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The Macro Brief – Digital assets in 2026
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Daragh Maher, Head of Digital Assets Research, assesses the latest developments in the digital assets space and outlines what we should be looking out for in 2026.
Click here for appropriate Disclosures, including analyst certifications, and Disclaimers that must be viewed with this podcast: https://www.research.hsbc.com/R/101/9Qd66km
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Transcript
Introduction to HSBC Global Viewpoint
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
Macro Brief Introduction
00:00:33
Speaker
Hello, I'm Piers Butler in London and welcome to the Macro Brief from HSBC Global Investment Research, where we look at the issues driving financial markets across the globe. And it's the last episode of 2025. On the podcast this year, we've covered everything from trade and tariffs to artificial intelligence, currencies and the gold price rally.
Focus on Digital Assets
00:00:53
Speaker
And today, we're going to be talking about a topic that you're likely to be hearing a lot more about 2026, digital assets. digital assets Think cryptocurrencies, Bitcoin and blockchain.
00:01:04
Speaker
So here to tell us what we should be looking out for is Dara Mar, Head of Digital Assets Research. Dara, welcome back to the podcast. Thank you. I'm just hearing that you save the best to last. Is that the line we're going to Exactly. Good Exactly. So I'm actually going to sort of look back to start our conversation.
Digital Money in 2025
00:01:22
Speaker
30 years ago, an author called Nicholas Negroponte published his seminal book, Being Digital. I read it about 20 years ago, and the overall premise for me was that everything that could be digitized would be digitized. And every year since then, more has been. So my first question is looking back at 2025, can we say that it was the year that digital money in its various forms moved from the edge to the center of the debate?
00:01:47
Speaker
Is money going digital? Good question. I like to throw back 30 years. um Look, I think this is definitely where the year in which we will say tokenized money, digital money went
Rise of Stablecoins
00:01:58
Speaker
mainstream, right? We moved from it very much being a niche part of the conversation into the center ground. i saw one statistic and we used it in a report recently that mentions of the word stable coin in corporate earnings announcements.
00:02:11
Speaker
rose 8,000% year on year. 8,000? 8,000, that's a good number, right? That is. um My father was a journalist. He always said you should make it, it would be more compelling if it was 8,011, but the actual number was 8,000.
00:02:25
Speaker
But I think that shows how much has moved into the conversation um and how much more we've all been forced to learn about it in a way, because because it is not this this niche thing. i mean, I think there is a sense that money has been digital for a while, right? I mean,
00:02:39
Speaker
I think you don't carry around too much cash in your pocket. I don't think many people do. um But this was a year where it became, if you like, a tokenized version. So it moved from being digital to being potentially on the blockchain. And that carries a lot of additional benefits, additional complications. and But I think that's why it's been interesting this time around.
Tokenized Deposits vs Stablecoins
00:03:00
Speaker
So we're going to drill into that. In your work this year, you've covered cryptocurrencies, stable coins, and tokenized deposits, all forms of digital money, as you have explained in the previous podcast, and I would encourage our listeners to listen to that. But who is winning the battle for supremacy? You have referred to tokenized deposits as a sleeping giant. So is the giant waking up?
00:03:21
Speaker
I think the The tokenized deposit giant's kind of rolled over in its sleep and grunted a bit, right? I think that's as much as we could really say. That's quite an imagery. Yeah, there you go. Who doesn't crush anybody in the process? Exactly that. It's still got all that capability, right? It's got scale, as you say. It's a giant. So if we look at deposits in the banking system, they are just enormous, right? And if...
00:03:44
Speaker
banks choose to tokenize them at scale, you've then got this enormous and payment vehicle operating on blockchain rails, right? So that the significance is still there. Banks have definitely been trying it out. HSBC has been doing doing it quite successfully. It still feels um that they're kind of pilot, although they're for real value, these transactions, it's not just let's pretend we're moving money, there is real money being moved and deployed. and They are still kind of proof proof of concept and pilot schemes.
00:04:15
Speaker
Whereas still at this point, stable coins, there is money, a lot of money moving through stable coin channels. Now, a lot of it is bots and not necessarily with human intervention, but the figures are big, right? And I think tokenized deposits, therefore, are still, yeah, still the sleeping giant. But I think they're the ones rumbling along in the background and will be a bigger thing, I think, in 2026. Is it fair to say when you talk about stablecoins, one of the sort of measures of the scale is the sort of treasury deposits that they hold is security? It's quite a significant number, isn't it? Yeah. So, I mean, I guess the way we could look at how big are stablecoins, because literally there is only a stablecoin because somebody's handed over a dollar to get one. Right. So the market cap of stablecoins is literally the level of demand. Right. And we're operating just shy of $300 billion. And a big portion of that is parked in U.S. Treasuries and predominantly in U.S. T-bills, which, of course, is why America loves it, or at least the U.S. Treasury loves it, because it's another form of demand for T-bills. But that's still relatively small, you know, and that's, you know, and I say that in the context, let's say of treasury market that's 27, 28 trillion. And I've just mentioned 0.3. Yeah. Of course, where it gets interesting is if you start saying, well, hold on, that 0.3 could become 2 trillion or 3. And frankly, you can make up any number you want and no one can dispute it.
