SINGAPORE: This has been a breakout year for cryptocurrency, with the digital asset industry growing faster than ever to a market worth of around US$3 trillion (RM12.5 trillion). But for all the expansion, the future is still unclear, essentially because cryptocurrency is not real money and lacks proven track record as an asset class.
Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), told the Singapore FinTech Festival in November that the MAS frowns on cryptocurrencies or tokens as an investment for retail investors.
“The prices of crypto tokens are not anchored on any economic fundamentals and are subject to sharp speculative swings. Investors in these tokens are at risk of suffering significant losses,” said Menon.
That warning was certainly apt this year, with fraudsters stealing more than US$7.7bil (RM32bil) worth of cryptocurrency from victims worldwide, an 81% rise from 2020, noted blockchain data platform Chainalysis.
But the MAS also feels that blockchains and crypto tokens have potential benefits, Menon added.
That view led to significant regulatory milestones in Singapore this year.
The MAS granted four licences to provide digital payment token (DPT) services out of a pool of 170 applications.
Singapore-based fintech firm Fomo Pay, cryptocurrency payments provider Triple A, Australian cryptocurrency exchange Independent Reserve and DBS Bank’s brokerage arm DBS Vickers were the anointed quartet. Other entities have also received in-principle approval from the regulator, and more licences are expected to be given in the coming months.
In November, blockchain technology provider Partior said it had achieved instantaneous cross-border payments on its platform when such end-to-end settlements in Singapore and US dollars typically take three to five days to clear.
With global cross-border transactions expected to reach US$156 trillion (RM652 trillion) next year, Partior, a joint venture by Singapore’s investment firm Temasek, DBS and JP Morgan, is aggressive seeking to get more players on board its real-time cross-border platform.
On a global level, big and familiar brand names have ventured into the space in recent years. Twitter became the first social media platform to allow its users to receive tips in bitcoin. Last year, PayPal made a big push into crypto by allowing its account holders in the United States to buy, hold and sell cryptocurrencies.
All this points towards one thing – we should expect increasing adoption of crypto, globally and in Singapore, said Sherry Goh, global expansion manager of crypto-exchange platform Luno, which has applied for a DPT licence from the MAS.
“The regulatory clarity has set a very good base to help foster further and proper development of crypto,” added Goh, who does not think cryptocurrency will become a main form of payment in Singapore in the near future, although she expects to see more people begin crypto trading.
Luno – founded in 2013 and headquartered in London – hit nine million users in October, with a million added in just over four months. It was a noteworthy milestone for the firm that took about five years to accumulate its first million customers.
In the early stages, cryptocurrency used to appeal to a relatively fringe community of anti-establishment and tech-savvy investors. But today, Fomo – fear of missing out – has driven many people to take the plunge, said Goh.
“Many of them may not be able to fully understand the crypto market, and they only buy bitcoins or ethereum. I urge people to not just focus on the upsides of crypto, but you have to also fully understand the downsides of crypto,” she added.
The growth in cryptocurrency, which is said to thrive on its volatility and speculative prospects, has been faster than ever during the pandemic. Social media is seen to have a great influence over cryptocurrency prices.
When billionaire Elon Musk tweeted that “Dogecoin is the people’s crypto” in February, the price of Dogecoin surged by 50% in one day.
Ow Kim Kit, a partner at law firm Bird & Bird ATMD, said: “Given the surge in popularity of crypto investing, the general public and retail investors should already be aware of the risks involved, and remain doubtful of any ‘social media hype’ pertaining to certain cryptocurrencies.”
Ow, a regulatory legal specialist, noted that it would be difficult for the authorities to implement regulations to protect prices as cryptocurrency is not legal tender.
The MAS has said that its approach to regulation under the Payment Services (PS) Act is to facilitate innovation while ensuring that adequate controls are in place to address key risks such as money laundering and terrorism financing.
Industry observers say Singapore’s friendlier approach towards crypto and digital assets and its clear regulations have made it a popular location for cryptocurrency firms.
Singapore was one of the choices for a global headquarters of binance, the world’s biggest cryptocurrency exchange.
But a recent report by Bloomberg, based on sources, said binance has been in talks with Dubai and Abu Dhabi about a potential headquarters in the United Arab Emirates. — Bloomberg The firm, which has come under growing scrutiny globally, had tried to obtain a DPT licence through its local arm Binance Asia Services (BAS), but it announced on Dec 13 that it would withdraw its application.
The MAS has shown a firm hand to binance for not meeting its standards when it ordered the global platform to stop providing payment services in Singapore and to cease soliciting business from Singapore residents.
A significant number of entities have withdrawn their licence applications as they were unable to meet standards under the PS Act.
After it withdrew its application, Binance said BAS would shut its exchange platform in February next year and refocus its operations in Singapore into a blockchain innovation hub.
Chia Hock Lai, co-chairman of Blockchain Association Singapore, said Binance’s withdrawal showed that Singapore’s licence regime is quite stringent.
And Singapore remains an important blockchain hub to many firms, with its clear licencing framework and operating environment, meaning more jobs will be created as increasing numbers of foreign companies set up hubs here, Chia added.
Goh said she expects to see more banks and traditional financial institutions venturing into the crypto space to cater to the increasing demand.
Blockchain games which rewards players with crypto and non-fungible tokens (NFTs) can also expect mass adoption in 2022, she added.
Nicholas Khoo, co-founder of Singapore’s Cybersports and Online Gaming Association, said play-to-earn games have seen a huge acceleration due to the pandemic as they allow gamers to earn a living while staying home.
“Volatility is a concern, however, there are gamers who earn the crypto tokens for free,” said Khoo.
“Some of them are sponsored by investors to play. Some new play-to-earn games are also promising improved economics. Even video-gaming heavyweight like Ubisoft has announced its entry into the play-to-earn space.”
In September, El Salvador became the first country to adopt a cryptocurrency - Bitcoin - as legal tender, although this step is still seen by most as a risky one, given its volatility.
As Bitcoin continues to gain acceptance as a unique financial asset worldwide, could it also become legal tender in Singapore one day?
“If and when crypto earns its place in life, then why not?” said Ow.
“I think there were many first movers of crypto, so to speak, who built an ideal that was at odds with established systems in our financial world.
“Anonymity, privacy and freedom in transactions, lack of centralisation and controls... I cannot see this integrating or aligning with our current systems which we have taken years and years to develop.”
However, if one day crypto can become “universally regulated” and “be controlled” in every aspect pertaining to international standards for money laundering and terrorism financing, then it could one day become legal tender, added Ow.
In the meantime, this is her message to the crypto world: “Be good, be ready or be gone!”