The Singapore government — viewed as one of the crypto-friendliest in the world — is now warning the public to “exercise extreme caution” when trading cryptocurrencies, an activity that has become increasingly popular in the city-state as well as globally. The total market value of cryptocurrencies crossed US$2 trillion for the first time this week.  

“Cryptocurrencies can be highly volatile, as their value is typically not related to any economic fundamentals,” said Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore (MAS), in a written reply this week to a parliamentary question on the country’s crypto asset market. “They are hence highly risky as investment products, and certainly not suitable for retail investors.” 

The Singapore government’s warning comes as other governments across Asia are also adopting a tougher stance or rhetoric regarding Bitcoin and other cryptocurrencies. This month, India began requiring companies to comply with tougher financial disclosure rules when it comes to crypto dealings. This week, Japan and Korea also issued stern warnings to their citizens about crypto’s potential risks and pitfalls.

“We are in a crypto bull market, like in 2017, and what happens in these cycles is that a lot of projects of lesser quality appear during these periods,” said Kenneth Bok, a Singapore-based cryptoasset trader and investor, in an interview with Forkast.News. “So it is definitely warranted for the authorities to warn the general public to be careful and not to get caught up in the mania with irrational investments.”

In Singapore, local media reported earlier this week that about 100 police reports have been lodged against Torque, an online cryptocurrency trading platform run by Bernard Ong, a Singaporean businessman. Ong had alleged that an employee had made unauthorized trades that resulted in significant losses for the company. Torque, which is in the process of being liquidated, has suspended the accounts of more than 14,000 investors, including Singaporeans who lost their life savings, according to The Straits Times

Last week, Singapore’s Prime Minister Lee Hsien Loong took to Facebook and Twitter to say that his Twitter profile had been used by cryptocurrency platform BitClout in a misleading manner, and without his permission. BitClout is a social network that allows users to buy and sell “creator coins” that are tied to Twitter profiles. Profiles for the top 15,000 influencers from Twitter had been pre-loaded into the platform, according to BitClout, which has drawn criticism over the platform’s rollout. 

“The site’s creators are anonymous, but I have sent an open tweet out to ask that my name and photo be removed from the site immediately, as I have nothing to do with the platform,” said Lee in a Facebook post. His profile on BitClout has since been removed. 

“I urge everyone to remain vigilant when dealing with cryptocurrency platforms,” said Lee. “If you deal with entities not regulated by the Monetary Authority of Singapore, remember: you won’t be protected by the laws administered by MAS. Before making any investment, please ensure that it is genuine and legitimate, so that you will not fall prey to scams.” 

See related article: 5 questions investors must ask before buying Bitcoin or digital assets

Bitcoin going mainstream, but retail market still tiny

According to a report released this week by Singapore-based DBS Bank on “Digital Assets: NFTs, DeFi, Cryptos, CBDCs,” the mainstreaming of Bitcoin “continues apace, with broadening of inflows into cryptocurrencies within retail, institutional and corporate segments.”

The report notes the launch of a wide range of innovative digital asset product offerings in recent months, as well as adoption by mainstream financial institutions. “Rapid changes come with speculation, skepticism, regulatory reaction, and excesses, and the area of digital assets is proving to be no exception,” the report stated. DBS Bank — the largest bank in Southeast Asia — is one of the first traditional banks in the region to launch its own digital exchange providing crypto trading and custody services.

See related article: Singapore’s DBS bank becomes first in Asia to offer crypto exchange

But despite the rising interest in cryptocurrencies, the size of the cryptocurrency market in Singapore is still miniscule compared to stocks and bonds. The combined peak daily trading volumes of three major Singapore dollar-quoted cryptocurrencies Bitcoin, Ethereum and XRP was just 2% of the average daily trading volume of securities on Singapore Exchange (SGX) in 2020, Shanmugaratnam said.

Cryptocurrency derivatives traded through financial institutions similarly amounted to less than 1% of the derivatives trading activity on SGX. Cryptocurrencies comprise less than 0.01% of the assets in funds managed by MAS-regulated fund managers. 

