Singapore’s crypto ambitions shaken by the collapse of Three Arrows

by Arthur · July 12, 2022

HONG KONG / SINGAPORE, July 12 (Reuters) – Singapore’s ambitious cryptocurrency sector, with some targets the largest in the Asia-Pacific, faces an uncertain future following the recent collapse of the Three Arrows Capital cryptocurrency fund, a high-profile victim of it global digital currency downturn.

Crypto players in Southeast Asia’s financial hub are preparing for further bankruptcies and legal disputes, and expect regulators at the Monetary Authority of Singapore (MAS), whose welcoming approach helped attract companies from China, India and elsewhere, to be less accommodating.

“Following recent incidents, it appears that MAS will be tougher on crypto and digital assets,” said Hoi Tak Leung, senior lawyer for the technology sector at Ashurst.

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Investment in Singapore’s crypto and blockchain companies increased to $ 1.48 billion in 2021, according to KPMG, ten times the year before and almost half of the total Asia-Pacific by 2021.

Regulators at MAS have said they hope to encourage crypto-related services, a stark contrast to China’s ban, a cryptocurrency tax in India that has crippled trade, and incoming rules in Hong Kong that restrict crypto investments to professionals. read more

More than 150 crypto companies applied for a new crypto payment license from MAS in 2020, even though so far only a handful have received one.

But the picture has become murky with the collapse of Three Arrows Capital (3AC), which began liquidation proceedings in the British Virgin Islands on June 27, showed court documents, after the global downturn in digital currencies made it unable to meet hundreds of millions of dollars in liabilities. read more

3AC did not respond to a request for comment, and the liquidators told a U.S. bankruptcy court that they could not find the fund’s founders, Kyle Davies and Zhu Su.

The ripple effects of 3AC’s collapse – and the ensuing market turmoil – have been rapid and severe. The Singapore-based crypto-lending and trading platform Vauld said last week that it would suspend withdrawals, and the next day a rival crypto-lender said it planned to buy the company. read more

Another fund, Mirana, is suing 3AC in Singapore for a loan deal, local media reported, citing legal documents that are not publicly available. Mirana did not respond to requests for comment.

In the US, crypto lender Voyager Digital (VOYG.TO) filed for bankruptcy last week, days after 3AC defaulted on a $ 650 million crypto loan, while crypto exchanges Genesis and Blockchain.com have also revealed losses on their trades. with 3AC. read more

Rose Kehoe, CEO of Kroll’s Restructuring Practice in Singapore, said in the coming weeks that she expects crypto-related companies facing liquidity problems to use Singapore’s mechanisms for legal protection of companies in restructuring.

“We will continue to see crypto markets globally affected by the contagious effects of recent market events, including in Singapore, a major cryptocurrency center,” she said.

Sector actors are also skeptical about how Singapore’s regulators may react.

“If Singapore decides to take a more hawkish approach to crypto companies in the future, other countries in (Southeast Asia) may follow suit,” said Jeff Mei, marketing manager at ChainUp, a crypto company in Singapore.

“(This) could open a gap for Hong Kong to enter the arena more meaningfully.”

MAS did not comment on the case, but on June 30, it issued a rare public reprimand to 3AC for breaches of the fund rules, adding that they investigated the company for potential further breaches. read more

“I think (MAS) wanted to send a signal to the industry to say, ‘3AC was already on our watch list,'” said Hagen Rooke, a Singapore-based partner at law firm Reed Smith. He said that such offenses will normally be dealt with with a private wrapping on the knuckles.

“The question is whether MAS will become even more draconian in its approach to the crypto industry,” he added, identifying new rules around crypto loans and lending as a likely regulatory focus.