Easy access to cryptocurrencies, clearer regulations as well as higher awareness as a result of more frequent headlines have contributed to Singapore being well ahead of its neighbours when it comes to cryptocurrency ownership.
Citing research reports and surveys done in the region, Independent Reserve Singapore managing director Raks Sondhi says 43% of Singaporeans own cryptocurrency, compared to just 4% to 19% recorded in markets such as Malaysia, Japan and Australia.
“Singaporeans, by and large, have a positive attitude towards cryptocurrencies. Contributing factors include the increasing number of cryptocurrency platforms available, easy onboarding process, regulatory clarity and consumer-focused policies as well as prominent news such as El Salvador making Bitcoin a legal tender,” says Sondhi.
The high ownership rate is one of the findings of the Independent Reserve Cryptocurrency Index (IRCI), a cross-sectional survey of over 1,000 Singaporeans by independent consumer insights provider Toluna. In the inaugural year, Singapore scored 63 in the index, compared to Australia which scored 47 in the IRCI 2020.
The ownership for those under the age bracket of 26 to 45 is 66%, with the most diverse portfolios of digital assets compared to the other age brackets. IRCI also found that in the last 12 months, 74% of respondents who owned cryptocurrencies said they had increased their wealth through their investments while 7% reported a loss.
Independent Reserve is one of Australia’s largest cryptocurrency exchanges with over 200,000 users globally. It recently became one of the first to receive an “in-principle approval” from the Monetary Authority of Singapore (MAS) to provide Digital Payment Token (DPT) services, two years after establishing its presence in Singapore.
Pick-up in institutional demand
Cryptocurrencies have soared in popularity, especially as prices reach historical highs this year. According to cryptocurrency data website CoinGecko, Bitcoin, the largest cryptocurrency by market cap, started the year at around US$29,000 ($39,292) apiece, climbing up to US$57,600 just a month later. It reached a historical high of US$63,576 on April 14 before eventually settling at about US$44,600 on Aug 13.
Meanwhile, the second-largest cryptocurrency Ethereum started the year at around US$740 per Ether, reaching an all-time high of $4,182 on May 12. On Aug 13, Ether is priced at US$3,210 apiece.
Throughout cryptocurrencies’ history spanning over a decade, the market was primarily driven by retail investors. In fact, institutional interest only came to prominence in recent years.
Early this year, digital asset management company Grayscale Investment, which allows institutional investors to buy digital assets, announced that it ended 2020 with more than US$20.2 billion in assets under management. This was a 900% increase, led by demand from institutional investors including hedge funds, endowments and pension funds, according to its quarterly report.
Another example of a prominent institutional participation is when Nasdaq-listed business intelligence company MicroStrategy Inc, which is not in the cryptocurrency business, announced that it had purchased Bitcoins at an aggregate price of US$250 million. In a press statement, its CEO Michael J Saylor says the investment reflects the company’s belief that bitcoin is a dependable store of value and an attractive investment asset with more longterm appreciation than cash.
Sondhi says while there is a significant pickup in institutional interest for cryptocurrency investments in Singapore, it may take a while for traditional portfolio managers to jump on the bandwagon due to red tapes and other limitations. Most of the potential and existing participation comes from hedge funds and family offices, he adds.
“We are seeing strong interest among family offices based on our observation. A number of family offices in Singapore already have allocations in digital assets. This could be due to an increase in client demand or the advisers themselves suggesting that the clients should diversify their portfolio via digital asset investments,” says Sondhi.
Coupled with supportive regulatory frameworks, wealth managers who were previously reluctant to offer digital assets to their clients have now started to reconsider, he adds. T
he MAS’s Payment Services Act (PSA) came into force on Jan 28, 2020, to regulate traditional and digital token-based payments. The same day, notice PSN02 came into effect, covering anti-money laundering and counter-financing of terrorism requirements.
Further amendments to the PSA were introduced on Jan 4, allowing MAS to regulate DPT service providers. Following the amendment, cryptocurrency businesses in Singapore are required to register and apply for a licence to operate in the jurisdiction.
Aside from Independent Reserve, DBS Bank’s brokerage arm DBS Vickers has also announced receiving an in-principle approval to provide DPT services.
Sondhi hopes that the licence would help Independent Reserve replicate its business with institutional clients in Australia, which accounts for a large percentage of its clientbase. The company provides custody and execution solutions that are purpose-built for institutional investors.
“We hope to expand our base of corporate and institutional clients in Singapore. We already have a few of these clients in Singapore and we expect a healthy pipeline of many more,” he adds.
Sustainability concerns
Cryptocurrencies have gotten their fair share of bad reputation over the course of their existence, mainly due to their historic use in the dark web and cases of funds siphoning and hacking — most notably, 2014’s Mt Gox hacking incident.
Recently, the digital assets have gained infamy as being detrimental to the environment, stemming from bitcoin mining activities. Just like gold, many cryptocurrencies such as Bitcoin have to be mined.
Mining is the validation of transactions that take place on each Bitcoin block. The mining process, which generates additional Bitcoin, is done using computer hardware that calculates complex mathematical equations. When these equations are solved, the digital asset is generated, granting miners a certain amount of block reward. The mining process is very energy-intensive and has led to cases of electricity theft.
In March, the Bank of America (BoFA) released a report saying rising Bitcoin prices have led to an astronomical surge in CO2 emissions. Over the past two years, the spike in bitcoin’s price has caused the level of emissions to grow by 40 million tons, equivalent to 8.9 million cars on the road.
Two months later, in a stunning reversal, Elon Musk, the mercurial CEO of Tesla, walked back his previous decision to let buyers pay for cars built by his company using Bitcoin, citing environmental impact. This led to a steep fall in the value of Bitcoin, wiping out over US$300 billion in market value following the announcement.
Despite this, Sondhi says he does not believe that this will deter Singaporeans from investing in cryptocurrencies. He highlights that many of the researches done regarding cryptocurrency energy consumption fail to compare it with other energy-consuming activities such as those relating to gold mining and production of fiat.
“Gold mining consumes more than twice as much energy yet I doubt Singaporeans will stop buying gold jewellery. There’s no real comparison there.
“But that’s not to say that the industry isn’t addressing the concerns. Ourselves at Independent Reserve, we capture over one tonne of carbon through Climeworks. We’re also a corporate member of the 1 Trillion Trees foundation, helping to plant hundreds of trees every year. I do see other blockchain and cryptocurrency firms adopting a similar approach when it comes to green policies now as well,” he adds.
Moving forward, Sondhi says Independent Reserve has a few projects in the pipeline it would like to introduce in Singapore but the priority right now is focusing on getting the full licence, which he says may happen “soon”.
“Singapore is our hub for the rest of Asia. We will use it to evaluate other jurisdictions we could potentially expand in, considering the frameworks and regulations they have in place. Some markets we may be exploring are the Philippines, Malaysia and Thailand. We will look at the opportunities available.”
Photo: Albert Chua/The Edge Singapore
