Philippine Digital Asset Exchange (PDAX) has raised more than $50 million in a funding round led by U.S. investment firm Tiger Global Management as the cryptocurrency exchange looks to make virtual assets more accessible in the Southeast Asian country.
UBX, the venture fund of UnionBank of the Philippines, which counts one of the country’s richest clans, the Aboitiz family, as its largest shareholder, has taken part in the financing round, PDAX said in a statement on Thursday. Other investors include Kingsway Capital, Jump Capital, U.S. blockchain payments firm Ripple and DG Daiwa Ventures, the investment company jointly established by Japan’s Daiwa Securities Group and Digital Garage, among others.
“Today, PDAX facilitates the exchange of crypto and fiat currencies, and enables payments in and out of metaverse applications,” Nichel Gaba, founder and CEO of PDAX, said in the statement. “We are in the middle of developments that will continue to make access to digital assets safer, easier and more efficient for everyone.”
Tiger Global led another $12.5 million funding round in PDAX last August, according to the crypto company. BC Group, a Hong Kong-listed firm that runs the city’s first licensed digital asset platform named OSL, also participated in the round.
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The new investments underscore the potential for cryptocurrencies in the Philippines. The country was ranked third in Southeast Asia in terms of adopting of digital assets last year, according to blockchain data platform Chainalysis. Some blockchain-based games that allow players to earn cryptocurrencies have become an income source for people in the Philippines as the pandemic cut down on physical jobs.
PDAX was established in 2018 by Gaba, who spent nearly a decade working in various roles in investment banking, including HSBC. The crypto exchange is one of the 18 licensed virtual asset service providers in the Philippines as of December, according to the country’s central bank.
PDAX’s mission to make crypto investments accessible to people in the Philippines has attracted the likes of more established players in the emerging industry. The company said it had struck partnerships with BitMex Ventures, the investment arm of derivatives exchange BitMex, as well as ConsenSys, the blockchain software firm that operates the popular MetaMask crypto wallet.
PDAX has also teamed up with the UnionBank and the country’s treasury bureau to launch a blockchain-based app that allows traders to invest in retail treasury bonds.
The overwhelming FOMO dynamic emanating from crypto circles promises to make 2022 a rocky year for Asian banks.
Whether it’s fear of missing out or sober business decisions driving the trend, several institutions are taking the plunge. That’s particularly so in Southeast Asia, where Singapore’s DBS established a crypto Digital Exchange platform.
In Thailand, Siam Commercial Bank grabbed a 51% stake in cryptocurrency trader BitKub. More recently, Union Bank of the Philippines plans to provide crypto trading and custodial services. And so on, and so on.
All this has watchdogs like Fitch Ratings worried and investment giants like Goldman Sachs a bit worried. Not waving the red “danger” flag given that the trajectory of money is clearly away from notes, coins and old-school payment tools. It’s more of a be-careful-what-you-wish-for vibe.
On the bright side, notes Fitch analyst Tamma Febrian, getting on the crypto bandwagon could boost trading and custodial fees over time. Banks could build competitive advantages and new customer bases in nascent service fields as science fiction becomes financial fact. It’s not like the competitive threats posed by crypto technologies and fintech startups in wholesale clearing, settlement and cross-border payments will diminish.
Yet risks abound as crypto disruption and regulatory responses move faster than executive suites can adapt. And in the case of market safeguards and infrastructure, perhaps not fast enough.
“Changes could raise compliance costs or curb existing/planned business activity, even as tighter regulation helps to contain financial and operating risks, providing greater assurance to potential crypto investors and users,” Febrian says. “Where banks have weaker risk controls, there may be a greater potential for crypto engagement to expose them to legal risks, for example around money laundering and terrorism financing.”
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What’s more, Febrian adds, “reputational risks could stem even from activity that is legal, for example if customers perceive banks have tacitly endorsed crypto trades that subsequently turn sour.”
There’s something else to consider: the widely shared idea that increased adoption of cryptocurrencies will translate into rising prices. Recent selloffs of crypto assets suggest “mainstream adoption can be a double-edged sword,” argue Goldman strategists Zach Pandl and Isabella Rosenberg. “While it can raise valuations, it will also likely raise correlations with other financial market variables, reducing the diversification benefit of holding the asset class.”
