Singapore's crypto scene: Hits, misses and what's next
https://www.straitstimes.com/business/singapores-crypto-scene-hits-misses-and-whats-next
2022-09-25
SINGAPORE -The first thing cryptocurrency investor Sim Kwang Wei did when it dawned on him that he would experience what he described as his "worst financial loss ever" was to scroll through Twitter.
Mr Sim, 32 and self-employed, was holidaying in Bangkok when news of the crash of Terraform Labs' stablecoin TerraUSD and sister token Luna reached his ears.
He had bought both tokens and lost more than $500,000.
Mr Sim took to Twitter to try to get a sense of the magnitude of the crash and figure out his next best move.
Investment losses are common but Mr Sim said highly risky crypto products that masqueraded as potential savings options are to blame for wiping out the life savings of some investors.
He added: "It felt comfortable for a lot of people to put down their life savings in the products and I felt that the regulatory body is somewhat blameworthy as well... because it kind of lent credibility to these centralised financial products."
Investors are particularly upset that industry players had either falsely claimed TerraUSD to be "fiat-backed" or promoted the stablecoin as a safe investment.
Lender Hodlnaut, for example, had promoted TerraUSD as a savings product with a 14 per cent yield. It lost its in-principle licence approval from the Monetary Authority of Singapore (MAS) after becoming insolvent.
Irresponsible marketing inevitably attracted retail investors who were not ready for the scale of the risks involved, said Mr Sim.
"The players don't do proper product education yet subject these very unaware investors to these high-risk products," he added.
The onus is now on Singapore to impose more consumer safeguards and industry rules, and provide education.
Government officials have repeatedly warned, particularly in the aftermath of the crash in May, that crypto trading is highly hazardous for retail investors.
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But many consumers "seem to be irrationally oblivious" and are still enticed by the prospect of sharp price increases, MAS chief Ravi Menon said in late August.
While the MAS will not ban crypto trading, it has been looking at ways to make it harder for the public to buy the digital currencies, perhaps through customer suitability tests and limiting the use of leverage and credit facilities for trading.
The industry consensus is to let customers have access to products and services based on their knowledge, said Ms Fiona Choong, vice-president of compliance at licensed home-grown exchange Coinhako.
"You pass test A, you get access to product A. You take a higher-level test, maybe it's a bit more difficult, then you have access to derivatives," added Ms Choong.
The move could have a greater impact on lenders and exchanges that cater solely to retail investors.
Asia Blockchain Association chief executive Wendy Yew noted that Singapore passed a law in April that requires all crypto businesses, even those operating overseas only, to be licensed.
Although there are no guidelines for local companies regarding acquiring customers overseas, countries constantly fine-tune their regulations to keep up with the industry's exponential growth, which at its peak was a market valued at more than $1 trillion.
The MAS is expected to outline its proposals on how to regulate stablecoins by October.
Regulators around the world are exploring stablecoin rules that require secure reserve backing and the redemption of the principal amount on the due date.
Mr Eric Anziani, chief operating officer at exchange Crypto.com, noted that Singapore was one of the first countries in the world to come up with a fit-for-purpose regulatory framework to support the growth of Web 3.0 and blockchain technology.
That framework - the Payment Services Act - took effect more than two years ago, but the pace with which licence applications are moving has frustrated players.
About 200 firms have applied for a licence but only nine have been awarded fully, while four have in-principle approvals, including Crypto.com.
The crypto ecosystem needs to allow innovation but also shield people from risks in the areas of financial stability, market integrity, technology and consumer protection, Mr Anziani said in his first media interview in Singapore.
"If we want the technology to become mainstream, you need to create a bridge between the traditional fiat instruments and the digital asset world," he said.
"That bridge needs to be seamless and secure, so it is important for regulators across the globe to ensure that that connectivity is done in the right way, and that's why you see most of the regulations today are (geared) towards players that are building those bridges."
Mr Anziani added that it is vital for regulation to stay "technology neutral" to ensure innovation.
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Mr Bobby Zagotta of Luxembourg-based exchange Bitstamp said the possible introduction of rules on market conduct, asset-backing and governance in crypto is no different from what major markets like the United States are seeing.
These rules are not foreign to those in the finance world and are not different from what traditional financial institutions are subjected to, added Mr Zagotta, the group's US chief executive and global chief commercial officer.
The industry is going through what players call the "crypto winter", led by a rout triggered by the TerraUSD crash and rising interest rates.
Billions of dollars have been wiped from the market and some of the biggest players, such as lenders Celsius and Voyager Digital, and hedge fund Three Arrows Capital, have filed for legal protection from creditors.
Tokenize Xchange founder and chief executive Hong Qi Yu said the pandemic gave people time to learn about crypto and blockchain.
The industry had it good for the past two years and a lot of innovations were introduced, but "they are too fixated on the money - people lost focus and crypto turned into an investment asset", he noted.
A true believer, Mr Sim remains confident about the sector and still has about $50,000 parked in crypto.
But he is also certain that history will repeat itself and some will lose while others gain.
Since 2021, the Monetary Authority of Singapore has awarded licences to just seven firms, allowing them provide digital payment token services in Singapore under its Payment Services Act.
Here are the seven firms and what they do:
Fomo Pay
A payment services provider with a full suite of cashless payment methods, including crypto options.
Independent Reserve
A crypto exchange that enables trading of Bitcoin and other cryptocurrencies.
DBS Vickers
Supports institutional and accredited investors in trading crypto on the DBS Digital Exchange.
Hako Technology
A crypto exchange that enables trading of Bitcoin and other cryptocurrencies.
Sparrow Tech
A crypto options an derivatives trading platform.
Digital Treasures Center
A payment services provider with a full suite of cashless payment methods, including crypto options.
Revolut Technologies
A fintech firm that provides banking services, including payment services and trading in investment products.
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