Singapore stands tall among the world’s most crypto-forward countries

Real-world applications utilizing blockchain technology as payment, money transfers, data sharing, trading, and more, signal the rise of cryptocurrency into mainstream consciousness. As more countries recognize its potential, virtual currencies secured by cryptography are emerging as a breakthrough innovation, particularly among financial institutions across the globe today.

Singapore stands out with a clear regulatory framework and a high rate of cryptocurrency adoption. According to research by global cryptocurrency rating company Coinclub, the above mentioned are just some of the factors contributing to the city state’s ranking as the world’s most crypto-forward country. Sparrow discusses how this trend is developing today.

Also read: Secure your cryptocurrency trading experience with these tips

1. The classification of cryptocurrency in Singapore

While not legal tender, Singapore classifies cryptocurrency as either a regulated product (e-money or digital payment token) or an unregulated digital token used only for utility purposes.

Individuals looking to hold and trade cryptocurrency in Singapore may do so via a personal brokerage account on an exchange or engage a digital asset specialist for a robust portfolio diversification strategy. Financial institutions and wealth managers are increasingly seeking these specialists to design a digital assets solution strategy that can manage risks effectively and deliver targeted growth objectives. 

To support the high demand among individuals and institutions, more digital payment token services providers that offer cryptocurrency trading are setting up shop in Singapore. They are allowed to operate within the country’s regulatory and legal framework. 

In contrast, several countries around the world have banned cryptocurrency entirely. This includes Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China. Others have imposed restrictions prohibiting bank transactions involving Bitcoin and other virtual currencies.

2. A clear regulatory framework provides a conducive environment

Singapore is at the forefront of creating a conducive legislative environment that accelerates the adoption of digital assets. It provides a sensible environment for cryptocurrency-related entities a similar approach employed by key players such as Japan, Australia, the United Kingdom, and Canada.

The Payment Services Act introduced in 2019 provides a clear and comprehensive framework that regulates payment systems and payment service providers, strengthens consumer protection, and promotes confidence in the use of e-payments. Under this regulation, entities providing digital payment tokens services are required to apply for a payment services license either as a standard payment institution or a major payment institution.

To meet the Monetary Authority of Singapore’s (MAS) high standards, all entities must implement robust measures to mitigate four key risks surrounding the payment service ecosystem:

  • Money laundering and financing of terrorism
  • Technological threats
  • Interoperability
  • Loss of funds due to insolvency

Authorities monitor risks and prevent illicit activity in the cryptocurrency ecosystem, while simultaneously allowing technological innovation to take place. Furthermore, possession of the license validates local crypto firms’ commitment to high standards and enhances consumers’ confidence.

In an ever-changing crypto sphere, Singapore’s regulators revise regulations to keep them effective, current, and proportionate to the risks posed. For instance, MAS recently announced its expectations for Digital Payment Token (DPT) service providers to be prudent in marketing or advertising their services to the general public. 

This transpired after a flurry of exaggerated promotions by companies that misrepresented critical facts about digital assets by downplaying their risky nature. Such a preventative measure protects retail investors from trading cryptocurrencies without forethought.

All these illustrate the country’s position as a budding blockchain hub that greets firms with open arms while protecting the interests of the masses. In addition, stringent and structured regulatory intervention can address the common pain points and resistance surrounding the deepening of financial institutions and wealth managers’ involvement with the new asset class. 

3. Clarity of taxation

The Inland Revenue Authority of Singapore (IRAS) has released a guideline pertaining to the income tax treatment of digital tokens. This provides clear and concise obligations for individuals looking to deal with cryptocurrency.

Following is an overview of the tax treatment, classified according to the three types of digital tokens as defined by the IRAS:

Token

What is it?

Tax treatment

Important considerations

Payment token

A digital right that can be used or is intended to be used as a means of payment for goods and/or services

The use of payment tokens as payment is considered a barter trade, and the recipient of the tokens would be taxed on the value of the underlying goods given or services rendered. Similarly, the value of the deduction will be determined by the value of the underlying goods or services received.

The real gain or loss on disposal will have different tax treatment, in accordance with whether the token is deemed a capital or revenue asset by the holder.

Security token  

A digital token that represents a stake or an investment in an underlying asset e.g. shares in a company, bonds, etc.

Depending on the rights and liabilities generated by the token, security tokens are often classified as debt or equity. Interest or dividends received by the token holder (depending on whether the token is classified as debt or equity) will be taxed as usual.

