Are Further Restrictions for Retail Investors in Crypto Necessary?

Earlier this week in Parliament, Tharman Shanmugaratnam, senior minister and minister in charge of MAS, reiterated MAS’ position that cryptocurrencies are highly risky and are not suitable for the retail public, hinting that restrictions on retail trading are on the way.

Singapore is seeking to position itself as a global crypto hub, but is also wary of the risk that emerging technologies such as cryptocurrencies can pose. “Recent events have vividly demonstrated the risks, with prices of several cryptocurrencies falling drastically,” the minister said.

The additional consumer protection safeguards MAS is considering include placing limits on retail participation, and rules on the use of leverage when transacting in cryptocurrencies, he said.

What is Singapore’s Vision in the Global Crypto Economy?

Singapore’s approach to regulation is a multi-layered one, with its efforts to bridge the traditional and decentralised finance worlds potentially creating a safer and more accountable crypto landscape.

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Industry participants Blockhead spoke to largely agreed with the minister’s statements, but also highlighted the need for a stronger education focus, and for more industry engagement with the regulator to ensure innovation in the space is not stifled.

Recent market events, such as the collapse of Terra’s LUNA token and its algorithmic stablecoin UST, along with troubles at numerous staking and investment platforms such as Babel, Celsius and Vauld have been a nasty wake up call for investors, many of whom had large portions of their savings tied up in such platforms, and shined a light on the sector’s highly volatile nature.

“Many retail investors are attracted by the high yields brought about by the cryptocurrency markets and they have invested a large portion of their savings into these assets. This is no different from other similarly risky traditional financial investments such as stocks,” Julian Hosp, CEO of Cake DeFi, a Singapore-based platform offering a range of DeFi products.

Cryptocurrencies have seen about $2 trillion in market value wiped out since its November 2021 peak. The current global market capitalization of crypto currently stands at around US$972 billion, according to CoinMarketCap data.

A Statista survey conducted in December 2021 showed that Bitcoin was the most popular cryptocurrency among Singapore’s crypto owners, with more than 44 percent reporting owning Bitcoin. Ethereum followed as the second most owned cryptocurrency during the same period. The survey estimates the crypto ownership rate in Singapore at 15.8 percent, slightly above the global average of 15.5 percent.

And despite waning interest in NFTs, Singapore tops the list of countries with the highest interest in these digital assets globally, with 18,717 searches per million residents per month, including strong interest in metaverse platforms such as Decentraland, according to a recent study by CashNetUSA.

“Overall, yes we need regulation to evolve to support the industry and ensure consumers are protected from scams, but this should not come at the expense of experimentation and innovation in the industry,” Vijay Ayyar, VP corporate development & international of crypto exchange Luno, which holds an in-principle approval in Singapore for operating its crypto platform, told Blockhead.

Earlier this month, the European Union also reached a provisional agreement on cryptocurrency regulations that aimed to “protect investors and preserve financial stability”.

MAS has been promoting the industry while seeking to position the city-state as a global crypto hub. It granted a further three in-principal crypto licenses in the past month, bringing the total number of licenses and in-principle approvals awarded by the Monetary Authority of Singapore (MAS) to 14 in the past two years.

Singapore Regulators “Brutally” Bite Back Against Bad Crypto Behaviour

Singapore regulators have vowed to be “brutal and unrelentingly hard” on bad crypto behaviour as local industry behemoths are facing their demise amid crypto winter.

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However, it has also sought to limit the retail public’s exposure to the sector, placing limits on advertising and marketing activities, and ordering the removal of Bitcoin ATMs in the city.

“As the general knowledge level within the crypto space remains low, we are aligned with MAS’ vision and agree that we need to implement more safeguards to prevent retail investors from losing a substantial portion of their investment,” Hosp said.

Ayyar highlighted the need for regulators to work closely with industry players to keep abreast of the space “in order to ensure they are at least in sync or ahead of the game,” that Luno is engaging with regulators around developments and upcoming regulation in the space.

“Intent on both sides is quite aligned – ensuring users are safe while using products in the crypto space,” he said.

For Cake DeFi, Hosp said that trust and transparency, as well as education are key.

“It is increasingly necessary for platforms to educate and ensure that retail investors are aware of all the risks that are involved before investing in the space. Crypto education is a priority for us and we aim to actively educate all potential and existing customers to increase the level of education within the crypto space,” he said.