How Hong Kong and Singapore can make Asia the centre of crypto’s future
- What Singapore and Hong Kong are doing appears to be centralised, contradicting the permissionless principle of the crypto movement
- With FTX’s unfolding drama, expect both Hong Kong and Singapore to tighten regulation on speculative trading
The regulatory frameworks of Hong Kong and Singapore are still under development, and their detailed policies will continue to evolve. But with FTX’s unfolding drama, we can expect both Hong Kong and Singapore to tighten regulation on speculative trading, though some differences are already emerging between the two governments’ approaches.
Singapore has stringent measures that limit retail investors’ exposure to digital assets. While such measures aim to protect retail investors from speculative activities, they also could create the problem of unequal access, which puts retail investors at a disadvantage compared to accredited and institutional investors.
Hong Kong, on the other hand, is likely to be more open to retail investment activities. In its statement, its Financial Services and the Treasury Bureau said that they would conduct a public consultation about retail access, in particular, opening up the possibility of having exchange-traded funds (ETFs) of digital assets.
In the US, this kind of coordination is often hindered by highly ideological political debates. Regulatory clarity is still missing because of the ongoing disagreements over issues like whether publishing smart contracts is free speech, whether decentralised finance protocols have the same compliance obligation as traditional financial service providers, or which tokens are security and which are commodities.
This is where the pragmatic approach of Hong Kong and Singapore can make a difference. While keeping the bottom line of fending off money laundering, terrorism financing and technology risks, the governments of Hong Kong and Singapore are efficient in bringing the public and private sectors together to explore new use cases for cryptocurrency technology.
Singapore just launched an industry pilot for institutional DeFi. The Monetary Authority of Singapore (MAS) has brought together institutions like DBS Bank, JPMorgan and SBI Digital Asset Holdings to experiment with DeFi application on a public blockchain, involving foreign exchange with tokenised JPY and SGD and transactions with tokenised government bonds. Hong Kong also launched a pilot project of green bond tokenisation.
What Singapore and Hong Kong are doing appears to be quite top-down and centralised, contradicting the permissionless principle of the cryptocurrency movement. However, by tokenising real-world assets, they are giving institutions and people reasons to use digital assets and are effectively accelerating the mainstream adoption of cryptocurrency technology. With more mainstream adoption, grass roots start-ups will also have a bigger market for their bottom-up innovations.
There is another important resource that Singapore and Hong Kong can draw upon – the tech entrepreneurs and talents from mainland China. In the Web 2.0 era, Chinese internet companies were able to create products that are in the same league as the leading US companies in terms of scale and innovative features. A lot of their know-how will continue to be relevant in the cryptocurrency and Web 3.0 economy.
Meanwhile, Singapore is also attracting many technology companies from China that are using it as a gateway to the global market.
If we look at the Asia market at large, there are still a big population who do not have access to convenient financial services or solid investment opportunities. Both Hong Kong and Singapore’s financial institutions have extensive influence in this region, they are in good positions to enhance financial inclusion in this region by leveraging cryptocurrency technology.
The last bull cycle of cryptocurrency assets was unfortunately very much driven by speculation, and the rise and fall of FTX, Three Arrows Capital and Terra-LUNA remind us that speculation and empty narratives cannot give cryptocurrency technology a real future.
The next bull cycle will only come when the cryptocurrency industry finds ways to solve real-world problems and achieve mass adoption. Asia is the perfect market for cryptocurrency entrepreneurs to innovate with not only on-chain tokens but also real-world assets, not only for investors but also for mass users. Hong Kong and Singapore are not competing for a fixed pie, they both have important roles to play in the next growth cycle of Asia’s digital economy.