Current Economic Situation in Singapore
The economy of Singapore is considered the “world’s freest” by the 2024 Index of Economic Freedom. Singapore ranks with an economic freedom score of 83.5. For more context, the Singaporean economy ranks higher than the world and regional averages. In the Asia-Pacific region, it ranks 1st out of 39 countries.
Source: Nationalgeographic.com
The World Bank Human Capital Index ranks Singapore as the best in the world in human capital development. This, however, has not always been the case.
The World Bank had this to say about Singapore:
“More than 50 years ago, Singapore was confronted with high unemployment, poor infrastructure, and an uncertain future. Today, the city-state is home to a high-income, globally competitive economy that is underpinned by one of the highest levels of human capital development in the world.”
After its independence in 1965, Singapore experienced rapid growth and elevated from a low-income economy to a higher-income one. This growth results from a business-friendly regulatory environment and strong investments in infrastructure, education, healthcare, and public services.
The Singaporean Ministry of Trade and Industry in a press release on 13th of August 2024, announced that the country’s GDP growth forecast for the year has shrunk from 1.0 to 3.0 percent to 2.0 to 3.0 percent.
The press release reveals that the economy of Singapore has expanded by 2.9 percent in the second quarter, extending 3.0 percent in the first quarter on a year-on-year basis. The wholesale trade, finance and insurance, and information and communication sectors were identified for driving this growth.
Singapore has leveraged digital innovation so well that it sits as a global leader in the Asia-Pacific region. The nation brags of about US 625 million dollars in funding for cryptocurrency companies in 2023, across 88 deals. Its robust fiscal system is attracting investors, who also do not have to pay capital gains tax.
This incentive is triggering more adoption of cryptocurrencies as well as improving the economy.
Source: Statista
Crypto Law in Singapore
Cryptocurrency is legal in Singapore, and it is regulated under the Payment Service Act (PSA) which was launched in January 2020. The Monetary Authority of Singapore (MAS) is the body responsible for formulating regulations and supervising financial institutions—both traditional and crypto-related.
Source: Smartsinga.com
MAS introduced the Payment Service Act in a bid to streamline all payment-related services under a single legislation and detailed license and money laundering compliance requirements for cryptocurrency operators.
The PSA categorizes all digital currencies as digital payment tokens (DPTs), while MAS recognizes Bitcoin and Ethereum as cryptocurrencies. This made cryptocurrencies legal assets to be treated similarly to other asset classes.
The act also mandated that any individual or business carrying out DPT-related services must obtain a license and have a registered office in Singapore.
In a bid to tackle money laundering and terrorism financing, the MAS issued Notice PSN01 and PSN02 (the Crypto Travel Rule, as it is popularly called). These notices detail the guidelines pertaining to Anti-Money Laundering (AML) and combating the financing of terrorism (CFT) for DPT service providers.
However, both PSN01 and PSN02 were canceled on April 4, 2024, as the MAS decided to expand the scope of the regulated payment services. Their requirements, however, were incorporated into a broader set of regulations.
Crypto exchanges and related service providers are required to obtain a capital market services (CMS) license, along with meeting the financial requirements of the MAS.
Some consumers had concerns about the safety of funds and sought a more transparent accountability and risk declaration process. The authorities of Singapore discovered this through public consultation in a bid to know the public perception towards DPTs.
Taking the feedback into account, the MAS released a new regulation on DPT service providers in July 2023, which ensured transparency by protecting customers’ funds for a time in case of bankruptcy. In the words of MAS:
“This will mitigate the risk of loss or misuse of customers’ assets, and facilitate the recovery of customers’ assets in the event of a DPT service provider’s insolvency. MAS will also restrict DPT service providers from facilitating lending and staking of DPT tokens by their retail customers.”
Furthermore, the MAS went on to seek public feedback on drafting a new legislative amendment to PSA. They utilized the feedback and implemented it in the first quarter of 2024. The MAS amended the Payment Service Act, focusing on DPT service providers.
