*Article was first published in the Singapore Business Review.
The crypto landscape in Singapore has never been more action-packed.
If you are from the fintech industry or an investor, you would have heard about the choppy waters that Binance is steering its way through. Binance is the operator of Binance.com, the world’s largest cryptocurrency exchange by volume. Watch Dogs around the world have clamped down on the exchange, including a warning issued by the UK’s financial regulators – a move which was touted as the country’s Financial Conduct Authority (FCA) sending a strong signal highlighting its worries about the dangers of investing in cryptocurrencies in general. The latest in the series of clampdowns has been Singapore issuing an Investor Alert for Binance, and warning consumers in Singapore that Binance is not regulated nor licensed in the country to provide any payment services.
With the founder of Binance, Changpeng Zhao, better known as CZ, living in Singapore amidst these developments, the spotlight on the country’s open approach to crypto-businesses has turned even brighter on the global stage.
Owing to the country’s friendly regulatory environment with respect to financial markets, and fintech and blockchain within it, various other global cryptocurrency groups are expanding their presence in Singapore. State-backed investment company Temasek has spent hundreds of millions of dollars investing in the sector. The Monetary Authority of Singapore has made it easier for foreign crypto groups to set up and service residents, albeit with restrictions including limits on transactions.
What works for Singapore is that it is clear of how it engages with cryptocurrency and the digital assets markets.
The subject of regulations in the crypto space has grabbed many eyeballs lately. Singapore has made significant strides in establishing regulatory standards for the cryptocurrency industry. The island nation is looking to grant licences to digital payments services providers in a momentous move for cryptocurrencies, and one that cements the country’s position as a leading crypto-financial hub.
Which means that the opportunities for those in the crypto industry are immense. While some crypto startups are securing funding, the mainstream financial institutions are taking measured steps into crypto.
Singapore’s largest bank, DBS, expects to double the number of members on its new platform for cryptocurrency trading to 1,000 by end-December and grow this by 20-30% annually for the next three years as digital tokens gain acceptance. The bank is already seeing a robust demand from corporate investors, accredited individuals, and investment firms that manage assets of wealthy families.
Regardless of their geopolitical location, what we see is that regulators typically refer to existing compliance structures to formulate a regulatory framework for crypto. While they can differ in scope and degree, these proposed regulations observe common financial requirements such as Know Your Customer (KYC) and Anti-Money Laundering (AML). In this sense, crypto is gearing towards greater standardisation and an eventual common blueprint on which all exchanges/brokers shall operate, be it technically or operationally which is a sign of its maturity.
Recently Mark Cuban tweeted how regulation built around existing fraud laws is not a bad thing. He highlighted that while it will require Proof of Authorship and identity, it won’t hurt innovation, nor slow anything down. As more voices pour in, in the favour of regulations, one thing is clear: these will open more doors for people to enter the crypto markets.
Once a thriving location for crypto-mining, the scenario in China is now different. Due to government-imposed restrictions, the share of trading volumes from China is expected to decrease. The China market for cryptocurrencies has always been important but going forward its significance will reduce.
While external factors like government regulations or bans and investor trust issues impact the market sentiments, in the long run they are expected to sort out. There is certainly a journey to be made for the regulators to ensure that the crypto markets are stable and the trust of investors heightened, but we will get there.
The problem of liquidity
While it is a wider industry problem, the lack of liquidity in the cryptocurrency markets is the biggest issue that the newer crypto exchanges in Asia and globally struggle with. They are hoping for more market makers so that there’s more liquidity and transparent pricing. As they look to establish themselves, they are also struggling with a small number of users, low trade volumes, drastic price disparity and huge settlement costs for users. The reality is that building an order book that can rival top exchanges requires heavy capital and resources. Given the issue, at Broctagon, we have launched the WorldBook, an industry-led inter-exchange liquidity network for digital assets, that allows all connected exchanges to tap into a global unified orderbook. Drawing inspiration from the established infrastructure of inter-bank liquidity, the WorldBook initiative primes the maturity of crypto as an asset class.
The traditional financial industry works on a strong regulatory foundation and there are huge opportunities for us to implement similar standards in the crypto markets. What the crypto market is going through now, especially the liquidity problem, is something the forex markets have already tackled and mastered. Crypto has the benefit of seeing how traditional finance has played out. The implementation of change and its results in the crypto space will be much faster compared to what it took FX, due to prior experience and improvements in technology.
Singapore as a leading fintech hub in Asia is well poised to lead the world in solving these issues, increasing investor confidence and driving greater public adoption of cryptocurrencies.