This caveat flies in the face of the conventional wisdom that cryptocurrencies are a solid tool for diversification. And it’s far more damaging than, say, JP Morgan Chase CEO Jamie Dimon calling cryptocurrencies a “fraud” and “worthless.” Or Warren Buffett, who called Bitcoin a “mirage” that “doesn’t meet the test of a currency.”
It’s been easy for the crypto crowd to dismiss such naysaying as the protestations of analog-age thinkers. Yet Goldman’s critique makes a mockery of crypto bulls teeing off anything happening in El Salvador, which made Bitcoin legal tender. Or whether Microsoft, Paypal or Starbucks accept it.
More important revolutions are taking place at the globe’s top monetary authorities—from the People’s Bank of China in Beijing to the Federal Reserve in Washington. The PBOC has the lead in rolling out a central bank digital currency, which the acronym-crazed crypto crowd calls CBDC’s. Now, Fed Chairman Jerome Powell’s Fed is pivoting in that direction, too.
Ten days ago, Powell’s team announced it’s seriously examining a digital dollar, a “Fedcoin,” if you will. The news dropped around the same time markets were realizing the long-held argument that crypto is a hedge against inflation was bunk.
There’s a big debate over whether an e-yuan or a Fedcoin would either fortify private crypto assets or banish them to the sidelines. In China, President Xi Jinping’s team has made its own biases known by effectively banning crypto mining and trading.
And the Fed? Powell’s team is being, well, cryptic about its intentions. But Bitcoin enthusiasts are well aware that Chairman Gary Gensler’s team at the Securities and Exchange Commission could soon decide the future of crypto assets.
Here, it’s hard not to connect the dots to what North Korea is up to. One of the biggest concerns about crypto is how it makes life easy for money launderers, terror financiers, tax evaders and hackers. Earlier this month, advisory firm Chainalysis turned heads everywhere when it concluded Kim Jong Un’s hacker army netted about $400 million of cryptocurrency last year, a 40% increase from 2020.
Odds are, the real number of much, much higher. It allows Kim to fund his nuclear ambitions, thump his nose at United Nations sanctions and throw off the yoke of Beijing’s influence. Gensler’s phone has to be ringing off the hook with panicked calls from Treasury Department and national security bigwigs.
Either way, Goldman’s skepticism about the normal supply-and-demand dynamics applying to cryptocurrencies should be a warning to Asia’s banks. Odds are, the predictability they typically apply to assets and services will break down in other ways, too.
As of now, analyst Febrian points out, “we believe recent crypto activity is unlikely to have major near-term rating repercussions for Fitch-rated banks in Southeast Asia, but continue to assess developments as they arise.”
Going forward, though, everything we think we know about regulatory controls and compliance to reduce risk—including know-your-customer procedures—is up in the air. So are credit rating companies’ abilities to gauge a bank’s digital asset risks—and new ones as they emerge as innovation accelerates.
Here, Goldman’s concerns that crypto assets might not follow similar laws of financial gravity as other stores of value is a sobering warning to Asia banks to tread very carefully.
Cryptocurrency mining services company BitFuFu, backed by industry giant Bitmain, is slated to go public in the United States by merging with a special-purpose acquisition company in a deal that will value the company at $1.5 billion.
BitFuFu announced on Tuesday that it would enter a definitive business combination agreement with Nasdaq-listed Ariz Acquisition, which would include $70 million of fully committed private investment in public equity, or PIPE, financing led by bitcoin mining-rig maker Bitmain and a spinoff company, Antpool Technologies.
The Hong Kong-based company aims to provide a “one-stop hashrate solution provider for miners of all sizes,” according to a company press release, and offers cloud-mining, self-mining, and miner hosting—effectively allowing users to invest in crypto mining without having to operate the facilities.
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“Entering this transaction now is the most optimal and strategic timing for enduring our rapid growth trajectory and increasing our global footprint in the crypto-mining industry,” says Leo Lu, founder and CEO of BitFuFu.
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“This milestone of becoming a publicly-traded company through our merger with ARIZ will further drive improvements to our corporate governance, increase transparency, and attract new talent to help us achieve our vision of becoming the top digital asset mining company,” Lu says.
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Lu founded BitFuFu in December 2020 after leaving Bitmain, where he worked for two years. He said that other key members of BitFuFu’s team were also former members of Bitmain and BitDeer, a spinoff controlled by billionaire crypto pioneer Jihan Wu.