00:05:38
Speaker
But then to come back to the earlier question, yeah, but what are deposits? Deposits are like 50, 70, 100 trillion, depending on how many economies you you include. yeah that And they're already within AML, anti-money laundering, know your client, all those kind of areas that we're worried about.
00:05:54
Speaker
but But stablecoins, yeah, they they are significant and they're liked in America because of what they bring to that T-bill demand.
US Crypto Ambitions
00:06:01
Speaker
So sticking with America, there was a lot of excitement earlier in the year when President Trump declared that he wanted to make the US the crypto capital of the world. And to reinforce that, ah the Genius Act was passed. That was a big regulatory milestone. What what has been the impact? Because in your earlier report, you said regulation is really a key enabler of digital money.
00:06:23
Speaker
Is the U.S. on the way to becoming the crypto capital of the world or are others fighting back? Just this morning, I saw an announcement that the U.K.' 's Financial Conduct Authority has just published proposals to regulate many areas of the crypto market. So are others also getting in on the act?
00:06:37
Speaker
Yeah, look, this is definitely a competitive landscape, right? um You know, President Trump has said he wants to make U.S. crypto capital of the world. I have to say, credit where credit is due. The U.S. has made a lot of progress. The SEC and CFTC has made a lot of progress in in a way reorienting the...
00:06:56
Speaker
the whole conversation around how digital assets should be regulated. there There has been a personality shift and a personnel shift amongst regulators in the US backed up by that legislation, the Genius Act. Now, the Genius Act only applies to stablecoins, which as we've just discussed, is a relatively narrow element of the whole ecosystem. It's it's the very fashionable one in 2025. I think the the key for 2026, for the US to maintain that momentum, is they have to get, you've heard presumably of the Clarity Act, which is ah a market structure bill um around digital assets to decide basically who's the regulator for a given token. and That's been passed by the House, but there's various versions now in the Senate being debated. Get that over the line before the U.S. s midterm elections next year. i think that reignites the momentum
Regulation and Innovation
00:07:44
Speaker
the U.S. has to lay claim to that crypto capital.
00:07:47
Speaker
but everyone else wants a piece of that pie. And the UK has been criticised for being a little bit slow, but I think it's also being careful. It has a lot of consultation papers out. You've just mentioned the most recent to arrive. And I think within that, the the UK regulator and the Bank of England, FCA, have shown flexibility in terms of I think some of the more draconian ideas they had in mind, they've they've watered down in ah in a positive sense recently. So again, reflecting the competitive nature that the regulatory setup will have in deciding who has a place in this market. I guess from a regulatory perspective, it's a balance between ah preserving trust and security, but at the same time encouraging the development.
00:08:27
Speaker
Yeah, look, you can provide maximum you know investor protection if you just don't allow anyone to do anything, right? Then you're like, fine, you can't lose a penny. and I think what regulators want to do is not pretend that these that there is no risk involved in these assets. um And just, I think, be... transparent about what those risks are and and therefore afford you know investors all the protections that come. You know your risk, you know your potential return in your head, make your choice, right? So I think that's it. And also to ensure things like market integrity and you're not being front run and you've got all the normal caveats of protection. um I think to a large extent there is overlap in the approach that regulators have. It's then when you get down to the nitty gritty of where is that
00:09:12
Speaker
Where is that line of trade-off between innovation and protection? Where does that lie? And I think different regulators have different perspectives on on where that line should be drawn. Apart from the regulatory context, in our previous conversations the Macrobrief about digital assets, we've talked about regional differences.
Global Convergence in Digital Finance
00:09:30
Speaker
In particular, the US s is all out on stablecoins. But in China, they don't seem to like that concept. Will everything eventually converge? hope so. i mean, I think in a way...
00:09:42
Speaker
It kind of has to, you know, because it's going be a global monetary system, right? if you if you If you think that's ultimately where we end up is ah a world of tokenized money, your your main moving parts will be tokenized deposits, central bank digital currencies and private crypto money, including stable coins.