This new amendment expanded the act to regulate three types of additional services, which are:
- Digital asset custody, which includes holding, maintaining control, or facilitating the administration of digital payment tokens on behalf of customers.
- Payments or transfers involving tokens, even if the service provider does take possession of the DPTs.
- Cross-border payments, regardless of whether the funds are within Singapore.
Under this new amendment, service providers are mandated to separate their assets from those of customers, which they hold in trust. A great chunk of the customer’s assets, like 90%, must be stored offline in cold wallets.
Also, the amendment emphasized the need for not letting a single individual manage and control customer assets, although this restriction is lessened for smaller companies where two individuals are allowed to do so.
Current State of Crypto Adoption in Singapore
About 89% of Singaporeans are aware of at least one cryptocurrency. This is one of the key highlights of the 2024 Independent Reserve Cryptocurrency Index (IRCI) report for Singapore. The IRCI is an annual survey of 1,500 Singapore residents.
Source: Independentreserve.com
The report goes on to show that 40% of citizens own or have owned crypto in the last 12 months. About 73% of crypto investors hold Bitcoin, while 41% of these investors put $500 or more per month into crypto.
Source: Independentreserve.com
Another study indicates that Singapore sits on the top spot as the global leader in cryptocurrency adoption, beating countries like Hong Kong, the United Arab Emirates, and the United States.
The firm that carried out this study, Henley and Partners, a global leader in residence and citizenship investment, evaluated the state of cryptocurrencies in different countries and created the Henley Crypto Adoption Index 2024.
This index was drafted from 28 countries between July and August 2024, where researchers collected data through investment migration programs. The research was focused on these key areas: public adoption, infrastructure, innovation and technology, regulatory environment, economic factors, and tax friendliness.
Source: Henleyglobal.com
Singapore scored the highest with 45.7 out of 60 points, leading the globe on crypto adoption, all thanks to its friendly business, financial, and regulatory environment.
However, there has been a slight decrease in the ownership rate of cryptocurrencies in Singapore from 2022 to 2024.
In the 2024 Global State of Crypto Report by Gemini, the ownership rate of cryptocurrencies in Singapore dropped slightly from 30% to 26%. The respondents (49% of them) cited regulatory concerns as the core reason for this decrease.
Factors Driving Crypto Adoption
Singapore’s robust legal framework and conducive business environment are top drivers of its impressive crypto adoption rate.
Let us explore these in detail:
Regulation and Transparency
The clear legal framework coupled with feedback mechanisms has been a major driver of cryptocurrency adoption in Singapore.
The MAS’s public consultation process and the actual implementation of the concerns raised have improved transparency, building trust between key players.
Favorable business climate and innovative environment
One of the unique features of Singapore is the hospitable environment it presents, where all businesses can flourish. In addition, Singapore is well known as a global leader in innovations and technology.
Financial Infrastructure
The healthy relationship between crypto service providers and traditional financial institutions has triggered more adoption. The strong presence of traditional financial institutions exploring crypto has led to a robust payment infrastructure supporting crypto-fiat conversion.
Low-Income tax
In Singapore, there is no capital gains or income tax on cryptocurrency for individual investors; however, to buy, sell, or trade crypto that is not officially designated as DPTs, you may pay an 8% goods and service tax.
In addition, if you are trading cryptocurrencies as a business, your profits will be subjected to income tax. This incentive has contributed to the growth in the adoption of cryptocurrencies in Singapore.
Cryptocurrency Usage in Some Sectors
Cryptocurrencies are being employed in various sectors in Singapore. These includes:
Food Industry/Transportation Sector
Cryptocurrency is encroaching into the food delivery and transportation sectors as businesses offering such services are seeking to capture potential crypto customers.
Source: Cryptotimes.io
Earlier this year, Grab, a super-app that offers a variety of services, from ride hailing to food delivery and digital payments, has integrated cryptocurrencies as a payment option.
