Although digital assets have been around for a while, current technological improvements have made it more common to store information digitally rather than physically or on paper. Today, digital assets have become the dominant method of storing, sharing, and transmitting valuable assets that are critical to economic, social, and business activities in Singapore. In this regard, blockchain will be the broader digital infrastructure that supports the emergence of these new digital assets. Digital assets are intangible and have no physical form, so have you ever wondered how to price these assets? Or what are the various pricing models that determine the price of digital assets? This article is intended to help you understand digital assets including digital assets valuation in Singapore.
Singapore and Digital Assets
Well, Singapore is located in the heart of Asia, and it
possesses a diverse and dynamic economy with a high level of technological
development. Singapore, known as the "Lion City," has boomed in
recent years when it comes to the regulation of digital assets, continually
striving to strike a balance between publicly encouraging cryptocurrency
entrepreneurs and tightly regulating the growing and maturing cryptocurrency
market.
In general, digital assets can be anything that can be represented digitally, such as currencies, commodities, shares, bonds, and even business-related assets such as brand logos, patents, and intellectual properties. Digital assets are not necessarily tied to the use of a particular platform or software. Thus, digital assets are only cryptocurrencies, but digital assets can also be other value-added assets such as smart contracts and tokens. However, in this article, we will be looking at digital assets from the perspective of blockchain and cryptocurrencies.
What are digital assets?
Digital assets are intangible assets represented digitally.
Although this definition is rather simple, the concept of digital assets
encompasses a broad range of assets from virtual currency (cryptocurrencies) to
more traditional assets such as stocks, bonds, commodities, and even e-books,
software, and digital documents. The distinguishing feature of a digital asset
is that it is intangible and does not have any physical form, therefore, it can
be stored online or digitally.
Digital assets are now the future of the digital economy due to the emergence of cryptocurrencies and blockchain technology. Changes in business, commerce, and finance are predicted to result from the transition from physical commodities to digital assets. Thus, digital assets will significantly alter the current business environment by enhancing efficiency, boosting transparency, and enhancing market utility.
Types of digital assets
From a general perspective, the most common sorts of digital
assets in businesses located in Singapore are brand logos, photos, videos,
documents, software, and e-books. Although, due to the decentralization of the
entire financial system brought about by the development of blockchain
technology and the advent of cryptocurrencies, their prominence has increased.
The most prevalent and commercially significant of the numerous sorts of
digital assets are digital currencies. Here are a few examples of different
types of digital assets that are currently being used in Singapore:
1. Cryptocurrencies or crypto assets - The most common type
of digital asset is a cryptocurrency, due to the completely decentralized
nature of these currencies and their instantaneous transfer mechanisms.
Cryptocurrencies exemplify the essential characteristics of a digital asset;
they can be exchanged, transferred, and stored electronically similar to real
currencies.
2. Stablecoins - Stablecoins are a type of cryptocurrency
that is pegged to the value of fiat currencies, such as the Singapore dollar.
These coins are essentially one-to-one with their fiat counterparts.
Stablecoins can also be used in businesses, as payment for products and
services, for trading on cryptocurrency exchanges, or as investment assets.
3. Security tokens - Security tokens are digital assets that
reflect actual assets like bonds, stocks, or commodities. They can also
represent shares in a business, and thus it can be referred to as an investment
that provides ownership or rights in the underlying asset. They have been among
the most important categories of digital assets for years.
4. Central Bank Digital Currency (CBDC) - The digital
version of a nation's fiat currency is called a CBDC. Even though it only
exists in electronic form, it shares all the traits of fiat money. The first
stage of the project has been completed by the Monetary Authority of Singapore
(MAS), which is continuing to work on establishing a CBDC in Singapore.
5. Non-fungible tokens (NFTs) - NFTs (or non-fungible tokens) are digital assets that can be unique and distinguishable. These assets can be rare digital collectibles such as artwork, photos, collectibles, music, and even game assets. They can only be owned by a single individual at any given time and they cannot be divided or shared.
How are digital assets regulated in Singapore?
Singapore has been a pioneer in the implementation of
blockchain technology and digital assets. The growth of the financial sector has
been aggressively supervised and fostered by the Monetary Authority of
Singapore (MAS). With a twin purpose to support the growth of the financial
sector, MAS essentially performs a hybrid function with the central bank and
financial regulators. Concerning digital assets, MAS has managed to strike a
balance between promoting technology, ensuring its security, and maintaining
the rate of innovation.
