Digital assets boost portfolio diversification in Singapore

Portfolio diversification and risk management drive adoption of digital assets among companies.

Investment in digital assets is surging globally, with market revenue expected to reach $80 million this year. In Singapore, companies are increasingly incorporating digital assets into their investment strategies. 

Kunal Chowdhry, CEO of Apollo Singapore Investments, said Singaporean companies are leveraging digital assets primarily for portfolio diversification and risk management. "Singaporean companies are using digital assets as a way of portfolio diversification," explained Chowdhry. 

The approval of the Bitcoin spot ETF in the United States earlier this year has spurred interest in integrating digital assets into the balance sheets of institutional investors in Singapore. "Digital assets, especially Bitcoin in particular, are viewed as a form of digital gold. So it should form part of any sophisticated investor's portfolio," he noted.

Chowdhry emphasised that digital assets are intended to be a small portion of a diversified portfolio, acting as a hedge against inflation and other macroeconomic challenges. 

"Web3 is here to stay because the underlying technologies of AI, decentralisation, and Blockchain are already quite embedded in the public consciousness," he affirmed. However, he cautioned against jumping into investments without careful consideration of the underlying fundamentals.

Investors in Web3 assets, particularly crypto assets, face several significant risks. "The primary risks are around lack of a clear regulatory framework and lack of global standards," Chowdhry pointed out. Different countries' varying approaches to crypto investments necessitate caution and awareness of the regulatory environment in each market.

Another major risk is the inherent volatility of digital assets. "Digital assets are highly volatile, and you should be able to withstand that amount of volatility in your portfolio," Chowdhry warned. He added that while volatility might decrease as the asset class matures, potential returns may also diminish.

Singapore's regulatory stance on blockchain and crypto assets has been welcoming but cautious. "Singapore has been very accepting and very open to companies operating in the blockchain space," noted Chowdhry. However, the country has also implemented protective measures for retail investors following high-profile crypto scandals in 2022.

"Singapore has taken steps to ensure that retail investors are safeguarded and can only invest in crypto up to amounts they are comfortable losing," Chowdhry said. For institutional investors, clearer regulations, such as formally sanctioning Bitcoin or Ethereum spot ETFs, could enhance confidence and support broader adoption.