In February 2021, BitFuFu partnered with Bitmain, becoming the company’s sole partner for cloud services, with the latter providing mining resources, such as machines and mining pools. BitFuFu entered into a 10-year mining hosting agreement with Bitmain globally, including the U.S.
Binance, the world’s largest cryptocurrency exchange, has teamed up with Sarath Ratanavadi’s Gulf Energy Development to look into setting up a digital asset trading platform in the Southeast Asian country.
Gulf Energy said the agreement with Binance is a response to the “rapid growth” of Thailand’s digital infrastructure in the foreseeable future, according to the firm’s statement filed to the Bangkok stock exchange on Monday. The two companies will study the possibility of establishing a crypto exchange and related business in Thailand, Gulf Energy said.
Binance described the collaboration as the “first step” in exploring opportunities in Thailand. “Our goal is to work with government, regulators and innovative companies to develop the crypto and blockchain ecosystem in Thailand,” the company’s spokesperson said.
Gulf Energy, one of Thailand’s biggest power producers, has been diversifying its portfolio with investments into renewable energy, motorway projects and telecommunications. The company in October reached an agreement with Singapore’s telecom giant Singtel to develop a data center business in Thailand. It came months after Gulf Energy acquired more shares of Intouch Holdings, which owns Thailand’s largest mobile phone operator.
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Gulf Energy’s tie up with Binance marks the first time the company has ventured into the crypto industry, which serves to underscore the rising popularity of digital assets among the country’s residents. In November, Thailand’s oldest lender Siam Commercial Bank announced that it had acquired 51% stake in local crypto exchange Bitkub for 17.85 billion baht ($538.7 million).
The crypto boom has also attracted the attention of Thailand’s financial authorities who recently stepped up scrutiny of the nascent industry. The nation’s central bank said in December it was considering rules that would regulate the usage of cryptocurrencies as a mean of payments. The move is said to be aimed at controlling the risks digital assets might bring to financial stability and also provide some safeguards for investors.
Binance has already run into trouble with the Thailand’s regulator. Last July, the Securities and Exchange Commission of Thailand filed a criminal complaint against the crypto giant for operating without a license. The offence carries a penalty of two to five years imprisonment and a fine of up to 500,000 baht. Binance said earlier that the platform had not been actively soliciting users in Thailand.
Binance was established in 2017 by Changpeng Zhao and fellow cofounder He Yi, who together built it into the world’s largest crypto exchange by trading volume, according to CoinGecko’s ranking. Binance processed $2.3 trillion worth of bitcoin and other crypto assets in December alone, says market data researcher CryptoCompare.
Kiat Lim—son of Singaporean billionaire Peter Lim—has joined the craze for non-fungible tokens (NFTs) with the launch of a private digital community for next generation entrepreneurs on a platform powered by blockchain technology.
Lim teamed up with Elroy Cheo—a scion of the family that owns edible oils firm Mewah International—to create ARC as an exclusive community which counts Asian entrepreneurs, venture capitalists, Web3 developers, cryptocurrency experts and social influencers among its members.
“Access today, share opportunities tomorrow, that’s our tokenization strategy and what makes ARC stand out from any other networking platform,” ARC cofounder Kiat Lim said in a statement. “ARC’s ambition is to be a bridge across the real and virtual world today, and, in the near future, the ARC metaverse.”
ARC is the second technology startup established by Lim. In October, he and his father launched ZujuGP, a digital community built around football endorsed by Manchester United’s Cristiano Ronaldo. Lim is also the executive director of Singapore-listed Thomson Medical Group and CEO of Thomson X, the healthcare provider’s digital platform.
The beta version of the ARC app, which uses NFTs to authenticate membership, has already been launched on the Apple store, making it available for iPhone users. ARC is also developing a version of the app for Android smartphones.
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Apart from promoting collaboration among entrepreneurs and innovators, ARC also serves as a venue for members to discuss topics such as the challenges of launching new businesses amid the lingering impact of the Covid-19 pandemic.
“By creating a safe space for Asia’s dynamic and purpose-driven generation to connect authentically, ARC is a new collaborative destination that opens up endless possibilities,” ARC cofounder Elroy Cheo said.
