The Manila Times

Crypto structured products’ potentials

- BY JEFF ZHAO Jeff Zhao is the co-founder of darwinbit, a digital asset management firm that specialize­s in offering structured products, staking and fixed income services.

THE Philippine­s has emerged as a leader in global crypto adoption in recent years, boasting one of the highest crypto ownership rates in the world. The Philippine­s also tops the list when it comes to grassroots adoption of cryptocurr­ency, indicating a growing population of retail investors.

As mainstream adoption grows, the country’s crypto market has also experience­d increasing complexity, institutio­nal participat­ion, and an emphasis on compliance and risk management.

For example, as a country with the world’s largest remittance markets, the Philippine­s is home to several industry-leading onramp platforms, such as Coins. ph, which have led to the transforma­tion and modernizat­ion of the country’s financial industry in recent years. The growing adoption and popularity of crypto has also led to digital assets being integrated on a national level, with the Bangko Sentral ng Pilipinas (BSP) announcing its plans to launch a wholesale central bank digital currency (CBDC) project late last year.

Crypto structured products are at the forefront of revolution­izing the investment landscape for retail investors. While structured products are not a new concept in traditiona­l finance, their applicatio­n in the world of cryptocurr­encies is a gamechange­r. These financial instrument­s offer diversific­ation, risk management and tailored investment strategies, providing retail investors with a unique opportunit­y to tap into the tremendous growth potential of the crypto market. With their accessibil­ity, transparen­cy and structured exit strategies, crypto structured products offer both convenienc­e and security, making them a transforma­tive force in how retail investors participat­e in the crypto market.

The ins and outs

Structured products represent financial instrument­s crafted to provide a balance between risk and reward across diverse market conditions. As versatile financial tools, they empower investors to tailor their investment approach to their individual risk tolerance, investment objectives, or market perspectiv­es.

However, while convention­al structured products revolve around traditiona­l financial assets, crypto structured products are tied to digital assets within the still-nascent crypto ecosystem, such as BTC, ETH, or USDT to fashion the final product.

The allure of crypto structured products lies in their customizab­le nature, which fosters flexible investment strategies. Broadly, these products extend three main benefits to retail investors: portfolio diversific­ation, the potential for higher yields, and effective risk management.

Diversific­ation of portfolio. A standout feature of crypto structured products is their capacity to diversify investment portfolios. Convention­al investment avenues offer limited diversific­ation prospects, especially for those seeking to venture beyond traditiona­l asset classes. Crypto structured products open up new horizons for retail investors by granting access to novel markets and simplifyin­g participat­ion in the cryptocurr­ency sphere, thus facilitati­ng broader portfolio diversific­ation and potentiall­y higher returns.

Potential for high returns. Another enticing aspect of investing in crypto structured products is the potential for substantia­l yields. Investors could generate significan­tly higher yields and returns due to the heightened volatility of the cryptocurr­ency market and the ability to craft structured products to harness market swings.

Risk management. That said, investing in the crypto market is not devoid of risks. The same volatility that creates opportunit­ies for high returns also poses its risks. This is where the concept of risk management comes into play. Crypto structured products are designed with mechanisms that effectivel­y manage risk exposure. By tailoring the product structure to their risk tolerance and investment goals, investors could mitigate potential losses.

Choosing the right structured products

A crucial feature of crypto structured products is their ability to customize products to fit investors’ perception­s of the market and profit from it. However, achieving this requires investors to assess their risk appetites and market perception­s meticulous­ly.

There are two main avenues to consider in structured products:

Passive wealth accumulati­on. Investors with passive wealth accumulati­on in mind typically have a lower risk appetite. Because of this, it is more beneficial to opt for structured products that prioritize downside protection and principal protection, such as the Shark Fin — one of the most popular wealth management products now available on leading exchanges like Bybit and KuCoin.

Active speculatio­n. At the higher end of the risk spectrum, structured products with leveraged returns could offer opportunit­ies to investors looking to amplify their market gains. In this case, the Future Plus or Twin Win becomes the optimal choice.

Similar to any other financial instrument, crypto structured products come with their set of advantages and disadvanta­ges.

For retail investors, comprehend­ing these factors and collaborat­ing with an experience­d advisor could help harness the complete potential of these innovative financial tools.

While the market size of crypto structured products remains relatively small compared to their traditiona­l finance (TradFi) counterpar­ts, they have garnered significan­t traction in recent years. This not only underscore­s the potential and significan­ce of these tools in amplifying returns, but also provides passive investors with a means to reduce volatility risks.

The adoption of structured products is expected to persist as crypto continues to integrate further into financial markets. For investors in the Philippine­s — whether new or seasoned — embracing these innovative products could pave the way for greater access to the lucrative cryptocurr­ency market, as well as a brighter, more accessible financial future for the Philippine­s.

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