Singapore’s crypto regulations

In Singapore, exchanges that offer the trading of cryptocurrencies are regulated as digital payment token service providers under the Payment Services Act. “Given their limited scale, these entities are regulated primarily for money laundering and terrorism financing risks,” Shanmugaratnam said. “However, the Act provides MAS the powers to impose additional measures on digital payment token service providers as needed.”

“The crypto assets space is constantly evolving. MAS has been closely monitoring developments and will continue to adapt its rules as needed to ensure that regulation remains effective and commensurate with the risks posed,” Shanmugaratnam said. “Investors, on their part, should exercise extreme caution when trading cryptocurrencies.”

See related article: In Singapore, bitcoin is challenging gold as a store of value

Will these words presage a tightening in Singapore’s crypto regulations? The country is regarded as a global financial center and a fintech hub due to its progressive regulatory environment. Singapore’s Payment Services Act is already “pretty comprehensive,” Bok said. But perhaps events like the Torque scandal will lead regulators to scrutinize crypto platforms more closely. 

Others urge a more balanced view of the crypto industry. 

“On one side of the coin, there are money laundering and other risks associated with this new asset class. However, we have to acknowledge that blockchain technology is also heralding new opportunities in Asia, and cryptocurrencies are fast establishing itself as a mainstream asset class,” said Grace Chong, a FinTech regulatory lawyer at international law firm Simmons & Simmons in an interview with Forkast.News. “We are also seeing strong growth in the decentralized finance space and strong interest in building and developing these platforms.”

Chong, who is also a board member with ACCESS (Association of Cryptocurrency and Blockchain Enterprises and Start-ups Singapore) added: “It is likely that regulators will be reflecting on the implications arising from the recently released Financial Action Task Force public consultation that aims to address issues related to emerging business models and technologies in the crypto sector, such as decentralized finance (DeFi) and stablecoins.”

“It is important that the industry rallies together and clarifies some of the assumptions and issues raised in the paper, so as to ensure that the regulators maintain a principles-based approach in the long run which does not lead to a chilling effect on the industry,” Chong added.

Samuel Lim, chief compliance officer at cryptocurrency exchange Binance, told Forkast.News in an email: “Singapore is strengthening its fintech and crypto credentials. Through the years the nation has grown the local industry through developing homegrown innovation as well as attracting strong businesses, talent and investors. We are confident that Singapore will continue to encourage sustainable growth and position itself as one of the most important fintech hubs in the world.” Binance currently operates in Singapore under an exemption from holding a license by the MAS under Singapore’s Payment Services Act.

Japan and Korea also caution retail investors

Elsewhere in Asia, Japan’s Financial Services Agency, issued an advisory this week warning the public about the risks of investing in cryptocurrencies and provided precautions to take, including checking that the cryptocurrency exchange is registered with the Financial Services Agency and being careful not to fall prey to scams, such as buying cryptocurrency recommended by random people met through dating apps. 

Also this week, Bitcoin prices in South Korea soared above US$70,000 — a staggering 21% “kimchi premium” over BTC prices everywhere else in the world. That same day, South Korean officials gathered for a “Virtual Asset-related Ministry Meeting” and issued public warnings that cryptocurrencies were neither official currencies nor financial investment products, and their value is guaranteed by nothing. High price volatility could also result in losses.

See related article: Bitcoin’s ‘kimchi premium’ plummets, Upbit exchange suspends services

Park Sung Jun, director of South Korea’s Dongguk University’s Blockchain Research Center told Forkast.News in an interview: The government sent a warning signal that cryptoassets do not have realistic value and it’s not backed by anyone. So all responsibilities must be borne by the individual.

Will people take heed of the governments’ warnings? Finance apps related to crypto in South Korea have been dominating the Apple iTunes and Google Play stores download charts, based on Apptopia data. 

Others say that while public warnings about crypto volatility and potential for scams may be warranted, the government and media should also be careful not to throw the innovation baby out with the bathwater. 

Blockchain technology has amazing potential, and governments like Singapore need to take a more nuanced approach to talking about crypto assets, said Bok, the cryptoasset trader. “And one of the first things is to start educating people on what this technology actually is.”