The Payment Services (PS) Act, passed by the Singaporean Parliament in 2019, included cryptocurrency or exchange services under the MAS's jurisdiction. The PS Act creates a legal framework for Singapore's payment systems and service providers, including cryptocurrency and digital payment token (DPT) services. Thus, the digital assets and cryptocurrency industry in Singapore is growing rapidly with the support of MAS.
Digital asset valuation in Singapore
Now that you have a clear understanding of digital assets in Singapore, you may be wondering what is the mechanism of digital asset pricing. But, before we get into that, let's first look at what is digital asset valuation. In general, valuation is the process of assigning a value to an asset using various methods, techniques, and calculations based on certain assumptions or estimations. While in this regard digital assets valuation is a way of determining the monetary value of specific digital assets. As a result, the digital asset valuation method in Singapore is a process through which the value of different digital assets can be determined.
What is digital asset valuation?
Digital assets valuation can be defined as the process of assigning an economic value to an asset that is held digitally. To perform such a valuation, this includes a comprehensive examination of the digital asset and its components in the form of potential value, expected return, and risk. As such, digital asset valuation is primarily performed to identify the fair market value of certain digital assets. Therefore, digital asset valuation in Singapore is an essential function that must be performed properly to measure accurate and fair value.
Methods of digital asset valuation
The following are a few methods to assess the value of
digital assets in Singapore:
1. Market-based approach - This approach focuses on
estimating and determining the fair market price of a digital asset using the
digital asset's liquidity and stage of development. Relevant instances include
a token that has little or no liquidity and no directly observable price at
launch and a token with continuously updated prices in direct trading in
comparison to fiat currency. Thus, market-based approaches require the
consideration of both the technical and ethical aspects of digital assets.
2. Cost-based approach - This method determines the value of
a digital asset based on the comparative examination of comparable assets that
have a market value. Participants in the utility token network will set pricing
for the goods and services they are offering in terms of the utility token.
These expenses can be used as a comparison point for figuring out how much it
would cost to buy the same amount of products or services with alternative
methods and fiat currency. Therefore, using this method, the utility tokens can
be valued.
3. Income-based approach - This approach uses the future
cash flow of a digital asset to facilitate the valuation of the digital assets.
To calculate the present value, it consistently quantifies these cash flows. It
analyses the potential for these digital assets to create revenue over time and
then estimates these future cash flows using discount rates. Applying a
discount rate to anticipated future cash flows yields the digital asset's
present value, which is then used to calculate the asset's worth.
4. Quality Theory of Money (OTM) - Another popular technique for valuing digital assets is the QTM or Quality Theory of Money. Utility tokens function as a means of exchange or the only legal tender within respective networks, similar to fiat currencies. The benefit of using the micro economy metaphor is that you can see the price of utility tokens from the QTM's point of view. The output is used to calculate the value, and hence the valuation using the OTM.
Discounts in digital asset valuations
Discounts are used to arrive at a reasonable and fair digital
assets valuation because of the characteristics of digital assets. The structure
of the digital asset is such that, to get better outcomes, the investor's
viewpoints are altered using these discounts. The discounts that are frequently
used when valuing digital assets are listed below:
1. Blockage discount - It is described as a decrease in the
value of a digital asset as a result of the sale of a block of shares.
Depending on the number of variables, the quantity or number of blocks may
change. In essence, blocking causes the value of a token to decrease when large
numbers of them are held by a small number of people. It serves as a discount
when pricing digital assets as a result.
2. Discount for liquidity - In the simplest terms, liquidity refers to how quickly an asset may be bought or sold. Low liquidity lowers the valuation of digital assets, which results in the application of a discount. When compared with investments with high liquidity, the absence of liquidity leads to more volatility and risk. Therefore, when liquidity is low, the valuation decreases.
Conclusion
Digital assets are gaining more popularity and acceptance in
the world today. With the proper regulatory and enforcement policy, Singapore
is emerging as a hub for digital assets and the cryptocurrency industry. But,
managing, valuing, and pricing digital assets can be a daunting task. Eqvista
offers an end-to-end digital assets valuation solution with a dedicated team of
experts that have significant experience in valuing and managing digital
assets. We strive to provide a holistic service that is backed by extensive
industry experience, coupled with world-class technology and operational
excellence. Contact our team to learn more about how we could help you with
your digital assets valuation in Singapore and management needs.
