The light is flashing yellow for crypto in Singapore

The cryptocurrency industry is always ahead of regulators while the media builds its narratives based on the stories of flamboyant founders and investors. This paradigm helps explain why Singapore has been perceived as the place to be for crypto – “hub” being the preferred word – for several years now, even if the city-state’s government has been more modest in its ambitions.

Crypto firms have flocked to Singapore less because of anything specific the city-state has done and more because of what it hasn’t banned. True, Singapore has the Payment Services Act that paves the way for crypto payments in the city-state, but it has been “sensible” in terms of the number of licenses it issues. Furthermore, the Financial Services and Markets (FSM) Bill passed in April 2022 regulates Virtual Asset Service Providers (VASP) established in Singapore to combat money laundering and countering the financing of terrorism (AML/CFT).

Otherwise, like most jurisdictions, Singapore does not yet have a comprehensive digital asset regulatory framework. If crypto firms were primarily focusing on such regulations, Japan would be an obvious choice as it has a more advanced regulatory system for digital assets than anywhere else in Asia.

In fact, Singapore’s biggest draw for crypto firms is its business-friendly environment, which they assume will eventually translate into the kind of regulatory regime they want.

The jury is still out on that, and if the crypto industry continues to careen from one disaster to the next, Singapore will continue to distance itself from the industry.

Reality and hype

At first blush, 2022 looks like another cracking year for crypto in Singapore. After all, the city-state attracted $1.2 billion in crypto funding, the largest chunk of overall fintech investment that helped Singapore reach three years of digital financial investment.

But as noted by KPMG, crypto-related funding in Singapore last year actually fell 21% from $1.5 billion in 2021. Investments slowed sharply in the second half of 2022 as the bear market dragged on and the dramatic failures continued.

Although Singapore-based crypto trading platform firm Amber managed to raise $300 million in December, it was the exception rather than the rule. Among the backers are heavyweights such as Temasek and Sequoia Capital. Amber has reportedly cut up to 40% of staff as it tries to stay afloat amid the crypto industry’s worst downturn to date.

On the other hand, Singapore is No. 3 in the world in blockchain investment after the United States and the United Kingdom. There have been 566 blockchain deals in the city-state that have raised $3.9 billion over the past six years, according to The Block.

But what Singapore wants to achieve with its blockchain investment may be different from what crypto stalwarts are hoping for. For example, the city-state’s Project Ubin completed its experiment with blockchain for the clearing and settlement of payments and securities.

It is important to listen to what Singapore’s regulators are saying and not just repeat the same tired hyperbole.

“If a crypto hub is about experimenting with programmable money, using digital assets for use cases or tokenizing financial assets to increase efficiency and reduce risk in financial transactions, then yes, we want to be a crypto hub,” Ravi Menon, CEO of the Monetary Authority of Singapore (MAS), said in his opening speech at the Singapore Fintech Festival 2022.

Rejects high risk

One of the reasons investors with a high appetite for risk love crypto is that investing in this asset class can be an exciting ride. It can be a total bust, but when it goes boom, it’s a big boom. Consider that the closing price of bitcoin was around $29,000 on January 1, 2021, and it increased to almost $69,000 by November 2021.

But Singapore has made it clear that it does not want to be a hub for trading this mercurial asset class, especially for retail investors. And how big of a center can a jurisdiction be for crypto if it doesn’t include the retail segment?

Menon said explicitly at the Singapore Fintech Festival: “But if it’s about trading and speculation in cryptocurrencies, it’s not the kind of crypto hub we want to be.”

Time and again, Singapore has rejected what it perceives as excessive risk to retail investors from crypto – at the cost of losing big business. For example, in December 2021, Binance, the world’s largest digital asset exchange, withdrew its application for permission to operate an exchange in Singapore after failing to obtain regulatory approval, and ceased operations in the city-state in February 2022.

Damage control

As the crypto industry lurches from one crisis to the next, we expect Singapore to continue to tighten controls on relevant companies. It will not reverse its retail investment decisions and may even hit the brakes on institutional investments if the situation worsens more drastically.

While the initial impact of the collapse of Silicon Valley Bank (SVBVB) and Signature on Singapore appears to be limited, given their exposure to crypto firms, there is more bad news for the struggling digital asset sector. US regulatory agencies designated SVB and Signature on March 13 as a systemic risk to the financial system.

Peer-to-peer payment technology firm Circle, which was approved by the MAS to operate in Singapore last November, said it has $3.3 billion, or about 8% of total USDCUSDC reserves, deposited with Silicon Valley Bank, and that the money will be fully available when American banks open on March 14. Circle said it had no USDC cash reserves with Signature Bank.

Exchange Coinbase, approved by MAS last October, said it had about $240 million in corporate cash with Signature Bank, and expects “to fully recover these funds.”

Meanwhile, Singapore’s new gambling regulator, the Gambling Regulatory Authority (GRA), recently said it has no plans to legalize the use of cryptocurrency in brick-and-mortar casinos. At a conference in Sydney in early March, GRA General Counsel Albert Yeo said the city-state would ensure that cryptocurrency was not used at the two integrated resorts – Marina Bay Sands and Resorts World Sentosa.

“Internally, the idea is to just not allow it to begin with or even let it in the door. The moment you start entertaining [the idea] you know it’s going to be hard to stop,” Yeo said.

Possible Bellwether

To get a sense of Singapore’s future crypto-regulatory direction, it would be instructive to observe how Binance’s new bid for a crypto license develops. In early March, Binance’s Singaporean custody unit Ceffu said it plans to apply for permission to offer payment services in the city-state.

Ceffu targets professional investors who are interested in custody services and other digital asset services rather than retail investors. It is for this business focused on professional investors that the exchange wants to be licensed in Singapore.

The unit’s vice president Athena Yu told Reuters that Ceffu would officially apply after relevant amendments to the Payment Services Act are published and the application for a custodial license is opened.

Earlier, MAS ordered Binance to stop soliciting business from retail investors in the country after they did so without permission. Furthermore, Singaporean authorities are still investigating the giant crypto exchange to determine if it violated any rules.

If Ceffu gets the green light from MAS, it will signal that Singapore remains determined to cultivate itself as a top destination for institutional crypto investment. If Ceffu’s application is rejected or the approval process takes a particularly long time, it would at least suggest that Singapore is taking a wait-and-see attitude towards the broader cryptocurrency industry.

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