As Singapore imposes more stringent regulatory requirements on those offering crypto services, there are concerns that players no longer feel they should operate within the city-state. Only 11 players can provide digital payment token (DPT) services under the Monetary Authority of Singapore’s (MAS) Payment Services Act.
Crypto exchange platform Independent Reserve (IR) CEO Lasanka Perera says he has heard through the grapevine that numerous parties operating within the industry have expressed their intention to exit Singapore. “Commercial viability is assessed by any business that plans to enter any market. In Singapore, the robust regulations mean parties must be at the top of their game to comply with the set standards for everyone in the industry.”
IR was the first to receive an “in-principle approval” (IPA) from MAS in August 2021 to provide DPT services, two years after establishing its presence in Singapore. The firm received its full approval two months after.
Perera says the marketing ban, which MAS introduced on Jan 17 last year to prevent crypto players from promoting or advertising themselves to the general public, may have increased the difficulty and cost of acquiring new customers for crypto players in Singapore, resulting in the decision to exit. This may be why more are downsizing their businesses or leaving Singapore for good, considering other markets such as Hong Kong, the United Arab Emirates (UAE) or the UK.
UK-based crypto exchange Luno have announced its exit from the Singapore market, ending its services from June 20 onwards. The company said the decision was made as part of a regular evaluation of its global strategy, withdrawing its licence application from the MAS. Despite exiting the Singapore market, the company still operates in Malaysia and Indonesia.
As one of the first players to receive the full approval to provide DPT services, IR managed to elevate itself among its competitors quite early on, says Perera. The firm had already managed to capture strong customer acquisition before the start of the marketing ban. After the guidelines were announced, however, IR’s customer acquisition dropped by over 95%, reflecting the difficulty of the current operating environment.
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Like Perera, Coinhako’s Yusho Liu laments the marketing ban. Coinhako is a homegrown crypto firm established in 2014 which received full approval from MAS for a major payment institution licence in May 2022.
But as one of the “early adopters”, Liu says his firm is lucky to have an existing pool of customers. However, he cautions against the wider dangers of banning players based in Singapore — unregulated firms operating outside city-state regulations can still market their business to Singaporeans. He adds: “Now our question is: Is that safer or more dangerous?”
Unlike IR and Coinhako, which have received full approval to provide DPT services, the decentralised finance (DeFi) platform Cake DeFi’s licence application is still pending — the company is under an exemption under the PSA. CEO and co-founder Julian Hosp says he understands why some players have contemplated leaving Singapore. The firm is also looking into operating under different jurisdictions should the need arise.
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This is not to say that there are no new entrants. Nasdaq-listed Coinbase had on March 16 announced its entry into Singapore via a strategic partnership with Standard Chartered. This allows customers in Singapore to transfer funds to and from their Coinbase account using any local bank for free. Coinbase is now operating under the MAS’s IPA.
‘Uniform standards’
The Singapore market may be even more difficult to penetrate moving forward. In April, Bloomberg reported that Singapore banks are working with authorities — including the MAS and the police — to set uniform standards for screening potential customers from the crypto and digital asset sectors.
Chainalysis regional director for Asean Joshua Foo commends this move, adding that it would mutually benefit both the cryptocurrency and banking industry.
Crypto companies have long struggled with the lack of access to banking services. Access to blockchain technology could help the banking industry access better data points on the source and movement of wealth and allow for a better assessment of risk levels.
Although stricter rules may present challenges to players, they may also present them with opportunities. Regulations bring credibility to the space, and more sophisticated institutional investors will be more willing to come on board, spurring the ecosystem.
“Regulation means your assets [are taken with more] seriousness, which means people get more comfortable trusting the asset class, and then people start looking at it as an investable asset,” Liu says.
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Singapore is not the only jurisdiction considering tightening its regulations surrounding cryptocurrencies. In April, the European Parliament approved the European Union’s first-of-its-kind crypto assets framework, “Markets in Crypto-Assets Regulation”, which is set to come into force in June. Liu believes this is the beginning of a comprehensive and consolidated regulatory framework.
Coinhako cofounder and CEO Yusho Liu. Credit: Coinhako
This is especially as current regulatory frameworks around the world remain very fragmented. Cryptocurrency is treated as a different type of asset in different Southeast Asian countries.
In Singapore, it is regulated as a DPT under the central bank’s supervision. In Malaysia, it is regulated as a digital asset under the supervision of the securities commission, while in Indonesia, it is regulated as a commodity under the supervision of the commodity futures trading regulatory agency.
Liu anticipates that Southeast Asia will be a favourable region for cryptocurrency players to thrive compared to the Middle East, another region hotly cited as a contender, based on numbers and undercurrents he feels.
Eyeing the super rich crowd
The UAE has emerged as one of the regions favoured as a global crypto hub in recent years largely because of its comparatively relaxed regulatory approach. In March, however, Dubai — one of the seven emirates of the UAE — released what is seen as an ambitious framework which tackles a broad range of assets and activities designed to attract firms seeking regulatory clarity.
In response to Singapore’s tighter regulations on retail investors, many crypto players have considered enhancing their capabilities to cater to institutional and accredited investors instead. Coinhako, for example, launched Coinhako Treasures, its institutional arm offering a suite of structured products for institutional and high-net-worth-individual (HNWI) clients.
The platform has since seen a 77.68% increase in institutional trading volumes in 1Q2023 compared to 4Q2022. On a y-o-y basis, however, the institutional trading volume has declined by 20.5%. Aside from HNWIs, the firm has also seen increasing interest from family offices, says Liu. This mostly consists of single-family offices with mandates over their capital deployment. These parties hail from parts of North and Southeast Asia, namely China, Singapore, Indonesia, Malaysia and the Philippines.
IR’s Perera highlights this amid increasing interest among family offices in cryptocurrency investments. In a report released by Goldman Sachs on May 1, 26% of family offices surveyed have invested in cryptocurrencies, up from the 16% recorded in 2021. “Anecdotally, probably more than half of the wealth management firms that we speak to have customers asking for a digital asset exposure.”
Despite not having a specific arm serving this segment, IR is seeing increasing demand from its institutional and accredited client base. Although the platform’s retail client accounts for the lion’s share of its client base, its institutional and accredited investors, which include family offices, far outweigh the retail investors’ trading volumes, says Perera.
Does IR see a chance for more family offices to set up shop in Singapore, especially with the wealth shift from China to other parts of the world? Absolutely, says Perera. “Singapore already has a big capital density. With more capital flooding in, some would go towards digital assets. Given our status as a leading player in the space, the move presents a big opportunity for us.”
