Crypto markets are experiencing a strong rally, fuelled by optimism under the new US administration. Asia could also benefit from the tailwinds.

Since Donald Trump’s victory in the latest US presidential election, crypto markets have undergone a sharp rally.

Bitcoin has been up around 30 percent, briefly reaching an all-time high after surpassing $93,000. Ethereum rose 25 percent since November 5. Other major tokens such as Solana, Ripple and Cardano have also experienced similar movements.

Political Expectations

Optimism has been driven by expectations of a pro-crypto policy stance under the new US administration. Trump had previously made various positive remarks, saying that he wanted to make the US a global crypto center, build up strategic Bitcoin reserves and also fire Securities and Exchange Commission chairman Gary Gensler in his first day on the job to make way for a more supportive regulator.

According to Manuel Villegas, digital assets analyst at Julius Baer, a red sweep scenario is expected to «produce the fastest and strongest policy changes» in favor of the digital asset class.

Hong Kong: License Pipeline

While the US could emerge as a competitor hub, the rally will undoubtedly benefit other markets that are already making inroads, such as Hong Kong.

While there were earlier worries about the withdrawal of applicants for virtual asset trading platforms (VATP), the Securities and Futures Commission (SFC) recently assured that it hoped to grant more licenses by the end of the year, coinciding with the ongoing market upturn.

«The SFC will establish a formal advisory group for all [digital asset trading] licensed platforms early next year, with the goal of publishing a comprehensive white paper on virtual assets, outlining the development roadmap of products and services, and potential improvements in compliance and risk management,» said SFC executive director Eric Yip, during the Hong Kong FinTech Week, confirming that another 14 VATP applications were being processed.

Singapore: Strong Demand

Rival hub Singapore will also likely benefit, in addition to existing momentum. According to DBS, its digital exchange saw the value of digital assets traded nearly triple in the first five months of 2024. The number of active trading clients and the amount of digital assets custodized grew 36 percent and 80 percent, respectively, during this period.

A recent report by Sygnum found that 57 percent of Singapore investors plan to increase their allocations to crypto, compared to 47 percent in other countries.

Product Diversity

The diversity of products in Asia is also improving, especially in traditional structures which could further drive adoption.

In Singapore, DBS is launching over-the-counter cryptocurrency options trading and structured notes for high net worth clients in the fourth quarter. And in Hong Kong, there have been various related exchange-traded funds being introduced with both spot and inverse products.

Not All Convinced

Despite the surge, not all are fully convinced that the current crypto rally has legs. According to VP Bank chief investment officer Dr. Felix Brill, «the market reactions are […] understandable, even rational» but added that «all too often in the past, a seemingly rational explanation has turned out to be an exaggerated move».

«[W]e continue to view crypto assets as a speculative trade rather than a strategic investment in portfolios. We are skeptical that crypto assets can make significant inroads in meaningful and disruptive real-world use cases, and they can significantly raise a portfolio’s volatility,» said UBS in an investment note.

«Using Bitcoin as an example, the crypto’s performance has a positive 0.31 correlation to global equities with a 78.8 percent annualized volatility. This means it has tended to move in the same direction as the stock market, but with significantly higher swings in value. Since 2014, there have been three major drawdowns surpassing 70 percent in Bitcoin, from which it has taken an average of three years to recover.»