Singapore, the new safe haven for cryptocurrencies

Singapore Offers Crypto a Safe Haven in Turbulent Times

Source: Decrypt

By Adriana Hamacher

Compiled and edited by Chen Zou

Many of the best cryptocurrency companies have been attracted to Singapore’s forward-looking policies, making it easy to understand why cryptocurrency celebrities including Ethereum co-founder Vitalik Buterin, Binance founder Changpeng Zhao, and Metakovan, owner of the world’s most expensive NFT, have made Singapore their base.

On the surface, it’s a calm, futuristic fantasyland, characterised by the colourful, exotic feel of the Marina Bay Sands resort. But a closer look reveals that Singapore is full of technology. It’s a “sensor city” with smart initiatives that promote better living, health and mobility, and a host of fintech innovations, all underpinned by a highly educated, service-focused population and a government that’s pushing digitalisation on a global scale.

KPMG, one of the Big Four consulting firms, this week ranked Singapore first in its global ranking of tech hubs outside Silicon Valley, a second consecutive title for Singapore. But this is not surprising to cryptocurrency companies that have long valued its pragmatic regulatory approach and lenient tax policies, especially at this time.

Julian Hosp, founder of Cake DeFi, told Decrypt: “Singapore has taken a relatively neutral approach to cryptocurrencies in the region, recognizing their potential benefits and encouraging innovation and experimentation in the space. Many cryptocurrency platforms have acknowledged that Singapore will be a very important place for them.”

But as Singapore Blockchain Week kicks off, just how friendly is the city-state to cryptocurrencies, and how long will its liberal stance last?

"Singa Pura", or the Lion City, has undergone a dramatic transformation over the past 60 years, from a former British colony with severe unemployment and a housing crisis to one of the most prosperous countries in the world.

A massive modernization program throughout the 1960s and 1970s is at the root of Singapore’s success. But more recently, as China has become more assertive in its approach to Hong Kong, the city-state is emerging as Asia’s new financial powerhouse, with about 40% of Southeast Asia’s financial technology companies based here, including a growing number of cryptocurrency startups.

Singapore first emerged as a cryptocurrency hub in the early days of the ICO boom in 2018. But the country’s financial institutions have also embraced blockchain; its largest bank, DBS, launched a digital exchange in 2020, and its trading volume grew nearly 10-fold in the first quarter of 2021. It completed a $1 billion digital bond offering in May.

Gemini, the U.S. exchange founded by the Winklevoss twins, is seeking a license in Singapore. It already has licenses in New York and the U.K., as well as in smaller jurisdictions.

Singapore will serve as a base for Gemini to further expand operations into the continent, serving the exchange’s retail and institutional clients across the Asia-Pacific region, including Australia. With this in mind, Gemini is looking to increase its headcount in the city from 30 to 50 by the end of this year.

Cryptocurrency incubator

According to the World Bank, Singapore ranks second in the world for doing business, after New Zealand; 80 of the world's 100 largest companies have operations there.

Cryptocurrency companies have also been encouraged to set up shop in the country, attracted by its friendly regulatory environment, which stands in direct contrast to the growing hostility toward many cryptocurrency companies in Hong Kong, London and Washington.

However, Singapore’s cryptocurrency market is still relatively small. Chia Hock Lai, chairman of the Singapore Blockchain Association, said the combined peak daily trading volume of Singapore’s top three cryptocurrencies only accounts for 2% of the city-state’s daily securities trading volume. He added that cryptocurrencies account for less than 0.01% of assets in funds managed by fund managers regulated by the Monetary Authority of Singapore.

Singapore has been generous with its funding for fintech. About S$300 million ($219 million) has been earmarked for developing deep tech projects, which refer to those that use new technologies to change lives. The government has also provided S$12 million ($8.7 million) to accelerate blockchain innovation.

The city-state prides itself on the number and quality of its tech incubators, and its success in fostering cutting-edge innovation.

Take central bank digital currencies (CBDCs), for example. They were invented by U-Zyn Chua, a Singaporean blockchain engineer and co-founder of DeFiChain, who developed the world’s first CBDC, the Sand Dollar, for the Central Bank of the Bahamas.

Today, about 90% of central banks around the world are researching digital currencies. In June, Singapore's financial regulator, the Monetary Authority of Singapore (MAS), launched an initiative together with the International Monetary Fund, the World Bank and other institutions, the Global CBDC Challenge. The goal of the project is to encourage innovation and practical application of CBDC in payments.

Singapore is also working with the Bank for International Settlements (BIS) on "Project Dunbar," which aims to explore the management and connection of cross-border transactions using multiple CBDCs, which will form the basis of a future international settlement network.

However, despite more than 300 companies applying, the Monetary Authority of Singapore has yet to issue any licenses to cryptocurrency firms. Prior to this, some of the industry’s biggest players had been granted exemptions, meaning they can serve local retail and institutional investors, albeit with some restrictions on trading and the services they can offer.