Cheo, who spent the past decade helping his family’s business expand into new markets, has been dabbling in cryptocurrencies and NFTs in the last few years. He is the architect of the ARC community, which plans to add an ARC metaverse as well as gaming and decentralized finance elements that would allow members to earn while collaborating on the platform.
Binance, which runs the world’s largest cryptocurrency exchange, has been green lighted by regulators in Bahrain and Canada for its affiliates to operate in the two countries.
The company announced on Monday that it had obtained in-principle approval from Bahrain’s central bank to establish itself as a crypto-asset service provider in the island nation.
Binance said it will still have to complete the full application process, which is expected to close in “due course.” If concluded, Bahrain would become the first country within the Middle East and North Africa (MENA) region to grant regulatory approval to a Binance entity.
“The Central Bank of Bahrain has demonstrated leadership and forethought in addressing crypto as a future asset class,” said Changpeng Zhao, the billionaire founder and CEO of Binance. “The approval recognizes Binance’s commitment to comply fully with regulatory requirements and our broader commitment to anchor operations and activities in Bahrain.”
Zhao also announced on Twitter on the same day that a separate entity of Binance has been registered with Canada’s financial intelligence agency, the Financial Transactions and Reports Analysis Centre of Canada. The entity, named Binance Canada Capital Markets, will offer services that involve cryptocurrencies, foreign exchange and money transfers.
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The application and registration are part of Binance’s efforts to become a “fully regulated centralized” crypto exchange. The firm has been doubling down on compliance after drawing attention from financial regulators around the world over its decentralized corporate structure and lack of proper operating licenses.
One of the significant measures Binance took is actively looking for a location to set up its formal headquarters. The company has reportedly been in talks with regulators in Dubai about basing its head office in the United Arab Emirates, according to Bloomberg.
Last week, Binance signed a cooperation agreement with the Dubai World Trade Centre Authority to form an international virtual asset ecosystem. The company has also named Richard Teng, the former CEO of Binance Singapore, as the regional head of Binance’s Middle East and North Africa unit.
Jihan Wu gives a rare interview to discuss his latest ventures, his departure from mining giant Bitmain and the future of the crypto markets.
Cryptocurrencies were born to be volatile, says Jihan Wu, but their growth over the long term will far outweigh their price fluctuations. “Even if 95% of today’s coins lose all their value and disappear, the remaining 5% will grow massively,” he says.
Wu’s optimism is borne of his experience. He discovered bitcoin and recognized its early promise more than a decade ago, when he saw it being used to buy computer hardware and IT services in online forums like Bitcointalk.org. But to break out of its niche market and gain wider acceptance, bitcoin would need far more infrastructure to support it. So, Wu began working on a solution that would play a vital role in bitcoin’s development.
In 2013, Wu teamed up with Micree Ketuan Zhan to launch Bitmain Technologies, a supplier of specialized hardware known as mining rigs which are designed for the single task of adding transactions to bitcoin’s blockchain. The people who own the hardware earn, or mine, new bitcoins by making their processing power available to the network.
As bitcoin’s price rose over the years, Bitmain’s mining rigs became a runaway success, and it turned both Wu and Zhan into billionaires. By 2018, Bitmain had become the world’s largest supplier of cryptocurrency mining rigs with a market share of 75%, according to Frost & Sullivan. And the Beijing-based company was preparing for a multibillion-dollar public listing in Hong Kong—until bitcoin crashed, losing 70% of its value by the end of that same year.
Bitmain’s IPO became a casualty of bitcoin’s volatility and placed a heavy strain on the company’s finances. And the two cofounders were quickly thrust into a scramble for survival that later evolved into a struggle for control of the company.
Today, Wu looks back at bitcoin’s twists and turns as milestones on his entrepreneurial journey toward building one of the world’s largest crypto business empires. Bitmain has since returned to profitability and continues to dominate the global market for mining rigs in spite of China’s recent crackdown on crypto mining and trading. In response to the new restrictions, the company ceased shipments to its clients in mainland China, although overseas customers are said to be unaffected. Bitmain is also building rigs that use less energy to address regulator’s concerns, but it did not elaborate on any further measures it intends to adopt.
