Comment: Will Bitcoin One Day Become The Main Currency In Singapore?
SINGAPORE: We are seeing growing interest in Bitcoin and other cryptocurrencies as the price of Bitcoin has risen and collapsed, showing an almost ten-fold increase in price over a one-year period.
Bitcoin is the world’s most valuable or expensive cryptocurrency to date, having grown 276% in the past year alone, well ahead of others like Ether used on the Ethereum network.
It peaked in April this year before collapsing to almost half of its value in June. Singaporean investors are also keeping a close eye on Bitcoin and cryptocurrencies, with traditional institutions like banks launching blockchain funds to give their wealthy investors the opportunity to invest in cryptocurrencies.
We are even seeing traditional companies like Kopitiam in Funan announcing that they will accept cryptocurrencies like Bitcoin and Ethereum. As of January, there were eight Bitcoin ATMs in Singapore and around 51 companies listed as accepting cryptocurrencies for payment, according to Statista.
BITCOIN AS A TRANSACTION CURRENCY
Bitcoin, however, has several characteristics that make it unsuitable for use as a transaction currency.
The volatility of Bitcoin suggests that consumers and traders bear exchange rate risk, which arises from the need to change fiat currency into Bitcoin.
For example, in 2010 we saw the very first commercial transaction using Bitcoin to buy a pair of pizzas for 10,000 Bitcoins – which equates to around $ 40 then would cost almost $ 400 million today.
The inefficiency of the blockchain with transactions taking hours, if not days, to be confirmed, and the use of proof of work in Bitcoin mining also leads to excessive consumption of electricity, leading to problems. sustainability.
Thus, Bitcoin is unlikely to be widely adopted locally as a transaction currency, although other forms of virtual currencies or stablecoins with values linked to certain fiat currencies may be more widely adopted as a transaction currency.
Additionally, there are limited regulatory protections for cryptocurrency customers, meaning that unlike e-money stored in an EZ-Link card or bank account, if the business becomes insolvent, crypto customers -currencies may well lose the entire amount.
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In this regard, the Monetary Authority of Singapore (MAS) has asked cryptocurrency companies to make clear and appropriate disclosures to their clients, including traders, so that all clients are aware of the risks.
Cryptocurrencies are not legal tender, nor are they securities. Instead, they are considered merchandise, just like collectible cards that people can buy from vending machines or stores. And as a good, they can be used as a medium of exchange.
BITCOIN AS AN INVESTMENT INSTRUMENT
But with high net worth investors increasingly interested in incorporating cryptocurrencies into their investment portfolio and with traditional banks such as DBS providing investment opportunities for clients integrating cryptocurrencies into the portfolio, we are likely to see a growing interest among local investors in cryptocurrencies given its increased availability from banks.
It should be noted, however, that the size of the cryptocurrency market in Singapore remains extremely small, according to the MAS. Over the years, the MAS has repeatedly published consumer advisories to alert the public to the risks involved in trading or investing in cryptocurrencies.
Cryptocurrency prices can be very volatile and are often speculative in nature. This is not surprising given that both factually and scientifically, cryptocurrencies are nothing more than bytes of data stored on computers in networks.
They are not tied to a country’s economy or economic fundamentals, and their value cannot be measured or determined objectively. Their values are simply what people think they are worth, much like trading cards, and even fluctuate according to tweets from billionaires like Elon Musk.
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Rapid, massive increases in value are appealing to those hoping for quick profits – investors always hope to be able to buy low and sell high, especially since the up and down cycles occur frequently and quickly.
RULES AGAINST ABUSE
In addition to warning consumers of the speculative nature of many of these virtual assets, the MAS has imposed rules to combat the misuse of cryptocurrencies to finance terrorism and arms proliferation, and money laundering. money such as laundering the proceeds of drug trafficking and using cryptocurrencies to receive ransom or other illicit payments.
The ability of cryptocurrencies to be moved or used quickly, relatively anonymously and the cross-border nature of such transactions make them ideal mechanisms for money laundering.
Additionally, cryptocurrency assets stolen from cryptocurrency firms with poor governance or cybersecurity measures may be laundered without being noticed by either other firms with equally poor governance or cybersecurity measures, or via DeFi – decentralized financial systems – which have no intermediaries for transactions.
REGULATIONS FOR PROVIDERS
In Singapore, entities offering cryptocurrency trading are regulated as digital payment token service providers under the Payment Services Act and must be licensed.
Likewise, entities that deal in cryptocurrencies or facilitate the transmission of cryptocurrencies or provide custodian wallet services must also be licensed and comply with all requirements.
Although the regulatory intention is to combat the risks of money laundering and terrorist financing, the requirements placed on entities are quite significant, which in turn may deter companies from offering the services on a large scale.
For example, before any transaction, rigorous customer due diligence is required, coupled with constant and continuous monitoring.
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In addition, the MAS is now empowered to quickly impose additional measures on cryptocurrency firms if necessary. All of these will be brakes for cryptocurrency providers and investors.
Overall, we believe that Bitcoin is unlikely to become mainstream as a transaction currency. Cryptocurrencies that can become a currency supporting transactions must be stable and efficient – attributes that are not associated with Bitcoin.
Bitcoin may attract growing interest from investors, who will have to contend with the inherent volatility as Bitcoin is not tied to any underlying asset, but its value is highly dependent on investor expectations – which is why an Elon tweet Musk is all it takes. takes to cause wild fluctuations in its value.
Hannah Yee-Fen Lim is Associate Professor of Business Law at Nanyang Business School, NTU and one of 15 international legal experts appointed by the International Institute for the Unification of Private Law to draft new international model laws on cryptocurrencies and other digital assets. Boh Wai Fong is Assistant Dean and Professor of Information Systems at Nanyang Business School, NTU.
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