Commentary: Binance’s exchange closure in Singapore could usher in more regulations on cryptocurrencies
Binance, the world's largest cryptocurrency exchange with a daily turnover of US$76 billion, has withdrawn its application to start a cryptocurrency exchange in Singapore. This could herald more regulatory clampdowns, says NTU’s Chen Tao.
SINGAPORE: News of Binance’s withdrawal of its cryptocurrency exchange application from Singapore on Dec 13 sent a small ripple that dampened investor sentiment towards the emerging global cryptocurrency market.
Cryptocurrencies extended declines after Binance’s move. Bitcoin, the world’s largest digital coin, fell as much as 3 per cent to about US$48,484, while Ether, the second biggest cryptocurrency, dropped as much as 4.1 per cent.
The decision came at a critical time, as Binance is set to announce its decision for a global headquarters soon.
Binance’s move dampened speculation that Singapore, one of the world’s largest cryptocurrency exchanges, is in the running.
BINANCE IS NOT LEAVING SINGAPORE
However, it’s too soon to conclude that Binance’s withdrawal is a setback. Closing its Singapore cryptocurrency trading platform does not mean the company is losing its business altogether in Singapore.
On the contrary, Binance has made moves to anchor itself in the financial hub.
Binance has invested in Singapore’s private securities exchange Hg Exchange (HGX) recently, acquiring an 18 per cent stake in the company just two weeks ago.
HGX has a Recognised Market Operator license. It currently trades shares in private companies as well as tokenised securities including rare whisky, art and real estate.
Through this investment, Binance can continue to grow its crypto business in Singapore.
Besides, Binance also plans to set up a blockchain innovation hub in Singapore, exploring initiatives such as incubation programmes, blockchain education and further investment opportunities.
BINANCE IS UNDOUBTEDLY FACING REGULATORY PRESSURE
With Binance’s growing global influence, regulators around the world have concerns its cryptocurrency exchanges could be used for money laundering or that investors could fall victim to scams and runaway bets.
Due to its opaque corporate structure, lack of financial information, as well as complex and high-risk financial product design, Binance is said to be “not capable of being effectively supervised”, according to UK financial regulators.
Authorities in Japan, Britain, Germany, Italy, Hong Kong, Malaysia, Lithuania, and Thailand are all paying closer attention to the company.
Some have banned the platform from specified activities, while others have issued warnings to consumers that they have no recourse to regulatory action if deals go south.
Although Singapore is considered a friendly destination for Binance to set up a new cryptocurrency exchange, the entity also faced strong pushback from Singapore’s regulators over concerns on weak consumer protection mechanisms.
While Binance claimed to have made improvements, it reportedly failed to meet the Monetary Authority of Singapore’s requirement for protection against money laundering and terrorism financing.
And among several regulatory issues, a big one that prevents Binance from qualifying is the mystery of its global headquarters – which has tax and regulatory implications.
DID MAS PULL THE TRIGGER TOO EARLY?
The withdrawal comes after the MAS in September ordered Binance Singapore to stop all crypto transfers with the global exchange binance.com, which the regulator placed on an investor alert list.
Responding to the regulatory pressure, Binance has sought to polish its compliance credentials in end-November with the publication of an article on 10 “fundamental rights” for crypto holders on its website, underscoring its “responsibility” to work with regulators and policymakers and calling for greater clarity on global regulatory frameworks.
So what’s really behind Binance’s withdrawal of its crypto exchange in Singapore?
The company said that it has weighed the "strategic, commercial and developmental" considerations in its recent decision. It might have decided to shift gears away from setting one up since it has just taken a stake in a local regulated exchange HGX.
Still, I wouldn’t read too much into these developments. This is but one more chapter in Binance’s long tussle with regulators all over the world, as the company adapts to regulatory pressures.
FURTHER IMPLICATIONS FOR CRYPTOCURRENCY EXCHANGES AND BLOCKCHAIN SECTOR
However, Binance’s withdrawal could be a sign that the wheels are turning against cryptocurrency as regulators clamp down on this “wild wild west”.
As one of the first platforms to explore the application of blockchain technology and cryptocurrency, Binance has experienced rapid growth in a mostly unregulated environment in the last few years, becoming the world’s largest cryptocurrency exchange by far, offering a wide range of services to users, from cryptocurrency spot and derivatives trading to loans and non-fungible tokens (NFT).
A loose global regulatory landscape has allowed such firms to thrive. Binance has accumulated a huge following across the world, with channels on Telegram – a cross-platform instant messaging application – for users in more than 30 countries.
Most countries would deign to intervene heavily when many want a finger in this growing tech pie. On LinkedIn, Binance currently lists over 1,000 vacant positions, which span from economies of Britain and the Netherlands to Hong Kong, Taiwan, and Singapore.
However, many industry experts agree that the largely unregulated development of the cryptocurrency industry in general and Binance in particular will soon be a thing of the past.
We can expect major cryptocurrency markets around the world, including the US, UK and several Asian markets, to impose more restrictions on the cryptocurrency industry in the near future.
Financial regulators are increasingly concerned that digital assets are growing drastically and should be regarded as systemically important so that speculation and undue risks that can spill over into the real economy can be curbed.
Given its anonymity, decentralised nature and rapid development, regulators now need to look at this new market of blockchain and crypto more broadly and work closely with market players to build a healthy regulatory environment.
As Binance’s CEO Changpeng Zhao once put it, the key to their growth lies in gaining user trust. Zhao also pointed out that despite the rapid development in digital capital, no more than 2 per cent of the world's population use cryptocurrencies.
"In order to attract those 98 per cent of people, we need to be regulated," he said.
Chen Tao is Associate Professor in finance at the Nanyang Business School at the Nanyang Technological University.