Wu stepped away from Bitmain at the beginning of the year to focus on his role as chairman of two spinoffs both based in Singapore—Bitdeer Technologies, a cryptocurrency mining platform that’s already announced plans to list on the Nasdaq at a $4 billion valuation, and Matrixport, a financial services firm valued at $1 billion in its latest funding round.
Matrixport’s launch in February 2019 was another demonstration of Wu’s long-term optimism for the crypto industry. Bitcoin was still in a bear market when he and his fellow cofounder John Ge Yuesheng established their firm.
“We believed that crypto and blockchain together would experience rapid growth in the future to tens of trillions of dollars,” Wu says. “And many of these new users will stay in the crypto market forever, so they’ll need advanced and sophisticated products to manage the wealth they accumulate in crypto assets.”
Their decision to push ahead looks prescient now. Since Matrixport was launched, the overall market cap of cryptocurrencies shot up to an all-time high of $3 trillion in November, according to data from CoinGecko. And the global market size of crypto users has more than doubled to 221 million people in the first half of the year, according to a report from Crypto.com.
Cryptocurrencies have been riding high this year on signs that digital assets are becoming more mainstream. El Salvador became the first country in the world to accept bitcoin as legal tender and a growing number of companies including AMC, AT&T, Mastercard, Microsoft and PayPal and are now accepting some cryptocurrencies as payments.
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Buoyed by the rising tide of the crypto market, Matrixport raised $100 million during a Series C funding round announced in August that was led by partners of Yuri Milner’s DST Global, Adrian Cheng’s C Ventures and Kuok Meng Xiong’s K3 Ventures along with other participants including Qiming Venture Partners and existing backers like IDG Capital and Dragonfly Capital.
Wu’s track record of building multiple multi-billion dollar companies is nearly unparalleled, says Adam Goldberg, cofounder of Standard Crypto, a venture fund based in San Francisco. Goldberg, who was formerly with Lightspeed Venture Partners, became an investor in Bitmain around 2017, and later joined the board of Matrixport.
“Jihan is a generational entrepreneur. He is uniquely agile, resilient, and always peeking around corners to preview the future of the crypto industry.”
Matrixport’s name alludes to its aim of becoming a gateway or portal for investors to enter a new digital realm, much like in Wu’s favorite movie The Matrix. The firm’s strategy involves offering investment products like those found on Wall Street but tailored to crypto investors.
Matrixport’s services include custody, trading, lending and structured products. Wu said they were the first to offer crypto dual currency products, which are investments that offer guaranteed yields with the payments settled in one of two possible cryptocurrencies depending on market prices at the time. The firm says it now has $10 billion in assets under management and custody and has more than $5 billion in average monthly trading volumes.
Wu’s other venture, Bitdeer, is a mining platform that currently operates five pools in the U.S. and Norway with more than 100,000 mining units under its management.
Bitdeer and Matrixport were both spun off from Bitmain as part of a settlement deal reached between Wu and Zhan after the two cofounders clashed. A nondisclosure agreement prevents Wu from speaking in detail about the terms of that deal, but he was able to discuss the circumstances that led to it with Forbes Asia for the first time.
“That was a tough period for our business and for me. And of course, the pressures of running a complex manufacturing business built up and eventually led to a falling out between us two cofounders,” Wu recalls.
Bitmain had rapidly gone from generating $2.5 billion in revenue in 2017, and a profit of $742 million in the first half of 2018, according to its prospectus filed to the Hong Kong stock exchange, to the point it was losing money and laying off swathes of staff.
The company had ventured into a number of different areas during the boom time—AI, mining pool construction, a decentralized crypto exchange, venture capital, etc.—but many of those initiatives failed to turn a profit during the bear market of 2018, which came to be known as “crypto winter,” a deep selloff followed by a long period of flat trading.
Bitmain’s two cofounders, who had previously worked together as co-CEOs, disagreed over its strategic direction and a power struggle ensued. The dispute became public at times until a deal was finally brokered at the end of last year that saw Wu step down as chairman and CEO of Bitmain, although he still retains a stake in the company. Zhan is now running Bitmain’s manufacturing operation and another mining pool called Antpool.
“The settlement agreement marks the end of the hardship. Bitmain didn’t go bankrupt, instead it’s doing really well now,” Wu says. “Bitmain’s accumulated net profit is expected to reach between $2 billion and $4 billion. It’s a company that generates very high profits.”
