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First Mover Asia: Singapore’s Strict Approach to Crypto; Bitcoin Rises Despite Investors’ Jitters About War, US Executive Order

Singapore’s high standards may be discouraging some crypto companies from establishing operations in the city-state; investors were wrestling with the latest developments in Ukraine and await the crypto order by U.S. President Joe Biden on Wednesday.

Good morning. Here’s what’s happening:

  • Prices: Bitcoin and ether rose slightly but investors nervously awaited the next turn in Ukraine and a long-awaited crypto executive order by U.S. President Joe Biden
  • Insights: Singapore’s strict approach to crypto may be deterring some companies in the industry from establishing a presence there.
  • Technician’s take: Narrow price zones could benefit short-term BTC trades. Support at $37K; resistance at $43K-$45K

Prices

Prices
Bitcoin (BTC) $38,673 +0.9%
Ether (ETH) $2,574 +2.6%

Top Gainers

Asset Ticker Returns Sector
Bitcoin Cash BCH +2.8% Currency
Ethereum ETH +2.7% Smart Contract Platform
Polkadot DOT +2.6% Smart Contract Platform

Top Losers

Asset Ticker Returns Sector
Cosmos ATOM -3.3% Smart Contract Platform
Dogecoin DOGE -0.8% Currency
XRP XRP -0.7% Currency

Bitcoin was up slightly on Tuesday amid another day of horror and tumult in Ukraine, and economic angst in the world beyond. Jittery investors also awaited a long-awaited crypto executive order on Wednesday by U.S. President Joe Biden that will outline the country’s approach to regulation.

Yet at the time of publication, bitcoin (BTC) was trading at about $38,600, up slightly over the previous 24 hours. Ether (ETH) was changing hands at a little under $2,600, a roughly 2.5% gain over the same period. Other major altcoins were a mixed bag.

“Bitcoin is higher on the day as risk appetite showed signs of life after U.S. stocks had the worst rout in a few years,” wrote Oanda Americas Senior Markets Analyst Edward Moya in an email.

Russia continued its campaign to isolate Ukraine’s major Black Sea ports to the south and lay siege to its major cities, bombarding military and, increasingly, civilian targets. More than two million Ukrainians have fled their devastated country. Ukraine President Volodymyr Zelensky vowed to “fight to the end, at sea, in the air,” echoing Winston Churchill, Britain’s prime minister during World War II, in an emotional video address.

The U.S., European and other countries, which have condemned the unprovoked invasion, continued to ratchet up economic pressure on Russia. Biden announced the U.S. would ban the importing of Russian oil. The price of Brent crude has soared to $130 a barrel, sending energy prices higher worldwide. The price of a gallon of gas in the U.S. reached an average $4.17 per gallon, an all-time high.

Meanwhile, a new round of major international brands, including McDonald’s (MCD) and Coca-Cola (KO) said they were pausing operations in Russia. The latest events and the Biden Administration’s expected crypto executive order contributed to investors’ fears.

Moya noted that “bitcoin’s fundamentals are still sound, but many active traders are putting the crypto trade on hold and focusing on a handful of commodity supercycle trades.” He added: “Bitcoin is forming a trading range and over the next few weeks it could trade between the $35,000 and $45,000 trading range.”

Markets
S&P 500 4,170 -.7%
DJIA 32,632 -.5%
Nasdaq 12,795 -.2%
Gold $2,052 +2.7%

Insights

What’s the Point of Singapore’s Digital Payment Token License if it’s Too Hard to Get?

Three years ago Arthur Hayes (jokingly) bragged during a debate that his BitMEX crypto exchange was in Seychelles because regulators could be bribed with a coconut.

Hayes was trying to irritate his cantankerous debate opponent on stage while colorfully illustrating that there were alternative regulators to those in New York.

Nobody liked that comment, from regulators in the Seychellian capital to the U.S. Department of Justice, and the phrase eventually ended up quoted in the indictment against Hayes.

But in 2022 New York’s hardly the only regulatory body because other financial capitals vie to attract the crypto industry.

Singapore is often referred to as the next crypto hub in Asia, particularly because of its reputation for spotless governance and a strict rule of law.

Its strongman founder, Lee Kuan Yew, saw the nation’s path to prosperity as one of good governance and honesty. Unlike its neighbors, the government isn’t run by kleptocrats: Its civil servants are paid well for their competency, police don’t take bribes and the tap water is drinkable.

As much as Seychelles’ regulator might have honest intent and be run by sharp people, the perception of the country among some people is that it’s the Third World.

So when Singapore’s Monetary Authority, its all-in-one regulator and central bank, started building a comprehensive crypto framework called the Digital Payment Token license, the industry was excited.

There’s no reason to keep ourselves parked in places with a less-than-stellar reputation, the industry thought. Let’s all move to Singapore.

From the Third World to First, but for the crypto era.

Since the doors opened for applications in early 2020, 180 firms applied for a DPT license. But 30 applications have been withdrawn, including Binance’s, and two were outright rejected.

That’s quite the sharp funnel, especially for a maturing asset class.

It’s 2022, not 2012. Crypto is young compared with other asset classes, but it has moved rapidly.

“Singapore’s standard is very high, and they will ask you to impose travel rules on your platform,” Patrick Chiu, the founder of Hong Kong’s AP Capital, a fund with a growing digital asset portfolio, told CoinDesk.

Travel rules involve strict anti-money laundering (AML) requirements on incoming and outgoing funds.

Chiu said the license terms have terms and stipulations that “aren’t typical for global exchanges.”

Everyone was welcome to apply, said Chiu. But there’s a tall regulatory wall.

So far only four firms have been approved for a DPT license with a fifth receiving approval-in-principle.

Included in the list is DBS (which counts Singapore’s sovereign wealth fund as its largest shareholder), which opened an accredited-investor-only trading desk in early 2021.

But absent are the usual stalwart names in crypto. Sure, there’s a lot to say about Binance dropping out given its baggage. But what about Coinbase (COIN)?

Chiu thinks the high license requirements may be deterring many of the usual names in crypto because of how unusual the requirements are for crypto.

For example, the license prefers face-to-face know your customer (KYC) vetting, Chiu said. Not really practical for many firms. There’s also the requirement that the crypto only stays within a network of whitelisted wallets within Singapore. Given the size of the market, this would no doubt hamper liquidity.

Bringing in foreign capital is possible, but because of the reporting requirements it’s just not realistic, especially for crypto traders that expect speed and liquidity that isn’t matched in any other asset class.

After all, DBS is only now planning to offer its small pool of crypto traders the ability to buy crypto online. Before, they needed to call in their orders. The bank is planning to offer a retail product by the end of this year at the earliest.

The question is, what kind of trader are these rules hoping to attract? It looks like a buy-and-HODL type.

As it stands there’s a pathway for people to buy and hold crypto under the licensing scheme, and that’s about it. Institutions might take an interest in this to add it to their balance sheet, but it’s unlikely that professional traders or degens will be very interested.

By all accounts licensed decentralized finance (DeFi) is going to be impossible if the digital assets can’t leave the whitelisted wallets.

All of this sure sounds antithetical to crypto’s very fundamentals.

Sure, regulated crypto in Singapore will be as spotless as the country’s governance. But if the assets are stuck in Singapore, will anybody care?

This article was taken from the CoinDesk website.

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