Whether the token is deemed a capital or revenue asset by the holder will determine the tax treatment of the gain/loss on disposal where the security token is disposed of by the holder. 

Utility token

A digital token that represents a right to a good or service.

When a person buys a utility token to trade for goods or services that will be delivered in the future, the amount incurred for the token is considered a prepayment.

Subject to tax deduction rules, a deduction will be allowed on the amount incurred at the point the token is used to exchange for the goods or services.

Information extracted from IRAS e-Tax Guide Income Tax Treatment of Digital Tokens

4. Encouraging the use of blockchain technology

A host of governmental agencies and affiliates are driving Singapore’s efforts to embrace Blockchain technology. Enterprise Singapore, Infocomm Media Development Authority, and the National Research Foundation Singapore are among them. 

Called the Singapore Blockchain Innovation Programme (SBIP), the project has amassed $12 million in funds. It seeks to develop, commercialize, and encourage the adoption of blockchain technology. This will be achieved through a series of actions such as engaging companies to conceptualize blockchain-related solutions, growing the talent pool, and researching the scalability and interoperability of the digital ledger. 

With these, Singapore looks forward to the next stage of digital transformation, leveraging new processes that utilize blockchain technology.

Leading by example, several organizations in Singapore are already beginning to harness the power of Blockchain technology. In particular, schools are issuing and validating digital academic certificates with OpenCerts. Running on the Blockchain, it enables graduates access to a centralized, single location. This decreases the fees needed for physical copies, and at the same time allows employers to verify the authenticity of a potential employee’s credentials with ease.

5. Crypto payments reshape experiences

Cryptocurrency is growing as a medium for retail transactions that accommodate online and offline purchases. In Singapore, a rising number of merchants are accepting crypto payments apart from the traditional options like cash, debit and credit cards, and electronic bank transfers. 

Among them is a food establishment in Funan Mall. It features self-service kiosks integrated with an e-payment system that accepts Bitcoin, Ethereum, and Creatanium. This not only promotes operational productivity but also elevates the brand’s reputation as a forward-looking business — attracting more tech-savvy customers to patronize the mall. 

Similarly, restaurants like Maison Ikokku and Bartini, tech solutions like Epic Gear, and women’s fashion companies such as Charles and Keith are adopters of crypto payments in Singapore. Not only are they able to lower transaction processing fees, but they can also expand their businesses to an international market with convenience. 

Additionally, there is a rising demand for crypto payments among consumers in the Lion City. According to the FIS Worldpay’s’ 2021 Global Payment Report, 37% of Singaporeans are already paying or interested in purchasing with cryptocurrency.

6. Acceleration of cryptocurrency adoption among financial institutions

Institutional adoption is seeing an upward trend, with cryptocurrency companies tailoring services for central banks, retail and commercial banks, brokerage firms, and more to buy, customize, and manage a suite of digital assets

Recently, a slew of financial institutions has started breaking ground on cryptocurrency activities. Namely, JP Morgan creates a digital coin to expedite instantaneous payments while Mastercard will allow merchants to integrate cryptocurrency into their products and is introducing cryptocurrency-linked credit, debit, and prepaid cards. Also, Visa launches a crypto advisory service for its pool of clients

Similarly, more wealth managers are encouraging clients to invest in cryptocurrency to gain exposure to digital assets as a diversification play. According to a survey on financial advisors’ attitudes towards cryptocurrency by Bitwise, 16% of wealth managers consider cryptocurrency when building a well-diversified portfolio for clients in 2021. This is an increase from 9% in 2020 and 6% in 2019.

Such developments highlight a broader acceptance of cryptocurrency and in turn, encourage wider adoption that goes hand-in-hand with well-defined regulations. Ultimately, this creates a conducive environment that boosts the appeal of digital assets.

Also read: 5 factors to consider before you allocate crypto in your portfolio

Diversify your institutional portfolio with Sparrow

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With a wide array of digital asset solutions customized to your needs, Sparrow understands the ultimate goal of maximizing returns regardless of market conditions. Drawing from experience with multifarious clientele including institutions, family offices, and wealth managers, we conceptualize a multi-pronged approach with a comprehensive framework that enables clients to prioritize digital asset growth without compromising on customer service, compliance and legal requirements, and cybersecurity standards. 

Reach out to us to embark on your cryptocurrency journey!