Wu’s path to crypto entrepreneurship began with his discovery of bitcoin when he was working as an investment analyst in Beijing. Having studied economics and psychology from Peking University, he instantly became engrossed by Satoshi Nakamoto’s idea for a decentralized digital currency.
“The white paper he [Nakamoto] published in 2008 opened up a new world and offered an opportunity for new players like us to participate.”
Wu said he immediately dropped his studies to become a certified accountant to instead focus on learning and then investing in bitcoin. After buying hundreds of coins himself in 2011, Wu invested in ASICMiner, a bitcoin mining company founded in 2012 by Jiang Xinyu, or Friedcat as he was known in various online forums. The profits Wu gained from that deal was combined with capital from a group of other investors to start Bitmain in partnership with Zhan in 2013.
Zhan was a chip designer who had been running his own business of making set-top boxes for televisions prior to teaming up with Wu. The two established Bitmain as one of the earliest manufacturers of the specialized chips used for mining cryptocurrencies known as application-specific integrated circuits, or ASICs.
Wu’s initial aim was to be a VC investor behind Bitmain, but after committing his capital, he soon realized the heavy demands of running a tech startup required him to get involved in managing the company.
In less than four years, Bitmain became the most influential company in the bitcoin economy. Bitmain’s vertical integration extended from designing the chips used in its mining rigs to assembling the hardware and selling them to customers around the world. At the same time, Bitmain was operating mining pools on contract to customers, as well as owning several of its own pools. Bitmain’s pools contributed about 37% of the aggregate processing power of the Bitcoin network by 2018.
In spite of the regulatory uncertainty that characterizes cryptocurrencies in many of the world’s largest markets, Wu believes the industry will continue to develop unique innovations because it isn’t subjected to the constraints of the traditional financial system.
“Innovations like DeFi [decentralized finance] are breathtaking” he says. “Technologies like crypto and blockchain have created a new world, allowing fintech entrepreneurs to make big achievements. Eventually, traditional financial institutions and regulators will embrace blockchain technology.”
Binance will launch a new digital asset exchange in Indonesia through a joint venture with a consortium led by MDI Ventures, an investment arm of Telkom Indonesia.
“Our ambition at Binance is to grow the blockchain and cryptocurrency ecosystem globally, and this initiative in Indonesia is a significant step in that direction,” said Binance founder and CEO Changpeng Zhao (often referred to as CZ) said in a press release on Wednesday.
“With fast technology adoption and strong economic potential, Indonesia could become one of the leading centers of the blockchain and crypto ecosystem in Southeast Asia,” he added.
The consortium of digital and fintech companies partnering with Binance area said to have access to more than 170 million consumers in the world’s fourth most populous country.
Binance said it will provide asset management infrastructure and technology to support the development of the new exchange.
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Last week, Binance’s affiliate in Singapore made an investment in Hg Exchange (HGX), a regional private securities exchange. The deal gives Binance a post-money stake of 18% in HGX, which was granted a market operator license by Singapore’s monetary authority earlier this year.
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Established only four years ago, Binance grew rapidly to become the world’s largest cryptocurrency exchange by trading volume, according to CoinGecko’s ranking. Binance’s main trading platform has managed to record an average daily trading volume of $2 billion and more than 1.4 million transactions per second, according to its website.
Binance Singapore has withdrawn its application for a license to operate a cryptocurrency exchange, and will shut down its trading platform in the city-state by February 13.
Binance Singapore’s users will be informed through email as to what steps they will need to take as the platform ceases its operations. The company said in an emailed statement that registrations, crypto and currency deposits and trading on Binance Singapore’s platform will be closed with immediate effect.
“We always put our users first, so our decision to close Binance.sg was not taken lightly,” said Richard Teng, Chief Executive Officer of Binance Singapore. “Our immediate priority is to help our users in Singapore transition their holdings to other wallets or other third-party services.”
Binance Singapore was among roughly 170 companies that had applied to the Monetary Authority of Singapore (MAS) for a license to provide crypto services. The company had been operating under a temporary exemption during the licensing process.
The company said that its operations in the city-state will now become a blockchain innovation hub with initiatives that include incubation programs, blockchain education and investments
Last week, Binance Singapore made an investment in Hg Exchange, a regional private securities exchange. The deal gives Binance Singapore a post-money stake of 18% in a Singapore-based exchange that was granted a Recognized Market Operator license by MAS earlier this year. The deal will be subject to regulatory requirements.
