Retail investors should steer clear of crypto: Heng

Retail investors should stay away from cryptocurrencies even as Singapore adapts its rules to address the key risks posed by such assets, Deputy Prime Minister Heng Swee Keat said yesterday.

Crypto assets such as cryptocurrencies and non-fungible tokens (NFTs) are constantly evolving and have the potential to transform the future of finance, but are highly risky, said Mr Heng. "Retail investors especially should steer clear of cryptocurrencies. We cannot emphasise this enough," he said.

Mr Heng was speaking at the opening of the second Asia Tech x Singapore Summit at The Ritz-Carlton, Millenia Singapore hotel, organised by the Infocomm Media Development Authority.

He noted that crypto assets have gained much interest, given their phenomenal growth and promises of high returns, as well as the recent crash of Terra Luna, which caused many investors to suffer heavy losses and triggered knock-on effects on Bitcoin and other cryptocurrencies.

A police report was lodged here against Terraform Labs, the Singapore-registered company behind the Terra blockchain and its associated cryptocurrencies, TerraUSD (UST) and Luna.

The "concerned citizen" who filed the report claimed to know of more than 1,000 Singaporeans who had invested in the cryptocurrencies, which lost virtually all their value early last month. UST was designed to be pegged to the US dollar by maintaining reserves in Bitcoin and Luna. Before the crash, it was the world's third-largest stablecoin, which is a cryptocurrency intended to hold a stable value.

Mr Heng noted the Monetary Authority of Singapore (MAS) has consistently warned the public against trading in cryptocurrencies, and had taken steps earlier this year to limit them to the general public.

In January, the MAS issued a set of guidelines that effectively banned crypto trading providers from advertising or marketing their services to retail investors.

Some firms were also forced to shut down the physical cryptocurrency ATMs they had set up around Singapore.

Nevertheless, Singapore will continue to adapt its rules to ensure the regulations do not stifle innovation, Mr Heng said. He said crypto assets are part of a new wave of emerging digital technologies known loosely as Web 3.0, and the way to approach this is to keep an open mind.

"We must pierce through both the hubris and the veil of suspicion to understand the potentially transformative underlying technologies," he said. "Let us not throw out the baby with the bathwater."

This is because the digital asset ecosystem comprises an entire range of services beyond cryptocurrency trading.

"We remain keen to work with blockchain and digital asset players to encourage innovation, and build up trust in the sector," he added.

In the last two years, the MAS has granted licences and in-principle approvals to 11 digital payment token service providers, including stablecoin players such as Paxos, crypto exchanges like Coinhako and traditional financial institutions like DBS Vickers.

"We will continue to evaluate applications, and facilitate live experiments through regulatory sandboxes, to enable safe adoption in the financial sector," said Mr Heng.

He also announced the launch of Project Guardian, a collaborative effort by the MAS to partner the industry to explore the tokenisation of financial assets and develop the future of finance infrastructure.

The first industry pilot will be to explore potential decentralised finance applications in wholesale funding markets.

Mr Heng said: "In short, we must approach emerging tech with an open mind, separating the hubris from its true underlying potential.

"Through regulation, we work constructively to realise the gains of these new technologies, and partner responsible and innovative players with strong risk management capabilities to build the foundations of the digital asset ecosystem."