Is Temasek’s Investment in Crypto Firm Amber Worth the Risk?

Is Temasek’s Investment in Crypto Firm Amber Worth the Risk?
24 February 2022

Temasek’s recent investment in Amber Group, a crypto-financial firm, does contain risks, given many regulators and elite financial figures in Singapore and around the world view cryptocurrency as risky and sometimes dubious. The challenge is whether Temasek can manage the risks with its investment in Amber. The ability to make money and mitigate risks is important for Temasek, as it is a leading state investor.

Amber operates a global digital asset platform, which supports the trading of over 100 digital assets and tokens, with products for both retail investors and institutional investors. An Amber spokeswoman told Blockhead the company has onboarded more than 1,000 institutional investors.

Amber, in its press release on February 21, announced it has obtained a new round of funding of US$200 million from a group of investors led by Temasek. Other investors include Tiger Global Management and Coinbase Ventures. With this round of investment, Amber’s value increased to US$3 billion. This is good progress for a company that was founded recently in 2017 and was valued at US$1 billion last year with a round of funding of US$100 million.

Michael Wu, Amber’s co-founding chief executive officer (CEO), told South China Morning Post on September 23 last year that his company was working on listing in the US this year or next year. If Amber successfully lists, its value will go up much more and Temasek will sit on a substantial paper profit from its investment in Amber.

International risks

While acknowledging digital assets like Bitcoin exhibit much price volatility, an Amber spokeswoman said Amber has designed its products to abstract the complexities of financial instruments into tools that are easy to understand and use for everyone.

“Our products are designed and built to offer stable, single-digit yield that retail investors can use and spend at their convenience. This is markedly different from the wild price swings people usually associate crypto with”, she explained.

However, there are regulatory risks in Singapore, where Amber is headquartered, and abroad.

The Monetary Authority of Singapore (MAS) issued on January 17 guidelines to discourage cryptocurrency trading by the general public.

Another risk lies in Coinbase Ventures participating in the latest US$200 million investment in Amber. Coinbase Ventures is the venture capital arm of Coinbase, a US operator of a cryptocurrency exchange.

Last September, Coinbase scrapped its plan to launch Lend, an online lending product based on stablecoins, after receiving warnings of a potential lawsuit from the US Securities and Exchange commission (SEC), reported Bloomberg. A stablecoin is a digital currency pegged to a reserve asset like gold or fiat currency, and thus is regarded as more stable than cryptocurrency like Bitcoin.

On February 17, Amber executed its first a multi-million loan transaction which was also based on stablecoin, said the company’s press release.

Given that the SEC went after Coinbase for its online loan product, will the US watchdog have Amber in its crosshairs? SEC is cracking down on other firms for their crypo-lending products. On February 14, the SEC announced it charged BlockFi Lending, a US lending firm, with failing to register the offers and sales of its retail crypto lending product. The SEC also charged BlockFi with violating US investment regulations. To settle the SEC’s charges, BlockFi agreed to pay a total of US$100 million in penalties and stop its unregistered offers and sales of the lending product.

In a testimony before a US Senate Committee on September 14, 2021, SEC chair Gary Gensler said crypto exchanges like Coinbase should register with the SEC. He told the committee, “To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they qualify for an exemption”.

“Right now, large parts of the field of crypto are sitting astride of — not operating within — regulatory frameworks that protect investors and consumers, guard against illicit activity, and ensure for financial stability. Currently, we just don’t have enough investor protection in crypto finance, issuance, trading, or lending. Frankly, at this time, it’s more like the Wild West or the old world of “buyer beware” that existed before the securities laws were enacted. This asset class is rife with fraud, scams, and abuse in certain applications. We can do better”, Gensler added.

On February 15, the Wall Street Journal reported that the SEC is probing the relationship between the US arm of Binance, the world’s largest cryptocurrency exchange, and two trading firms linked to the founder and CEO of Binance, Changpeng Zhao. The US newspaper quoted a Binance spokesman saying, “Binance.US is committed to upholding the highest standards of compliance” but declining to comment further. In 2021, Forbes ranked Zhao, who is reported to live in Singapore, as the 22nd richest person in Singapore with an estimated net worth of US$1.9 billion.  

Binance stopped offering Singapore dollar payment options and Singapore dollar trading pairs from September 10, 2021, days after MAS placed Binance on its investor alert list, as reported by Blockhead on October 15, 2021.

Amber will come under the increasingly strict regulation of the SEC, since it is considering listing in the US and plans to use its US$200 million investment to hire more people for its US business as stated in its press release.

Amber’s press release also said it plans to hire more people for its European business, but it also faces a tightening regulatory regime in Europe. Earlier in February, Gyorgy Matolcsy, governor of Hungary’s central bank, said he supported the banning of crypto trading and mining in the European Union (EU) on the grounds that it could “service illegal activities and tend to build up financial pyramids,” reported CoinDesk. A report by Russia’s central bank released on January 20 said Russia should totally ban cryptocurrency, though the country has since changed its stance.

In a speech in New York on February 18, Fabio Panetta, a member of the executive board of the European Central Bank, said crypto assets are already widely used for criminal activities and a similar situation might affect other digital asset markets in future. The EU’s regulatory framework needs to be adjusted but it may not be sufficient, Panetta warned.

If Russia and the EU totally ban cryptocurrency, it will join China, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia and Bangladesh which already shut out cryptocurrency. If all these jurisdictions ban cryptocurrency, Amber will lose a big chunk of its potential global market.

US financial titans have expressed doubts about cryptocurrency. Last November, JP Morgan CEO Jamie Dimon said he remained a skeptic on cryptocurrencies and cryptocurrency had no intrinsic value, a few weeks after describing Bitcoin as worthless, reported MarketWatch. Despite Dimon’s reservations, earlier in February, JP Morgan became the first major bank to offer a virtual lounge where investors can purchase assets using cryptocurrency, reported euronews.

Financial chieftains take on crypto

US investment guru Warren Buffett previously described cryptocurrency as “rat poison”. However, he appears to be changing his stance. Earlier in February, Buffett’s firm Berkshire Hathaway revealed it had bought US$1 billion of shares in Nubank, a digital bank based in Brazil.

Likewise, Goldman Sachs CEO David Solomon said last December that it was important for his bank to offer Bitcoin to its customers, reported Bitcoin.com.

Since major financial players like JP Morgan, Berkshire Hathaway and Goldman Sachs appear to be turning in favour of cryptocurrency, Temasek might have made the right call on Amber.

The Amber spokeswoman told Blockhead, “The latest funding round led by Temasek demonstrates the confidence they have in Amber Group and our ability to remain compliant with regulations in the markets that we operate in. While we understand that many jurisdictions around the world are still formulating regulatory frameworks around digital assets, it is clear that governments recognise the potential and permanence of crypto as an asset class for the future.”

“We remain committed to uphold the highest regulatory compliance standards,” she added.

Nonetheless, Temasek needs to closely monitor international developments on cryptocurrency to avoid losing money on Amber. Like the price of Bitcoin, the regulatory environment of cryptocurrency is volatile and hard to predict.

Temasek told Blockhead that it does not comment on specific investments.

Han Shih Toh
Toh Han Shih is currently chief analyst of Headland Intelligence, a risk consulting firm in Hong Kong. He has been a journalist writing about business, politics and economics related to greater China for over 15 years, including at the South China Morning Post, MLEX and Finance Asia. During the late 1990s, he was a reporter in Singapore with the Business Times, reporting on technology, e-commerce, Internet and the dotcom bubble.
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