Singapore looks at encryption and threatens industrial hub status

At an event on Monday, Ravi Menon, chief executive of the Monetary Authority of Singapore (MAS), described crypto-retail investors as “irrationally ignorant” of the risks, and advocated tightening controls.

“These may include customer suitability tests and restricting the use of leverage and credit facilities for cryptocurrency trading,” Menon said.

Singapore has emerged as one of the top crypto hubs in Southeast Asia, especially as China banned cryptocurrencies in 2021. In November, Menon said the best approach was not to “clamp down or ban these things”, citing crypto-based activities as crucial to Singapore’s future. Investment in the sector reached $1.48 billion in Singapore in 2021—10 times the previous year, and almost half of the Asia-Pacific region.

The recent downturn in the crypto market has threatened that status. Several now-disgraced firms, including collapsed hedge fund Three Arrows Capital (3AC) and lending platform Hodlnaut, operated out of the country. Do Kwon, founder of the TerraUSD stablecoin, was also based in Singapore; TerraUSD crashed in May, wiping out tens of billions of dollars in value.

The government took swift action, with MAS issuing a reprimand against 3AC in June, signaling wider regulation of the industry.

Even with the implosion of high-profile companies, Singapore remains home to major players in the space. American crypto exchange Gemini has its regional Asia headquarters in Singapore, and 180 crypto companies applied for a crypto payment license in 2020. MAS granted only about two dozen, and one of those approved is the brokerage arm of Singapore’s largest bank.

An uncertain future

With specific MAS guidelines still vague, it is unclear how potential regulations will shape the nascent sector. Menon said the agency will publicly consult on proposals by October, including talking to industry players about regulating stablecoins. He added that banning retail access to cryptocurrencies would likely not work.

While Menon stressed that regulation would be compatible with Singapore’s growth as a crypto innovation hub, government policies have likely discouraged companies from operating in the country. In December, Singapore affiliate Binance withdrew its local license application. Although Binance did not give a reason, the chairman of Blockchain Association Singapore told Reuters that Binance’s decision was due to the country’s strict approach to licensing.

With Singapore signaling a further tightening, crypto firms may look elsewhere. The UAE is becoming a crypto hub, with major exchanges including FTX and Kraken getting licenses to operate in the country.

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