Global markets appeared to swoon to the old adage of “Sell in May and go away” at April’s close. The carnage was widespread. In the West, for the year, the Nasdaq index was down 21% and the S&P index down 13.86%.
In the East, the Hang Seng Index managed a 4% pop on the last day of April, which reduced the pain to a decline of just under 10% for the year. Of course, this has helped masked the peak-to-trough fall so far of 65% for the Hang Seng Tech Index as of April 29, worse than the 50% plunge suffered by Cathie Woods’ Ark Innovation ETF.
Meanwhile, Singapore’s Straits Times Index resolutely stays 7% above water, with support from the macro themes of rising rates (benefitting the three banks); economic and travel reopening (benefitting the Covid recovery sectors); and a stronger focus on ESG (environmental, social and corporate governance) amid a flurry of corporate activities (from sustainable energy to M&A). All in, the STI continues to benefit from the “#RotationToReality” theme flagged by this column since it started last September, underpinned by Singapore’s calm port in the face of global storms.
For those looking to the metaverse for alternative returns, the Second Crypto Winter (the first was the initial coin offering or ICO bust of 2019) appears to be in full swing. Though milder in percentage terms this time, the volatility triggered by the Russians jumping in to escape the ban from Swift and broader sanctions, has been eye-popping. Just look at the crypto bellwether Bitcoin: it was down by 50%, yet recovered by 50% quickly. The pullbacks and sharp spurts form patterns on a chart best described as random walks, with reasons that border on the wildest imagination.
It is no sure bet even if the next opportunity touted by often-nefarious scams — into the darkest corners of DeFi (decentralised finance) in the form of alt or meme coins, scandalous NFTs and yield farming (just like the ICO excesses in the past) — distracts from the value of the underlying technology-created and mainstream-used cases being developed within the broader Web 3.0 ambit.
Herein lies the philosophical conundrum. The purist crypto believers have anarchistic beliefs and eschew regulation. The full libertarian outcomes of DeFi will be insulated from government and regulatory intrusion, oversight and encumbrances. This is similar to Elon Musk’s claim of seeking to ensure Twitter’s free speech through his planned privatisation offer, while at the same time not playing by established SEC (Securities and Exchange Commission) rules and often blocking speech that does not agree with him!
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Can regulation and stringent rules — antithetical to the purists — actually enable the rise of Singapore as a digital asset hub? Or will it stifle innovation and growth?
100 flowers once bloomed
Starting from 2017, Singapore has gained a reputation as a growing crypto or digital asset hub. It stole a march in Asia by being open and welcoming, and being ahead of the curve. The number of attendees of the Singapore Fintech Festival made new records in each of the three pre-pandemic years it was held. In contrast, other jurisdictions such as Hong Kong demurred, and mainland China saw an outright ban.
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Sensing a benign and supportive regulatory environment, more than 180 entities applied for licences under the Payment Services Act, so that they could legally facilitate the transfer of the crypto assets in Singapore.
The enthusiasm of the applicants appears to have created a huge logjam at the Monetary Authority of Singapore (MAS), with just a few managing to get through. Some applicants referred to the process as Waiting for Godot — also Samuel Beckett’s play, an innovation in theatre art when it made its debut, but in the play, the protagonist Godot never comes!
Nonetheless, while the pandemic slowed or halted many business sectors, the crypto and broader fintech space had never been livelier. DBS Digital Exchange opened for business, offering crypto-trading for accredited investors. All manner of crypto-related businesses set up shop here. They range from the globally known Crypto. com to outfits founded by personalities including Etherum founder Vitaly Dmitriyevich Buterin (better known as “Vitalik”); and Zhao Changpeng (better known as CZ) — and a whole string of lesser-known crypto barons and traders. Many of them have another thing in common: they have been bidding up the prices and rental costs of Good Class Bungalows in Districts 9, 10 and 11.
Yet, in the past year or so, many of them have been disheartened by announcements about rules on advertising services and requirements for licensing (so long as they are based in Singapore, even if they are not offering local services). A good number have since de-camped in search of more “crypto friendly” jurisdictions such as the Middle East. Technically, Dubai seems to be where the Russian offshore wealth as well as their yachts have docked!
The Singapore Fintech Association has had to grapple with introducing a code of practice for advertising amid concerns over requirements for licensing raised by its members in what appeared to be an inexplicable reversal of stance by MAS, after having rolled out the red carpet. With stories of high-profile crypto barons voting with their feet, some lament that Singapore is perhaps missing out, and business will be migrating elsewhere at the expense of the industry and our future financial hub status. While there may appear to be a short-term opportunity cost, perhaps it will be clearer if one considers the bigger macro picture.
Wheat from the chaff
Key to Singapore’s international financial hub status is credibility, trust and reputation. Without this, there are but shifting sands for us to build our hard-won pillars of global recognition on. It is interesting to note that Dubai was put under a grey list by the Financial Action Task Force in March and is under a current review.
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MAS managing director Ravi Menon said at the Financial Times Crypto and Digital Asset Summit on April 27 that while regulators need to provide clarity to the industry, “the licensing process is stringent”, “because we want to be a responsible global crypto hub with innovative players, but also with strong risk management capabilities”.
It is inevitable that the balance between innovation and regulation needs to be constantly calibrated and re-calibrated to meet changing needs and opportunities, but some first principles remain core. For the anarchists who bristle at the idea of transparency and disclosure to regulators, this is clearly anathema. But can we risk our hardbuilt global financial hub reputation by allowing nefarious money laundering and terrorism-related financing activities to be conducted here?
Similarly, MAS has taken a “tough line” on retail investing in crypto “because we’re not sure that’s a good idea for retail investors to be dabbling in cryptocurrencies” and “many global regulators share similar concerns about retail exposure to cryptocurrencies”. One crypto player tweeted that while the regulators are only allowing for the “accredited investors” — who are rich to begin with — to participate, and ipso facto they are keeping retail punters from becoming crypto millionaires.
While this appears to reinforce Singapore’s Nanny State reputation of protecting its citizens from themselves, I would opine that this view may hold only if everyone gets rich. However, inevitably, with all the speculative punts, some unsuspecting investors may lose their shirts and pants, and it is the regulators and the government that have to sort out the mess then.
Mainstreaming convergence
The opportunities presented by Web 3.0 and digital assets, and the rapid innovation, are plenty. This includes the broader applications of Central Bank Digital Currencies, something which both the Chinese and the Americans are in agreement on, and are developing.
Globally, we have seen legitimacy conferred on platforms that take regulatory concerns seriously. This includes FTX US which is regulated by the Commodity Futures Trading Commission in its derivatives platforms and also through the acquisition of LedgerX — a recognised derivatives clearing organisation. In addition, it has acquired IEX, a US stocks trading platform licensed by the SEC.
In Singapore, there are a number of international digital assets platforms that are licensed by MAS, including Sygnum, a digital asset banking platform; as well as ADDX, which provides digital assets including tokenised hedge funds, private equity and commercial paper investments, and was recently used by Singtel to issue a US$100 million sustainability bond arranged by UOB.
As innovators, through creative use of technology, address consumer needs alongside regulatory concerns, and the investing public gets educated about making informed choices, there will be greater convergence between the DeFi world and traditional finance. Access will be wider as acceptance and knowledge grows. But it will be a deliberate, responsible and sustainable extension to build on the credibility of Singapore’s financial hub status to ensure connectivity and relevance, not just a trip to the metaverse to its own end.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange. Chew was awarded FOW’s lifetime achievement award in 2021. He is a non-executive director of two entities mentioned in this column: ADDX.co and FTX Digital Holdings (Singapore)
