Cryptocurrency regulations may tighten in Singapore after fall of 3AC

KUALA LUMPUR – The cryptocurrency sector for Singapore is currently facing uncertainties following the recent downfall of the Three Arrows Capital (3AC) crypto fund.

Reuters reported that the cryptocurrency community in Singapore are preparing themselves for more bankruptcies and legal tussles while the Monetary Authority of Singapore (MAS) would be less accommodating to crypto firms from here on out.

The article said that MAS previously had a welcoming approach and it enabled firms from China and India to be a part of the cryptocurrency industry in Singapore.

According to a senior technology sector lawyer at Ashurst, Hoi Tak Leung, MAS will likely be imposing more stringent policies on cryptocurrency and digital assets after the recent events.

KPMG previously reported that investments in Singapore’s crypto and blockchain companies saw an increase to US$1.48 billion last year, a rise by 10 times its previous year. In Asia Pacific, Singapore accounted for almost half of the region’s total crypto investments in 2021.

Prior to the recent events, the regulators at MAS expressed they wish to encourage crypto-related services. This was in stark contrast to China that banned cryptocurrencies, while India’s tax imposed on crypto crippled trading. In Hong Kong, its rules and policies were also limiting cryptocurrency investments to professionals.

In the year 2020, MAS received over 150 applications from crypto companies looking to get a crypto payment licence. However, only a handful have received one.

Inconsequentially, the overall industry in Singapore looks murky following the collapse of 3AC. After the worldwide decline in the digital currency market, the company was unable to meet its commitments worth hundreds of millions of dollars.

On July 12, news broke out that the liquidators of 3AC were unable to locate the cryptocurrency firm founders namely Kyle Davies and Zhu Su.

Uncertainties ahead for the cryptocurrency world

Reuters reports that the ripple effects caused by 3AC’s collapse, along with its ensuing market instability, have been rapid and severe.

In the prior week, a Singapore-based cryptocurrency lending and trading platform known as Vauld, announced the suspension of withdrawals before a rival crypto lender announced plans to acquire Vauld.

Local media in Singapore reported that Mirana, another crypto fund, is suing 3AC in Singapore over their loan agreement although the court filings are not publicly available.

Meanwhile, in the US, the cryptocurrency lender Voyager Digital, had filed for bankruptcy last week. This happened days after 3AC had defaulted on their crypto loan which was worth US$650 million when it was owed.

Additionally, crypto exchanges Genesis and Blockchain.com also declared losses on dealings with the 3AC.

According to Rose Kehoe, managing director in Kroll’s restructuring practice in Singapore, crypto-related businesses are expected to face liquidity challenges and would be utilising Singapore’s mechanism for court protection of companies in restructuring.

She said that the global crypto markets will continue to be affected by the contagion effect brought on by recent market events. It includes the market in Singapore, one of the major cryptocurrency hubs in Asia Pacific.

Other cryptocurrency players are also cautious of how Singapore’s regulators could respond.

“If Singapore chooses a more hawkish approach towards crypto businesses in the future, the other countries in [Southeast Asia] may follow suit,” stated Jeff Mei, chief marketing officer at ChainUp, another crypto company from Singapore.

He added that it could allow for Hong Kong to enter the arena more meaningfully.

Although Reuters said that MAS didn’t offer comments for the subject, it did previously issue a rare public reprimand to 3AC on June 30. The statement said that 3AC had breach fund rules and MAS was reviewing the company on other potential violations.

“I believe [MAS] wanted to send a signal to the sector that 3AC was already on their watch list,” stated Hagen Rooke, a Singapore-based partner at the Reed Smith law firm.

Such misdemeanours would usually be handled with a private wrap on the knuckles, he said.

“The question is whether or not MAS will become even more draconian in its approach to the cryptocurrency sector,” he continued while adding that new rules around crypto lending and borrowing may be one of the regulatory focuses for MAS.

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