00:10:01
Speaker
And I think they each have a role to play. We can debate what those relative shares might end up being. China, obviously, not still a fan of stable coins or crypto. Right. Fine. Why is that, by the way? Well, partly it comes down to they don't like the speculative element of.
00:10:17
Speaker
the cryptocurrencies, so the the Bitcoins of this world. um And on the stablecoins, they're nervous that it could undermine capital controls within China. So there is ah you know' a policy perspective there. The US s doesn't like central bank digital currencies because they think there's a privacy incursion issue, perhaps not such a you know a worry in China. So there you know there's different political and policy considerations. But it's interesting to see, there was there was a little bit of news earlier in the year, and you got a sense that China might be warming to the idea of renminbi stablecoin. And there's kind of a few headlines came out in Reuters and others.
00:10:50
Speaker
And then that got knocked on the head pretty quickly. It was like, no, ain't happening. But in parallel, you at Hong Kong, of course, have its stablecoin regulations passed and enacted and come into play. And and you do sense that Hong Kong's the Petri dish, right? Can can they navigate stablecoins without being destabilizing, where they can control the capital flows and understand? the So that, I think, becomes the path to some change in China. I don't know when, but i think that's the path. In America, a question I have, and I don't have the answer to, so you'll have to come back next year, and is can we have global money without a Fed digital dollar, right? Can stable coins really completely fill the void of not having a central bank digital currency in the US? I have my doubts. I mean, there are other ways of navigating that. But, you know, if HSBC wants to send money to Citi, it would help to have a digital dollar that wasn't necessarily a privately issued stable coin.
00:11:47
Speaker
Yes, in order to maintain the primacy of the dollar, I guess. It's potentially in their interest to have that. Well, I mean, look, President Trump would argue that stablecoins can achieve that, right? They're 99% tied to the dollar. That's why let's push stablecoins. But I think the nervousness from a you know ah banking perspective would be, do we want to run the counterparty risk of, let's say, a tether or a circle? Maybe they will. But I think they'd much rather be facing a central bank when moving money from one bank to another bank. That's what they've been doing for years in fiat world.
00:12:17
Speaker
We're going to come back to Tether in a minute. But we talk a lot about the concept of tokenized money. But what about tokenized assets? Does one need the other? What are you seeing in terms of development of digital assets?
00:12:29
Speaker
but Look, you can have tokenized money without tokenized assets insofar as tokenized money would still have value as a means of payment um and as a means of moving money, particularly cross border. That's one of the big use cases for, for example, for stable coins.
00:12:44
Speaker
But ultimately, the vision, I guess, is can you imagine all of equities on the blockchain, all bonds on the blockchain, and then having this massive pile of tokenized money to you know buy and sell them with?
00:12:56
Speaker
You would operate on the blockchain because you may have heard a phrase like on ramps and off ramps, which is moving from fiat to digital and back again. but Well, you wouldn't need to, would you? youd Everything, the whole ecosystem would be there.
00:13:09
Speaker
And You tokenized assets as it stands, they're tiny, right? They look at the whole market of assets, you know depending how you measure, it might be 250 trillion, blah, blah, blah. actually Can I put you on spot? Give me an an example of an actual... A tokenized asset? Well, look, HSBC has issued a couple of bonds um on chain. So it's not that you've got a token that is mimicking what's happening in the real world. The asset, the bond itself, is on chain, okay?
00:13:39
Speaker
There are those other forms where you track another on real life acid, real world acid. Like gold. gold yeah like our Like the tokenized gold product. and So they're the examples. But for example, you said, hey, give me an example of a tokenized equity.
00:13:54
Speaker
there'd There'd be crickets in this room right now, right? yeah So there aren't many. There's not many. Potentially coming. Yeah, I think so. And, you know, it's significant. You saw NASDAQ this year applying to the SEC to say, hey, we want permission to host tokenized equities. Yeah. OK. Well, why? Well, because, you know, if we don't, somebody else will. Right. So it is the future. Once you get tokenized money, tokenized assets, say say you have a kind of tokenized equity market. Does that make it a lot more efficient and frictionless?
00:14:21
Speaker
Well, that's the vision. So if you have tokenized money, you should wait to give me money immediately. know you never will. But in theory, that's how it would work. not going to. I know. But in theory, that's it would work. And as soon as the money is received, atomically, you would get the equity from me. it would be T plus zero, if you like, atomic settlement. It reduces all that reconciliation risk. It takes out some the counterparty risk. It's very elegant. We've just got some distance to travel to get there.
