‘Not open to crypto speculation at all’: FTX meltdown puts focus on Singapore’s digital asset stance
- FTX meltdown likely to spur the need for governments – in Singapore and elsewhere – to step up plans to regulate the cryptocurrency space
- Some Singapore youth say they were convinced FTX was safe; authorities say they have long warned that cryptocurrencies are unsuitable investments for the retail public
He quickly built up a decent sum, mostly using Binance – the world’s largest cryptocurrency exchange. But government regulations introduced last year limited the services Binance could offer Singaporeans, so the 26-year-old decided to shift his money to another exchange, FTX, a platform with around one million users.
On November 8, he noticed that something was wrong as major institutions began unloading their holdings of FTT – native cryptocurrency tokens used on FTX.
“I happened to have my money in the wrong place at the wrong time,” he said. Imagine having S$50,000 in [a bank] and then suddenly you don’t any more, not because you bought the wrong stocks, but simply because you left your money in there.”
Last week, in mere hours, he lost almost his entire savings when FTX saw a huge sell-off triggered by a tweet by rival Binance’s CEO Changpeng Zhao, announcing the firm had decided to dump all its FTT holdings.
The tweet sparked an investor exodus from both the token and the exchange. An FTT worth US$78 in September 2021 fell to around US$24 before the tweet, and less than US$2 this week.
These investors – among the most respected in the world – had put money on FTX.
The investment amounted to 0.09 per cent of its net portfolio of S$403 billion (US$293.4 billion) as of March 31.
‘One big signal’ misperceived
In local crypto circles, some have questioned if local authorities could have done more to insulate Singapore investors from FTX’s collapse.
Officials have pointed out that the government has long warned about the risks inherent in cryptocurrency investment. “We are open to digital innovation and digital asset innovation, but we are not open to crypto speculation at all,” Deputy Prime Minister Lawrence Wong said at the Bloomberg New Economy Forum on Thursday.
As far back as 2017, the central bank, the Monetary Authority of Singapore (MAS), has consistently warned that cryptocurrencies are not suitable investments for the retail public.
In September 2021, MAS placed Binance on its Investor Alert List (IAL) to warn investors the firm did not possess a local license. The IAL warns consumers that entities on it are not regulated or licensed to provide payment services in Singapore. The MAS also blocked Binance from providing payment services, leading the company to terminate its Singapore operations.
Reports have said numerous investors, like Jacob, switched to FTX at this point, thinking it was safe because authorities had not placed the platform in the same category as Binance.
MAS sought to set the record straight this week, noting that Binance was never banned from operating in the country. It also said it had no cause to add FTX to its IAL, adding that it was not possible to prevent Singapore users from directly accessing overseas service providers.
While entities are included in the IAL if they “may be wrongly perceived as being regulated by MAS”, the central bank said it was not meaningful to include all unlicensed entities.
Jacob told This Week in Asia he understood that “investments carry risk and it’s honestly not up to the authorities to bear those risks when things go awry.”
But, he added, “what investors look out for, however, are signals that the government and its related corporations give out. Effectively cutting off Singaporeans’ access to Binance and investing a large chunk in FTX via Temasek is one big signal”.
Experts who spoke to This Week In Asia said the FTX meltdown was likely to bring into focus the need for governments – in Singapore and elsewhere – to step up plans to regulate the cryptocurrency space. MAS in October unveiled a proposal to reduce risk to consumers in this regard.
Shaun Leong, a partner in the international arbitration and litigation team at law firm Withers KhattarWong, said it was “reasonable” that some investors considered that Binance was banned in Singapore, given authorities ordered it to stop providing payment services to Singapore residents since it did not have a licence to solicit customers.
Woo Jun Jie, senior research fellow at the Institute of Policy Studies at the National University of Singapore, said: “Binance was placed on the IAL as it had been wrongfully perceived to be regulated by MAS and hence permitted to solicit customers.
Nizam Ismail, founder of Singapore-based compliance consultancy Ethikom Consultancy, said complaints from investors that they had no option but to invest with FTX were inaccurate, and said MAS issued warnings on dealing with unlicensed exchanges.
“Investors must conduct due diligence on whether the exchange is regulated in a reputable jurisdiction before deciding to trade on the platform,” he said.
Nevertheless, the saga highlighted the “obvious regulatory gaps” in the cryptocurrency market, Nizam said.
Ismail said the space remains “borderless” although regulations are “local”, making it challenging to make measures to police areas like consumer asset segregation or disclosures to consumers.
Woo, who researches cryptocurrency regulation, said authorities could consider introducing a “risk-based approach to categorising cryptocurrency platforms” to tell investors about the degree of risk when investing in a particular platform.
Recourse for investors?
Is there any recourse for investors moving forward? Perhaps, although the process is likely to be long and arduous.
Mike Chiam, a partner at PDLegal LLC, a commercial law practice with expertise in cryptocurrency matters, said investors can review the background and circumstances of how they deposited their digital deposits on FTX and seek legal advice on the suspension of withdrawals.
“I would not be too hopeful of getting anything back from the [insolvency] process given the substantial depletion of funds,” he added.
For now, investors like Jacob are left to rue what lies ahead after their heavy losses over the last two weeks.
“Last year, I was on track to making my first million by about 30 years old. Now, I’m resetting from zero,” said Jacob, who graduated from university in 2021. “I’m probably going to sell my car to save more money and accumulate all over again.”
* Not his real name