- The moves by the US SEC against Binance, Coinbase spooked investment sentiment just as Hong Kong seeks to establish itself as a trading hub along with Singapore
- Unlike Singapore and Hong Kong, the US does not have comprehensive regulations for crypto and blockchain firms to operate without fear of regulatory action
US regulatory action against two major cryptocurrency exchanges, Coinbase and Binance, is likely to serve as a reference point for Hong Kong and Singapore as they seek to balance growth with investors’ safety, analysts have said.
The crackdown is the latest in a series of measures by the US Securities and Exchange Commission (SEC), which has levied fines and other penalties against crypto-lending firms, following the collapse of one of the most-reliable crypto exchanges FTX last November that sparked public outrage.
The SEC said Coinbase had acted as a broker, exchange and clearing agency for investments without proper registration. The complaint came a day after the regulator sued Binance, alleging it had tried to evade US regulation.
The development spooked investment sentiment just as Hong Kong is seeking to frame regulations to establish itself as a trading hub along with Singapore, which already has such a framework.
The two cities may look at the US action as a reference point, which could mean tighter scrutiny even in the Asian hubs, analysts say.
“There will be a fallout for sure. Hong Kong and Singapore are taking measures to regulate the cryptocurrency industry by proposing new licensing regimes for virtual asset trading platforms,” said Anndy Lian, Singapore-based author of the book “NFT: From Zero to Hero”.
Unlike Singapore and Hong Kong, the US has yet to come up with a comprehensive set of regulations that allows cryptocurrency and blockchain firms to operate transparently without fear of regulatory action.
“The war that the US is waging on cryptocurrencies shows no signs of abating, and it will only intensify as time wears on,” said Julian Hosp, the CEO and co-founder of Cake Group, a fast-growing Southeast Asia’s digital assets innovator.
The regulator’s action is part of a larger trend which is likely to continue into the 2024 presidential election, Hosp said.
Industry cautions on overkill
The Securities and Futures Commission (SFC) in Hong Kong has requested feedback on a proposal that would require virtual asset trading platform operators to obtain the same type of licences as securities traders, Lian said, adding that it had asked other firms who were not applying to prepare for an orderly closure.
Securities, as opposed to other financial assets, are strictly regulated and require detailed disclosures to inform investors of potential risks.
“These developments indicate that cryptocurrency exchanges seeking approval in Hong Kong and Singapore will have to adhere to new regulatory requirements and may be subject to increased scrutiny from regulators,” Lian said.
But new regulations could help establish the legitimacy of the cryptocurrency industry and potentially attract more investors and businesses at a time people are increasingly wary of the US market, analysts said.
“The SEC’s lawsuit primarily focuses on actions that have taken place in the United States and their impact on American citizens,” said Rajagopal Menon, vice-president of WazirX, India’s leading cryptocurrency exchange.
“As for regulators in Hong Kong, such as the Securities and Futures Commission, and Dubai’s Virtual Asset Regulatory Authority, the SEC’s lawsuit can serve as a point of reference or information. However, it does not automatically alter their regulatory stance or trigger immediate action,” he added.
At the two-day Crypto Expo Asia in Singapore, attendees were unbothered by news about Binance and Coinbase, with little to no mention about the developments.
Though the US action may not have a direct impact on other regions, Menon conceded that it could potentially have some indirect influence on their decision-making processes.
Nizam Ismail, founder of Singapore-based compliance consultancy Ethikom Consultancy, said crypto investors too were likely to be more cautious about risks and the need for due diligence on intermediaries.
“These products will be subject to prudential and consumer protection requirements. In the longer term, regulatory gaps will be addressed and consumer protection measures are likely to be introduced,” he added.
The development also exposed extreme price fluctuations in the digital assets which have made many traditional investors in assets like stocks and bonds cautious about investing in the digital asset.
After initially falling to a three-month low of US$25,750 following the Binance lawsuit, bitcoin has rebounded to around US$27,000 in afternoon trade in Asian hours.
Some investors – typically traditional investors, family offices and high net worth individuals – may have been deterred by the US regulator’s lawsuits, while “die-hards” long time investors “would not care”, said Hayden Hughes, the chief executive office and co-founder of Alpha Impact, a social trading platform.
A key takeaway from the incident for Asian hubs like Hong Kong is to have “regulatory clarity”, he said, adding that Hong Kong’s decision to open up to crypto and implement regulations had been a step in the right direction.
But it is unlikely that the event would deter crypto exchanges from seeking approval from Hong Kong and Singapore authorities, he said, highlighting that the two cities would gain from establishing clear rules and a licensing framework.
“Asian hubs can focus on their core mission of protecting the retail investors. There is absolutely no incentive for regulators to move fast and break things,” Hughes said.
Industry executives urged regulators to strike a balance with the fledgling industry.
Hong Kong and Singapore were unlikely to be impacted by the developments “if there is a will on both sides” and regulators are cautious “to not overkill the opportunity”, said Thomas Tallis, CEO of TVVIN, a firm that takes real-world assets and issues them on the blockchain.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.