00:14:51
Speaker
But that's the future for sure. Talking about now, you obviously have a lot of meetings with institutional clients, corporate clients. What's your assessment of the level of understanding
Institutional Exploration of Digital Assets
00:15:00
Speaker
regarding digital assets? and Is there maybe a case for saying that in 2025, a lot of the attention in terms of technological developments was on AI and that actually there are significant opportunities for the taking in digital assets?
00:15:15
Speaker
I think the Well, it won't surprise you here, the level of expertise varies. I mean, honestly, and I'm not claiming I'm anywhere near the top of the curve, right? and the There are obviously people out there, I would say, who've been trading crypto, which the Bitcoins this world, and and other tokens like that.
00:15:32
Speaker
obviously for a large number of years and are very sophisticated at it. I think where the the learning curve is most evident, though, is around the world of tokenization um and stable coins and, you institutional investors getting their arms around this technology and corporates, you know corporate treasurers. We get plenty of questions. You know, can I move money using stable coins? Should I take payments in crypto? these kind of These are the questions being posed. I would say we're still at the question phase. I mean, maybe that's because they expect us to have the answers, and but I do think that's where people are at. It's like, yeah, what can this do? How can i I deploy it? But I mean, look at the black rocks and fidelities of the world. they They set up money market funds this year and the flows into them have been large. um There's ETFs and or ETPs, perhaps more accurately, around ah Bitcoin and and others, extremely popular. So the institutional...
00:16:29
Speaker
embracing all of of this ecosystem has got bigger and bigger and bigger. And I think corporates will will follow along that route with with corporate treasurers looking to for more use cases going into 2026.
00:16:40
Speaker
What about security and vulnerabilities? What are the risks that we should be aware of?
Risks in Stablecoin Investments
00:16:46
Speaker
You have written, for example, about Tether having its S&P rating downgraded. Why was that?
00:16:52
Speaker
Well, this was the the tether in particular, the tether downgrade was the S&P looks at reserves. You know, if you're a stable coin, you hold reserves so that when people come back with their tether, for example, and say, I want my dollar back, you've got a dollar to hand over.
00:17:07
Speaker
Being able to do that, of course, means you should be holding most of your assets in dollars and be able to get to them quickly. The S&P perspective on on Tether was that they were holding a progressively larger portion in reserves that were not necessarily immediately liquid or low risk in nature. So, um you know, they point to a growth in their holdings of Bitcoin and in gold. um But I mean, slightly tricky. I mean, not all of it, but part of it would have been a valuation thing. You know, this was the held assets that actually went flying up in value. Right. So there's a bigger portion. Holding it in gold wasn't such a bad idea No, I mean, not bad investment did well for a while. no No, not bad investment ideas.
00:17:45
Speaker
But the S&P perspective was, yeah, but you could have sold them when they rose above a threshold. That Tether itself had said was... prudential you know and when they move beyond that so that's all fair but what i like about it is it it shows that we have to think about the risks around these what's my redemption risk what's the run risk on this stable coin the risks are what the deep pegging risk who's holding those reserves for circle for tether are they good counterparties and you know So you do have to think that it's not like just holding a pound or holding a dollar. You are holding a promise that I'm going to give you that fiat currency back if ever you come to me so that you can trade on on on the blockchain or move money on the blockchain. So there are different risks. They're they're not interchangeable with...
00:18:30
Speaker
fiat legal tender. They are a claim, if you like, echoing legal tender. And and to your point, it's actually a good thing that somebody is looking at that, that there is a kind of framework that sort of says, no, no, we are paying attention to this. And that that sort of increases the trust in the instrument. well Yeah, yeah, it does. And it it also, i guess.
00:18:48
Speaker
OK, so the theory here would be, of course, what it should do is all money would therefore gravitate towards whichever coins have the best reserves. Yeah. But no. It's not even too simple. What we actually see is, for example, Tether, that has the the lower rating, in fact, the lowest rating of S&P in terms of measuring its reserves.
00:19:09
Speaker
the biggest market cap of any stable coin, right? So, well, why is that? Now, it could be simply that it's got the brand, or it could be that people who use Tether operate outside of exchanges that the US s has oversight on, right? And therefore, there is value for some to have privacy. Now, we can question why you want that privacy. It's not always for nefarious reasons, yeah but you might just view, well, I want to move money peer to peer, and I don't need a US regulator on my shoulder or EU regulator on my shoulder. So I'm going to execute through Tether. And so the market cap of Tether remains really big. And and remember, we said the market cap of a stable coin just reflects the demand for that stable coin. So, yeah, so yeah it's interesting. it's it's not will I think there will be different coins for different use cases. that's why Tether's launched a coin that will be u s compliant because it will have an audience. And then the non-U.S. compliant coin will have its audience. I'll leave it to you to decide who will be using which.
