Singapore’s ICO gamble

IT is well known among blockchain and cryptocurrency enthusiasts that Singapore has taken a more open approach toward that industry compared with many other advanced jurisdictions.

For starters, it is one of the few places in the world where the authorities have made a distinction between security tokens and utility tokens, enabling the latter to conduct their initial coin offering (ICO) without risking breaching any securities laws.

Some background: the concept of ICO has entered the public lexicon by now and is a form of crowdfunding, typically by a team of people running blockchain-based projects.

However, the sale of tokens to the public is seen by most jurisdictions including the Securities and Exchange Commission in the US, and Malaysia’s Securities Commission, as a breach of securities laws.

However there is a school of thought that who view certain types of tokens, those with a very strong utility element (as opposed to any investment type rationale for buying them) can be allowed to be sold to the public. (Others like the SEC reckon that all tokens are securities because all buyers of tokens are expecting a financial gain from the performance of the underlying project.)

Here’s the point though: Singapore has emerged as a leading market for ICOs to take place.

This is based on unverified statistics by the number of new websites about cryptocurrencies.

One of those sites called ICO Bench makes an audacious claim – that a whopping US$2bil (RM8.36bil) has been raised by 420 ICOs registered in Singapore. And that in the month of November 2018 alone, US$51mil was raised by ICOs on the island nation.

This is an astounding claim by many counts. For one, the entire cryptocurrency market is hemorrhaging. Some ICOs have been proven to be outright scams. Hardly any project has built a real community using their blockchain based services.

The underlying blockchain technology itself is not ready for real world use in terms of speed, throughput and ease of use.

So who is investing US$2bil into ICOs? And where has all that money gone?

The “who” question is difficult to answer. Traditional institutions, at best, may be dabbling with trading some bitcoins to get a feel of the asset class and not investing in ICOs.

And a few well known venture capital firms are investing into equity of some promising blockchain based start-ups (and not their ICOs).

These are mostly those that are involved in building out the infrastructure for the blockchain world.

On the ground level in Singapore, there are not that many Singaporeans investing into ICOs, based on checks with fund managers and wealth managers.

A small number of retail investors could be putting money into ICOs but that amount must be small. In fact, ICOs are not allowed to be promoted willy nilly to Singaporeans.

A number of Singapore-based ICOs expressly exclude the participation of Singaporean investors.

So here is a likely scenario of what has transpired. Many of the Singapore-based ICO projects actually conduct the fund raising through some other offshore means. It is well known that Singapore banks do not entertain any cryptocurrency type clients.

However, some a big portion of that money flows back into Singapore to fund the projects, in the form of office rentals and salaries. Singapore has a decent number of tech personnel and is an attractive destination to expats to locate to.

And the conducive regulatory environment encourages projects to locate to Singapore.

But it remains unclear who the investors into the US$2bil of Singapore registered ICOs are.

One wonders what level of checks have been done on those source of those funds. One possible source are cryptocurrency miners.

It is well known in the cryptocurrency space though that a lot of liquidity in the system originates from miners in countries like China and Russia.

These are mainly mining farms that get rewarded in bitcoin and ether for their mining activity.

And in the case of China, where the trading of cryptocurrencies is illegal, these groups tend to use means in which to recycle their bitcoin into other cryptocurrencies and investing into ICOs are one of the ways they do that.

This US$2bil fund raise from Singapore projects is not data that is provided by any credible source.

But even if you assume that half of that is real, it is a massive amount.

For the first half of 2018, there were 7 initial public offerings (IPOs) in Singapore that in total raised S$548mil which is close to US$400mil.

In comparison, ICO Bench claims that in November alone more than US$50mil (S$70mil) was raised by Singapore based ICOs.

Whatever the case, the positive spin off to Singapore is that some of that ICO raise funds are flowing back into Singapore to fund ambitious blockchain-based projects. Many blockchain developer jobs are in the offing in Singapore.

Perhaps then countries like Malaysia should embrace this ICO revolution and reap the benefits, albeit with the necessary safeguards in place.

And now, Singapore’s regulators are working hard on coming up with the guidelines for security token offerings (STOs) which are deemed as the next big thing to replace ICOs.

The concept of STOs are designed to incorporate more securities law type safeguards into token sales which provides better investor protection.

Singapore is gearing up to embrace the STO revolution. Unlike ICOs, STOs are safer, better governed and may attract the more legitimate money into their offerings.

Countries like Malaysia ought not to miss out on this opportunity.


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