To emerge as the world’s first crypto-hub, Singapore needs to find the middle ground between ‘crypto is a fraud/Ponzi scheme’ and ‘crypto is the best thing since sliced bread.’
Two announcements from the Monetary Authority of Singapore (MAS) made at the end of 2017 defined the challenges cryptocurrencies pose. One the one hand, MAS announced a series of guidelines designed to regulate the currency, specifically Initial Coin Offerings (ICOs), laying the groundwork for further growth in this area. Yet not long after, MAS issued a warning, cautioning against investments in cryptocurrencies and advising the public to ‘act with extreme caution and understand the significant risks’ cryptocurrencies pose.
While both these announcements are not necessarily contradictory, and granted are aimed at different audiences (the former to more knowledgeable financial professionals, the latter towards the consumer), they do reflect an inherent confusion that exists today among regulators when dealing with this new currency: crypto as the exciting new future of finance that should be embraced; or crypto as a fraud and a threat.
ICOs are a real emerging growth area. Worldwide, over US$1 billion is said to have been raised through token sales for issuing companies as of November 2017. Some Singapore-based businesses that have run token sales include gold price tracker Digix, which raised US$5.5 million; start-up incubator Cofound.it, which cancelled its ICO after hitting its US$15 million funding target in a pre-sale . It is also worth noting that globally, the combined market capitalisation of digital currencies reached over $370 billion at the end of last year, overtaking JPMorgan, America’s largest bank .
The guidelines published by MAS declared that some coins may represent ownership or a security interest over an issuer’s assets or property, bringing them under the purview of Singapore’s Securities & Futures Act and Financial Advisers Act. They would also be subject to licensing requirements for securities vendors, and any digital token secondary market operators would have to gain regulatory approval from MAS, and would be required to register a prospectus with MAS before launching their token sale among other requirements.
These guidelines form part of a steady evolution of the City State’s regulations when it comes to cryptocurrencies, reflecting the growing understanding and popularity of this genre of currency. Additionally, regulation will help inject a level of trust into ICOs, possibly attracting more to Singapore which is already benefiting from a strong FinTech and start-up ecosystem.
Yet MAS’s last announcement no doubt came due to fears of a bubble forming, and the dangers of ordinary folks getting burnt. Stories abound of citizens with no knowledge of investing asking how to buy Bitcoin, and of teenagers using their parents’ credit cards to purchase cryptocurrencies, so there is a genuine problem of suitability and appropriateness.
Then there is the problem of cross-border marketing and money laundering. With millions of dollars’ worth of cryptocurrencies moving across markets and jurisdictions with little to no information on sources, the potential for using the currency for nefarious purposes is huge.
If Singapore is to emerge as a leader in this field – and I think it should – it needs to find an appropriate middle ground between these themes. Luckily, there are a few parallels that we can draw between cryptocurrencies and other Get Rich Quick (GRQ) products, which have emerged over the years, that may help to define Singapore’s position. Leverage structured products, for example, became famous during and after 2008 for allegedly causing the Global Financial Crisis (GFC), and Singapore even banned 10 financial institutions from selling structured notes for up to two years back in 2009 . After the MAS applied various regulations and guidelines, and lifted the bans, structured products have grown considerably, structured product demand in Singapore and Asia has only increased – in Asia alone it has hit US$800 billion today .
Blockchain technology has been polarising, one only has to look at the debates surrounding Cboe’s Futures launch to see this, but it is worth noting that similar GRQPs did not turn out to be the weapons of financial mass destruction many forecasted. If Singapore can start to rise above other markets, and provide a strong, reasonable and smart regulatory framework, then we could see the emergence of the world’s first ‘crypto-hub’.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Andrew Au is Chief Executive Officer and Co-Founder of AGDelta, an award-winning Singapore-based company that connects the financial products supply chain. He has more than 20 years’ experience in investment banking and the Financial Services industry, having worked for top-tier global banks including Bankers Trust, Macquarie Group and Deutsche Bank, and global financial technology providers such as SunGard, before he co-founded AGDelta in 2004.
Andrew is a strong advocate of the adoption of disruptive technologies and ‘out of the box’ thinking to address the business challenges within the financial services industry, and regularly pushes for such thinking at events and conferences. Over the past 10 years he has been actively engaging retail and private banking institutions globally in transforming their business by leveraging E-commerce and digital channel models and technology, and is keen to play a leading role in developing the nascent ‘Digital Technopreneur’ movement in Asia. Andrew holds a Bachelor’s in Business from the University of Technology, Sydney and postgraduate studies in Applied Finance from Macquarie University Australia.