Singapore is flush with crypto startups, but trails in funding

Singapore

THE cryptocurrency space may have been abuzz with activity in recent times, but the startup frenzy hasn't directly translated into fund or asset flow.

Lining up data from Singapore and Switzerland - both of which have positioned themselves as hubs for crypto and blockchain activities - makes this point clear. While far more companies have been formed in the sector in Singapore than in Switzerland, the value of deals in Switzerland has consistently been above those here.

Observers say disparities in regulatory environments and investors' attitudes towards what is still a largely uncharted space explain this gap.

Numbers from market intelligence platform Tracxn show that about 449 new cryptocurrency companies have emerged in Singapore over the past five years, almost twice that of the 258 new entities in Switzerland.

The multiplier was about the same for companies under the "blockchain" category - 536 in Singapore over the past five years, compared with 292 in Switzerland.

Financial data provider PitchBook showed that Singapore had 170 venture capital deals relating to crypto and blockchain from 2015 to 2020, also almost doubling the 91 deals recorded in Switzerland.

But when it comes to deal value, both Tracxn and PitchBook data saw the trend reverse. PitchBook recorded US$450 million in deals in Singapore over the same time period, versus US$740 million in Switzerland.

Crypto-focused SEBA Bank closed the largest deal in Switzerland in September 2018, raising US$103 million in early stage venture capital funding. The backers include Summer Capital, Black River Asset Management, and Julius Baer Group.

In Singapore, the top deal valued at US$50 million, also in early stage VC funding, went to digital asset trading platform TokenBetter in April last year. The backers include names like Lingyun Capital, Shunxin Capital, Tianlian Capital, and Shuimu Fund.

BT also noted that TokenBetter's website is now defunct. The websites for Mark.Space and Eximchain, which raised US$22 million and US$20 million respectively in 2018, and stand among the top deals recorded in Singapore's crypto space, were also inaccessible as at January this year.

Gerald Goh, a Singaporean co-founder of digital asset bank Sygnum, which is based in both Singapore and Switzerland, attributed this partly to the "scepticism" among investors in Singapore towards this new asset class.

"Many institutions we have spoken to (in Singapore) are comfortably ignoring crypto as an asset class, whereas it is already effectively mainstream in Switzerland. Many see that it warrants allocation to build a well-diversified institutional portfolio," said Mr Goh, who is also Sygnum's Singapore chief executive.

Sygnum's offerings differ in its two headquarters. While it operates a commercial bank in Switzerland, the company serves as a fund manager for accredited and institutional investors in Singapore.

Moves by DBS, which announced a members-only digital bourse in December last year, could bring more mainstream adoption of digital assets and cryptocurrency trading, Mr Goh said.

Liu Yusho, chief executive of Singapore-based digital asset wallet Coinhako, said given the "lack of regulatory clarity" here, some funds and assets from institutional investors have already left the scene.

Alexandre Kech, chief executive of Sequoia-backed digital assets custody service provider Onchain Custodian, said that Switzerland has established a clear licensing regime for digital asset businesses for a few years now.

In Singapore, similar regulations were only enacted in January last year, with the passing of the Payment Services Act in 2019, that brought regulation of digital assets under the oversight of the Monetary Authority of Singapore (MAS).

Enhancements to the Act in January this year now require cryptocurrency firms to be licensed.

In response to BT's queries, an MAS spokesperson said the authority plans to consult stakeholders on a number of issues to operationalise the revised Payment Services Act. This includes an exemption period of six months to entities that will be newly regulated under the revised Act. The same exemption period will also apply to current licensees which intend to offer newly regulated services.

Since the Act took effect in January, the MAS has received 300 applications for licences, about half of which are related to digital payment token services.

"It may also be due to the fact that investors in Asia, in my view, and those in Singapore in particular, are happy to trade and do business on platforms outside of Singapore, such as in the US or Switzerland for that matter, while Swiss investors would rather deal with their local players," said Mr Kech, whose company is headquartered in Singapore.

"Once the MAS starts delivering licences, likely in the coming months, Singapore will be well-positioned to establish itself as the Switzerland of Asia-Pacific in the crypto and blockchain space," he added. He noted common characteristics between the two countries, such as political stability and security, as well as their roles as wealth management centres.

Justin Chow, global head of business development and relationship management at crypto asset trading company Cumberland, said Singapore has been proactive in its regulatory approach as the asset class matures. "The institutional investors we transact with want that sort of structure and so we expect the balance will begin to moderate as it's put in place."

In jurisdictions where start-up costs are relatively higher, such as Switzerland, the outfits that are established are likely to be better seeded or capitalised to begin with, said Elsa Madrolle, managing director of CoolBitX, which sells blockchain security to financial institutions and crypto firms in Switzerland and Singapore.

"They may gain faster credibility due to the hurdles they have had to jump and the reputation of the jurisdiction," she added. "While the two jurisdictions are theoretically in competition to attract more start-ups, we are starting to see bridges being built to increasingly connect the two regions, particularly as each is often seen as a gateway into their respective continents and is deemed adequately regulated."