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Binance was founded in 2017 by Changpeng Zhao, or CZ, who built it into the world’s largest cryptocurrency exchange by trading volume, according to CoinGecko’s ranking. Although the company has no official headquarters, Binance’s main trading platform has still managed to record an average daily trading volume of $2 billion and more than 1.4 million transactions per second, according to its website. Zhao recently told Bloomberg that Binance had already decided on a location for its headquarters and will announce it soon.
Regulatory uncertainty and travel restrictions are forcing the city’s crypto elites to shift their operations to more hospitable jurisdictions.
Sam Bankman-Fried’s time in Hong Kong was relatively brief, but incredibly lucrative. In the three years he spent in the city, the unabashed workaholic known for sleeping in his office established FTX, a crypto derivatives exchange that quickly became one of the world’s busiest trading outlets. And the success of that business turned Bankman-Fried into the richest person in crypto at the age of 29 with a $26.5 billion fortune. And then he left.
In September, Bankman-Fried jetted off to the Bahamas for good. His legions of social media followers were surprised by the unfamiliar sight of him donning a suit as FTX’s management team welcomed the country’s prime minister to their new headquarters. Why the Bahamas?
“It’s really important that we have long-term regulatory guidance and clarity,” he said from the company’s office in the Caribbean archipelago. “Hong Kong has not yet drafted the actual bill…there’s uncertainty about exactly how that is going to turn out.”
Hong Kong has developed into a hotbed for blockchain and crypto-related businesses. Many of the global elites from the crypto industry got their start in Hong Kong, including exchanges Crypto.com, BitMEX, Bitfinex, OSL and others. The world’s largest stablecoin, Tether, was launched from Hong Kong. And the city notched up an astounding $60 billion worth of incoming cryptocurrencies between July 2020 and June 2021, according to blockchain data firm Chainalysis.
But regulatory uncertainty in Hong Kong combined with strict quarantine requirements have become catalysts for some crypto companies to shift their operations to other markets where regulators are moving more swiftly to roll out rules that support the nascent industry.
Singapore is the nearest such location and it managed to attract a veritable who’s who of the crypto billionaire ranks. Since the city-state opened its door to “crypto tokens” in January 2020, Brian Armstrong’s Coinbase, Changpeng Zhao’s Binance, Cameron and Tyler Winklevoss’ Gemini have already set up business units and applied for licenses to operate there.
The Monetary Authority of Singapore (MAS) said that it’s already received 170 applications for crypto-related service providers as of July. Although the financial regulator has turned down two applicants so far, three other candidates, Australia-based exchange Independent Reserve, the brokerage arm of DBS Bank and Singapore’s fintech company Fomo Pay, announced over the past three months that they had secured licenses. Coinhako also said in November that it had received in-principle approval from MAS, making it the latest to begin operating as a regulated crypto exchange in the country. So far, around 70 crypto-related service providers have been granted temporary exemptions that allow them to operate without a license for six months.
Crypto.com, the world’s third-largest spot exchange by 24-hour trading volume, according to CoinGecko, shifted its headquarters this year from Hong Kong to Singapore. Eqonex Group, a Nasdaq-listed digital asset financial services firm, established its crypto derivatives exchange last year in Singapore rather than Hong Kong, where it operates much of its other businesses. The firm, formerly known as Diginex, cited Hong Kong’s regulatory regime which bans crypto derivatives and limits trading services to professional investors.
“These were the two things that we really didn’t feel were the right way to go, and in fact were contrary to the way that we had designed our products,” said Richard Byworth, CEO of Eqonex Group.
Hong Kong introduced an opt-in licensing regime in 2019 for platforms that allow investors to buy and sell security tokens, which are traditional stocks and bonds in a digital form. At the time, most cryptocurrencies fell outside the scope of the framework. Furthermore, licensed exchanges are only allowed to serve professional investors with a portfolio of at least HK$8 million ($1 million) in liquid assets. They are also banned from offering traders access to crypto futures and derivatives.
So far, the only firm to be granted a license under Hong Kong’s voluntary regime is crypto trading platform OSL. The Securities and Futures Commission (SFC) said in November that it has applications from several other firms under consideration.