Prominent among the cryptocurrency companies seeking licenses are Alibaba Group’s Ant Financial Services Group, Alphabet Inc., and Binance Holdings Ltd., a subsidiary of Binance, the world’s leading cryptocurrency exchange by market value.

Binance founder Changpeng Zhao is a Singaporean resident, and the company currently lists 230 job openings in Singapore on LinkedIn.

In an interview with Decrypt in November 2020, Zhao Changpeng said that "smaller 'island countries' such as Singapore, Bermuda, Jersey and Malta are faster in adopting new regulations and are more open to innovation."

Currently, Binance users in Singapore have limited options as they can only trade eight cryptocurrencies, and other features including derivatives trading are not allowed.

In recent weeks, Binance has been the focus of regulators in the UK, Italy and Japan. Singapore authorities said that when the Monetary Authority of Singapore makes a licensing decision, actions taken by other countries will be considered along with other factors, such as the exchange's anti-money laundering controls. If the regulator makes a negative decision, Binance will lose its exempt status.

“We are aware of actions taken by other regulators against Binance and will follow suit as appropriate,” the agency said in a statement.

Home of tech giants

Ethereum co-founder Vitalik Buterin has been living in Singapore since the summer of 2020.

“He loves Asia. Singapore is a great place. There’s a lot of activity around crypto in Asia — there’s a big Ethereum community and the Ethereum Foundation has people in Singapore, so it’s a very comfortable place for him,” Buterin’s father said.

Other tech giants seem to have taken notice recently, with reports that more startups are seeing the appeal of Singapore as a response to tightening regulations in many parts of the world. In Hong Kong, for example, new legislation will restrict trading to accredited investors.

According to the Monetary Authority of Singapore, there has been no increase in applications for licenses from startups as a result of overseas moves. But Chia Hock Lai, president of the Singapore Blockchain Association, told the Financial Times that there are some Hong Kong players who have set up offices in the city.

However, Gemini’s Jeremy Ng disagrees. “We have seen a lot of Chinese founders of exchanges, such as the co-founders of Binance and Bybit, move to Singapore,” he said. But he has not seen clear evidence of migration from Hong Kong. With the legislation still under discussion, “people may still be taking the next few months to assess the situation.”

The Monetary Authority of Singapore is expected to begin issuing licenses to cryptocurrency businesses this year, a process that began with the introduction of the Payment Services Act in January 2020.

A new blockchain island?

But this isn’t the first time a country has tried to attract the cryptocurrency industry with the promise of favorable regulatory conditions. In 2018, the island nation of Malta took a similar approach, branding its cryptocurrency regulations as the most innovative in the world and attracting thousands of cryptocurrency startups — including Binance, of course — to the “blockchain island.”

Ultimately, Malta’s licenses never materialized; only a handful were issued after long delays, and the country’s regulations later proved to be stricter than most. Subsequently, a large exodus of cryptocurrency companies from the island ensued.

But Singapore is not Malta. “Being regulated in Singapore is the gold standard, just like you are regulated in New York and other states,” said Gemini’s Jeremy Ng. “If it was Singapore, I think most institutions or regular clients would give it a big thumbs up.”

However, Singapore is not free of illegal operations. After a recent crackdown on an alleged extortion case in Hong Kong, Hong Kong authorities revealed that 60% of the funds involved flowed through accounts in Singapore and received help from Singaporean authorities to track down the final recipients of the funds.

A scandal closer to home involved Torque, an online cryptocurrency trading platform run by Singaporean businessman Bernard Ong. According to Cake’s Julian Hosp, the company went bankrupt, with investors claiming to have lost millions, and further led to increased scrutiny of the industry.

Typically, Singapore’s regulatory system is proving effective because investments are pouring in. Financial technology investments have risen to more than $1 billion in 2020 from about $20 million in 2014, Sopnendu Mohanty, chief fintech officer at the Monetary Authority of Singapore, said in an interview.

Singapore is also fostering innovation elsewhere in the region, said Mohammad Raafi Hossain, founder and CEO of digital asset platform Fasset, which is looking to expand into Southeast Asia. "We can foresee Singapore's position as a tech hub influencing tech innovation in neighboring countries like Indonesia, and even fostering a stronger Southeast Asian cryptocurrency ecosystem," he said.

Colin Miles, chief business officer and co-CEO of Zilliqa, the company behind the ZIL token, similarly praised Singapore’s business-friendly policies, smart initiatives, and tech talent pool. “Singapore has long been seen as a crypto-friendly country that values ​​the innovations that cryptocurrencies can bring to the economy and society, while remaining vigilant about their potential risks,” he said.

For Singapore, which places an emphasis on fintech and innovation, attracting cryptocurrency projects into the ecosystem has clear advantages. The influx of crypto companies, coupled with the right regulations, presents an opportunity to capture some of the value of the digital asset market, not to mention becoming an innovation hub that is the envy of Southeast Asia and beyond – perhaps even the new Silicon Valley of the 21st century.