to $12,000 when investors began reaping the gains. Similarly, Bitcoin lost more than half of its value plummeting from $10,000 to $4,000 in a matter of days in March of 2020 when the COVID-19 pandemic loomed. Such instances reiterate the volatile nature of the cryptocurrency market.
Due to the volatility of cryptocurrency, it presents heightened risks to institutional clients who lack the experience, knowledge, and skills to manage price movements in this emerging market. Increasing volatility creates uncertainty — resulting in costly investment decisions and unsustainability in the long run.
Furthermore, managing volatility incurs additional costs that stem from resources including professionals, trading terminals, and reliable data and sources of information. Financial institutions may not have access to such resources and this affects their ability to embrace volatility with assurance.
A digital assets partner can aid clients in navigating market volatility more effectively with a wide array of resources, products, and services. They act as a sounding board for clients — supporting them through each market situation. Technical data and experience allow for the evaluation of strategic actions with risk mitigation as the main objective. These solutions are tailored to the client’s specific needs to protect their profitability.
Digital asset partners make all the difference when it comes to informed decisions independent of market emotions. This is a key point to achieving financial growth in portfolio value.
4. Dedicated attention in a rapidly evolving market
Comprehending the complex and ever-changing cryptocurrency market can be overwhelming. The investment challenges intensify when clients who self-manage their portfolios do not or cannot actively monitor their positions. Financial institutions can engage a digital assets partner to reduce uncertainty.
Firstly, digital assets partners can help identify trends to prepare clients to adjust postures to maximize growth or control risk. Secondly, they have access to specialized data and techniques that provide thorough and regular reviews of client portfolios. Lastly, they can suggest adjustments to address dynamic market conditions and reduce risk.
Additionally, a digital assets partner can also provide dedicated attention to the client in the following ways:
- Round-the-clock access to relationship managers
- Execute trades at any time with a high level of reliability thus reducing execution risk
- Resolve queries and troubleshoot problems swifty
- Timely updates on market color and insights
- Attention to detail to keep clients informed
All these highlight a digital asset partner’s value in assisting clients to focus on their growth objectives.
5. Full compliance with heightened convenience
To begin cryptocurrency trading in Singapore, all clients including accredited and institutional investors are required to undergo Customer Due Diligence (CDD) verifications as part of the organization’s Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) requirements. This regulatory framework for Digital Payment Token (DPT) service providers seeks to identify and verify customers’ identities.
CDD processes are comprehensive as cryptocurrency businesses in Singapore must conduct their Digital Payment Token (DPT) services in full compliance with government regulations. Although self-serve platforms facilitate quicker onboarding, they may not enforce consistent and adequate measures inviting reputational risk and external threats.
As cryptocurrency is deemed to have high inherent risks, a robust CDD framework is essential for improving financial transparency and preventing criminals and terrorists from utilizing cryptocurrencies to conceal their unlawful operations and launder funds. Financial institutions working with a responsible digital asset partner can seek respite in the company’s effort to identify potential compliance risks before they happen.
In addition, clients can benefit from up-to-date processes that keep up with changing regulatory requirements. Not only do such updated processes make it difficult for criminals looking to circumvent AML/CFT controls for illicit purposes, but they also reduce the burden of compliance for financial institutions.
To add even more value, a digital assets partner maintains best practices such as verifying customer databases, reviewing transactional activities regularly, and also proactively detecting and deterring illicit activities. Financial institutions can take advantage of these processes to ensure compliance with the laws and regulations.
Gain a foothold in the cryptocurrency world with Sparrow
Sparrow seeks to work closely with partners looking to start in the digital assets sphere. Our team of professionals with cross-functional expertise and skillsets always strive to achieve an understanding of clients’ growth objectives, risk appetite, and time frames, on top of sharing market insights to help them build a diversified portfolio with tailored solutions.
Reach out to us to get started on your cryptocurrency portfolio today!
Risk Warning on Digital Payment Token Services:
The Monetary Authority of Singapore (MAS) requires us to provide this risk warning to you as a customer of a Digital Payment Token (DPT) service provider. Before you pay your DPT service provider any money or DPT, you should be aware of the following.
1. Your DPT service provider 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 your DPT service provider if your DPT service provider’s business fails.
2. You should not transact in the DPT if you are not familiar with this DPT. This includes how the DPT is created, and how the DPT you intend to transact is transferred or held by your DPT service provider.
3. 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.
4. You should be aware that your DPT service provider, as part of its licence to provide DPT services, may offer services related to DPTs which are promoted as having a stable value, commonly known as “stablecoin”.