Now, the city’s regulators are discussing the possibility of a compulsory licensing regime for exchanges that offer virtual asset trading, including bitcoin and others that were previously excluded. The proposal, however, still suggests limiting exchanges operating in Hong Kong to only offering services to high-net-worth individuals. The restrictions on crypto derivatives are also likely to apply on licensees under the new regime.
“Frankly, it’s not an easy set of rules to comply with. But what the Hong Kong regulations have done is deliver, in my mind, the highest level of investor protection in digital assets anywhere in the world,” said Wayne Trench, CEO of OSL.
But others contend the policy will result in retail investors taking even greater risks if their only option is to resort to using unregulated exchanges to buy and sell cryptocurrencies in Hong Kong. “As much as you want to ban it, people will always find a way to buy crypto, and they will do it somewhere else,” said Henri Arslanian, crypto leader of PwC based in Hong Kong. “It’s just the reality of it, which puts the public more at risk ironically.”
Nearly one-third of Hong Kong’s residents are estimated to have invested in, transferred, or exchanged cryptocurrencies for goods and services, according to a newly published survey by payments giant Visa. Among developed markets, Hong Kong was ranked only behind the U.S. in terms of its residents engagement with the digital assets, the survey shows.
The SFC said last month that they are currently reviewing the rules that block retail investors from using crypto trading platforms as part of its efforts in maintaining a practical approach toward providing a “well-defined” regulatory environment.
Byworth of Eqonex said Hong Kong still has other policies in its favor that make it easier for the city’s businesses to recruit and retain international talent. “Even if Hong Kong goes down on a road of restrictive regulations around crypto and loses a lot of people to Singapore, the city can take quite a lot of market share back at any moment when it decides to change course and reverse into a more flexible regulatory regime,” he said.
It’s not just the regulatory framework that matters, but also the pandemic travel restrictions that have an impact on Hong Kong’s appeal as a place to do business. The city’s “zero infection” strategy has become a major obstacle for many of the businesses based there. Residents returning to Hong Kong face a mandatory hotel quarantine period of up to three weeks.
The Asia Securities Industry & Financial Markets Association, a lobby group representing some of the world’s biggest banks, said Hong Kong’s status as a financial center was at risk because of its “highly restrictive” quarantine policy. The group said in October that 48% of the companies polled in a recent survey were contemplating moving staff or functions away from Hong Kong due to the uncertainty over when the restrictions would be lifted.
Meanwhile, Singapore has already opened its border to vaccinated travelers from at least 18 countries. Aside from starting to ease travel restrictions, the city-state’s proactive stance on regulation makes it more attractive as other jurisdictions move in the opposite direction. Singapore is gaining headway as some nearby countries, such as China and South Korea, clamp down on their domestic crypto industries. China recently banned all cryptocurrency transactions and mining, and South Korea shut down nearly 40 exchanges deemed unqualified in September.
Coinbase’s debut in Japan in August shed a positive light on the country, which has been at the forefront of regulating crypto assets since 2017 following the $460 million bitcoin hack on local exchange Mt. Gox. But crypto-related crimes are still a problem for Japan, where trading platform Liquid also became the victim of a cyberattack just months ago.
To be sure, Singapore can’t rest on its laurels just yet. The government still has to decide whether the trading of crypto derivatives will be permitted. The digital instruments range from those that already exist in traditional market like futures and options, to the more innovative ones like “perpetual swaps,” a type of futures contract without an expiry date.
The Monetary Authority of Singapore said last year that it will not regulate crypto derivatives unless they are offered on approved trading platforms, and the authority warned retail investors of their risks.
The reality is that only a handful of countries have even begun to discuss crypto derivatives. “There’s no one-size-fits-all perfect crypto regulatory regime out there,” said Arslanian of PwC. “All that the crypto ecosystem wants is clarity and the ability to operate a business.”
The Bahamas is a standout in this regard because it moved quickly in December last year to lay out a comprehensive framework across both spot and derivatives trading which gave it a first-mover advantage.
According to Bankman-Fried, the restrictions on services to a local market are less important than restrictions that hinder or even block a business from offering its services to the rest of the world. “Because for most companies, this isn’t just about maximizing how much business can be done directly toward one place’s population, it’s more about where is a good home for a business generally,” he said.