Users can now top up their e-wallets using cryptocurrency.
Airline Industry
In 2018, Singapore Airlines launched a blockchain-based loyalty program for frequent customers. In partnership with KPMG and Microsoft, the airline developed a digital wallet called KrisPay, which allowed customers to turn travel miles into units of payments that can be used with partner merchants in Singapore.
Source: Aerocadet.com
The CEO of Singapore Airlines (that year), Mr. Goh Choon Phong, had this to say about KrisPay:
“We are excited to be introducing KrisPay, a novel way for our KrisFlyer members to digitally access their miles at their fingertips, at any time. By creating a miles-based digital wallet that integrates the use of miles into their daily lives, KrisFlyer members have yet another way to use miles instantly on everyday transactions.”
The amazing part was that the system utilized blockchain to underpin clients’ loyalty wallets.
Healthcare
Blockchain has encroached into the healthcare sector too. SGInnovate, a deep technology firm owned by the Singaporean government in 2018, invested in MediLOT Technologies, a startup that specializes in blockchain and healthcare analytics.
Source: Opengovasia.com/
MediLOT uses a dual blockchain system integrated with AI and data analytics to extract information from healthcare records, enhancing the effectiveness of treatments and diagnoses for patients.
Financial Services
Blockchain is used in the financial sector for various reasons. One of which is laudable is trade finance. Standard Chartered Singapore in 2019 employed blockchain for cross-border trade finance transactions.
Source: Nikkei.com
The first transaction (for Standard Chartered in that region) that was completed using this technology was a shipment of chickpeas that originated in Australia for delivery to BSM Global in Bangladesh.
The remarkable benefit of this system is the reduced time limit for transactions to process. Other transaction mechanisms may take five or more days, but on this system, it only takes less than 24 hours. Another benefit is transparency. The Head of Trade for StanChart Singapore, as of then, Ujjwal Jain, has this to say:
“The transparency of the whole process also helps build trust and loyalty across the supply chain to promote more cost-efficient products and services. This is a win-win for all parties.”
An interesting fact was that Agrocorp, which was the supplier of the chickpeas, had used this transaction on another banking platform, DBS, earlier. They have tested and ‘trusted’ the system to employ it again.
Challenges Facing Crypto Adoption in Singapore
Source: Villanovau.com
The future of cryptocurrencies in Singapore appears promising but has its challenges. One of the major challenges is the volatile nature of these digital assets. This feature poses a significant risk to investors and makes businesses hesitant to fully employ it as a reliable store of value or accept it as a payment instrument.
Another challenge is the ever-changing regulatory framework. This has kept players on their toes and watchful to ensure compliance with updated regulations. The MAS’s restrictions on crypto advertising to retail investors, for instance, affected how companies can market their services.
The Potential for Cryptocurrency in Singapore
The potential of cryptocurrency in Singapore cannot be overemphasized, as the country continues to position itself as a global leader in the crypto space. As more businesses and individuals embrace blockchain technology, innovative use cases and tailored solutions are sprouting in various sectors.
Singapore is actively building an ecosystem that supports innovative crypto technologies, making it a prime destination for entrepreneurs, developers, and investors.
The robust regulatory framework, combined with advanced technological infrastructure, makes Singapore a prolific environment for crypto to thrive. The balance between regulation and innovation is a laudable feature that is attracting key players.
The tech-savvy population, supportive government policies, and the strategic position of Singapore as a financial hub in Asia further reiterate its potential for this emerging technology.
Conclusion
Singapore has capitalized on technology and innovation, and in return, this has led to a continuous increase in the adoption of cryptocurrencies. The public consultation process and acting on key players’ concerns have fostered transparency and contributed to this growth.
The Singaporean government’s incentives, such as low-income tax, business-friendly regulations, and the provision of a serene environment, are maintaining the nation’s status as a global leader in this emerging technology.