Vulnerabilities in Digital Systems
00:20:03
Speaker
And the Chicago Mercantile Exchange had a cooling problem in one of its data centers, which caused quite a lot of disruption. Is, for me, i was sort of, as I was preparing, I thought, is the irony that becoming ever more digitally reliant makes us all the more vulnerable to something that physical going wrong?
00:20:21
Speaker
There is that vulnerability. um I mean, you could make the case around, so for example, Bitcoin, um you could make the case that it is a completely decentralized form of money. So your single point of failure risk is actually rather small with these cryptocurrencies because you have multiple ledgers and they all hold the same information. You lose one, who cares? We got like 23,900, know. Yeah. So from that perspective, less vulnerable. But look, we also have to acknowledge that even in this quote unquote decentralized world, a lot of the money goes through centralized exchanges. a lot of the mining is done by a small number. of you know There is still a degree of centralization of vulnerability. And of course, you know you do have...
00:21:03
Speaker
Everybody needs the internet, everybody needs power to run these things, so you still have those vulnerabilities. But I'm not sure that it's peculiar to digital assets, you know, as you just described. you know this what The breakdown you had there was unrelated. um And, you know, in the fiat world, we don't walk around with big wads of cash, not unless we're doing something nefarious. um And so there, youve too, you're relying on technology to work and all of the above. So I don't think it particularly shifts the needle on those risks.
00:21:33
Speaker
It's in the nature of new technologies that some developments get overhyped, whereas others get overlooked. So for 2025, was that the case?
Institutional Adoption vs Traditional Banks
00:21:43
Speaker
And how does that inform your predictions for 2026? Will that be the year when we resort to digital Christmas trees?
00:21:52
Speaker
I think like things landed pretty much as suggested, for the most part, and I know it's a bit of a dull answer to the question. But, you know, 2025, I think, was laid out as a year where institutional adoption would build.
00:22:03
Speaker
and And I think that's proven to be true. I think where things might have been overhyped was for those who suggested that... the immediacy of tokenization would would knock banks, et cetera, to the side. Instead, what we've seen is banks looking at this and saying, what do we need to do here? um like How do we embrace it?
00:22:25
Speaker
um How do we compete with it? Is this an opportunity? Is this a threat? Is this both? So it wasn't kind of the... the massive disruptor in the sense that tokenized money replaced TradFi.
00:22:38
Speaker
um I think what happened was TradFi looked at tokenized said, um okay, interesting. So maybe that was a bit overstated. The idea that this was just like banks Kodak moment. ah just you know We haven't heard the shutter. um I suspect the thing that perhaps underplayed was how popular mainstream financial products were that embraced digital assets. you know From a regulator's perspective, you rewind the clock two years.
00:23:03
Speaker
These were sketchy stuff. It's like you did not want to go near them. And even banks were told, don't go people who... you know Yeah. yeah um Whereas now, as you know, as mentioned, you've you've tokenized money market funds. You've got exchange traded products that give you exposure to Bitcoin. You have something we haven't talked about at digital asset treasuries. So the likes of strategy buying Bitcoin and putting them into an equity envelope so that equity investors could get direct exposure to crypto. and it was that It was the idea, I think, that this as an asset class and as the technology moved into the mainstream of investors and retail through to institutional.
00:23:43
Speaker
I think that was underplayed to the start of the year. So maybe they were the the two underplayed and overhyped. So Nicholas Negroponte's prediction of being digital continues apace. Well, I'm still looking at a very physical you. You're looking back at it. Very physical me. um So um I know there is an AI um actress out there. forgotten her name. um But, ah yeah, for now at least, we've not been digitized.
00:24:08
Speaker
Our time may come. But on that note, thank you very much for joining us for the last podcast of this year. I do wish you a very good festive break, digital or otherwise. And I look forward to carrying on the conversation in 2026. Thanks, James.
00:24:21
Speaker
Lovely chat.
00:24:28
Speaker
So that's it from us this week and indeed this year. Don't forget that if you're an HHBC client, you can keep up to date on our latest research by downloading our mobile app. And if you're looking for a new podcast to listen to over the holiday season, then check out our sister podcast, Under the Banyan Tree, where hosts Fred Newman and Harold van der Linde put Asia's markets and economics into context.
Closing Remarks
00:24:51
Speaker
Finally, if you've got any questions or comments, you can get in touch with us at askresearch at hsbc.com. Today's podcast was hosted by me, Piers Butler, and produced by Tom Barton.
00:25:03
Speaker
From all the team here at Global Investment Research, thanks for listening to us this year. We'll be back in 2026.
00:25:41
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.