Banned by China, facing a crackdown in South Korea and further restrictions in Hong Kong, the cryptocurrency industry has taken hold of Singapore as an unlikely Asian alternative.
The country of 5.5 million people has long relied on financial services to fuel its $ 344 billion economy, and it is now stuck in an intensifying race with Hong Kong and Tokyo for the crown of the financial center worldwide in Asia.
Its grip on the sector has extended to fintechs seeking to disrupt the traditional banking sector. In a socially conservative country, authorities have not only touted the potential benefits of crypto, but backed it up with legislation.
As of January 2020, crypto companies can apply for operating licenses under the Payment Services Act, a law that regulates companies handling digital payments and trading in tokens such as bitcoin.
âThe technologies that underpin crypto products and digital tokens have the potential to power the next generation of financial services,â Loo Siew Yee, deputy managing director of the Policy, Payments and Financial Crime group, told the Financial Times. Singapore Monetary Authority.
Beneath the receptivity, however, lies a cold calculation from policymakers: opening Singapore’s doors to the burgeoning crypto industry could still prove to be a key weapon in the country’s quest to become the dominant financial center in Asia and , ultimately, to be reckoned with in the world.
Singapore’s openness stands in stark contrast to increasingly bitter trade in other jurisdictions. Coinbase, the world’s largest publicly traded crypto exchange, launched a Twitter swash in September against the United States Securities and Exchange Commission, complaining of “summary behavior.”
Discomfort with Binance
But as Beijing, Seoul and Hong Kong cool down on crypto, the potential dangers of its approach emerge. Nowhere is this clearer than in his management of Binance, one of the world’s largest crypto exchanges whose influential founder, Changpeng “CZ” Zao, is based in Singapore.
The company has faced censorship from other regulators this year on issues such as consumer protection and compliance with anti-money laundering rules. Binance said it takes its compliance obligations seriously and has tightened up some of its client verification requirements.
In September, MAS put Binance’s global site on its investor alert list, a move that effectively barred Singaporean clients from using it. But the regulator has not affected the local, strictly regulated version of the site, which means Singaporeans could use this local site, even if the company was the target of criticism globally.
When crypto exchange operators are in open revolt against financial watchdogs elsewhere, analysts say there may be ground to be gained by regulators playing the right cop.
âSingapore balances being extremely conservative socially and being bold in capital markets,â said Haseeb Qureshi, managing partner of Dragonfly Capital, a global crypto-focused venture capital fund with a presence. in Singapore. âThey have to show that they are open to innovation, friendly to businesses and to people who take financial risks,â he said.
Unlike the US Congress, the Singaporean government has played a leading role in the development of the industry.
Along with Binance, some of the world’s largest crypto exchanges, including Gemini, Coinbase, and Crypto.com, have all applied for operating licenses. In the meantime, many have been granted exemptions, which means they can serve retail and institutional investors. On Friday, the regulator granted the first full license to the Australian stock exchange Independent Reserve.
Take notes on Ethereum
The approach has garnered applause from those in the rapidly growing industry.
âSingapore thinks so long term about this stuff,â said the founder of a cryptocurrency startup that caters to high net worth individuals and family offices. âYears ago I went to hear Vitalek Buterin [Ethereumâs co-founder] talking in town and in my row there were three people from MAS taking careful notes.
The authorities’ encouragement of the industry – and its regulation – offers important guarantees, said Sander Laugs, head of institutional clients at Swiss crypto-focused bank Seba, which is expanding its presence in Singapore.
Almost 20 percent of requests were withdrawn or rejected by MAS for failing to meet its standards for controlling money laundering, terrorist financing or technological risks.
âCompanies that don’t have set standards are likely to have a hard time getting licenses or being able to conduct business as they normally do,â Laugs said.
It’s not just about foreign crypto exchanges expanding into Singapore, either. The country’s national banks are trying to take advantage of the boom.
The brokerage arm of DBS, the country’s largest bank, received MAS’s âin principleâ approval in August to begin offering crypto services such as bitcoin trading to institutional investors. The bank launched a digital exchange last year offering cryptocurrency trading and custody services to certain accredited investors.
âIt is important for Singapore to remain a global financial hub and prepare for the digital mainstream,â said Eng-Kwok Seat Moey, Head of Capital Markets at DBS. âNow is the time for us to help transform capital markets. “
The appetite for crypto has spread to Singapore’s sovereign wealth fund, GIC, which this year invested in the Hong Kong-based parent company of crypto exchange OSL. Vertex Ventures, a venture capital fund owned by state-backed investment firm Temasek, is a funder of Binance Asia, the Singapore unit of the exchange.
Beijing’s statement last week that all crypto activity was illegal not only heightened Singapore’s appeal, it left little doubt that Tokyo is now the country’s biggest threat in the fight for to be the cryptographic center of Asia.
The Japanese regulator has spent the most time trying to balance the risk and the reward of adopting crypto. The Financial Services Agency was the first to recognize the legality of crypto assets, and the Japanese government was the first in the world to define a crypto exchange business in 2017.
They did so with the aim of establishing a reputation for innovation in this new area of ââfinance. But Japan’s experience also highlights the potential pitfalls Singapore faces.
Even as the FSA prepared to draft regulations, Japanese courts were still unraveling the collapse of the Tokyo-based Mt. Gox stock exchange, which once handled 80% of global bitcoin trading. Shortly after Japan took the initiative to legitimize the exchanges, Japanese Coincheck customers were victims of a virtual theft of XEM coins worth around $ 500 million.
The episode damaged the reputation of the FSA and its implicit claim that by legalizing crypto first it was also more advanced in how to protect customers from the many potential dangers.
The head of a Japanese-registered crypto exchange that deals with the FSA said the regulator was faced with a dilemma.
âThey are desperate to portray Japan as the preeminent hub for financial innovation and a welcoming face for crypto is a good way to do it,â the crypto chief said. “At the same time, they can see how great the risks are because of the number of young Japanese people who are heavily invested in it now.”
This year’s surge in the price of Bitcoin, the most well-known cryptocurrency, has attracted top investors such as Paul Tudor Jones and Stanley Druckenmiller.
ARK founder Cathie Wood is a cryptocurrency evangelist who predicts it will be worth $ 500,000 in five years.
The bigger question for governments, Wood said, will be how they decide to balance the threat of disruption posed by crypto and the benefits of the financial activity that comes with it.
âIt’s going to be very difficult to shut down decentralized financial services,â said Wood. âCountries understand that if they are to attract innovation, they need friendly regulatory regimes, working alongside innovators rather than against the grain. “
Singapore is betting it has found the right balance.