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Crypto investments in S’pore jumped 13-fold to S$2B in 2021, further growth expected in 2022

crytpo investment singapore

Turns out that new regulatory measures enacted by the Monetary Authority of Singapore (MAS) are not detrimental to investment in cryptocurrencies and blockchain technologies in Singapore.

Despite the major exit of Binance, which decided to settle for Dubai instead of the city-state as its HQ, investment in crypto skyrocketed by a whopping 13.5 times in 2021, according to the latest Pulse of Fintech report by KPMG, reaching S$2 billion up from less than just S$150 million in 2020.

Notably, this is more than twice the global average of 5.5 times (up from US$5.5 to US$30 billion).

The entire fintech sector in Singapore recorded a jump from S$3.3 billion in 2020 to S$5.3 billion (clearly driven by crypto), transacted over 191 deals (over 80 of them in crypto) — this is a nearly two-fold increase from 100 in pre-pandemic 2019.

total investment activity in fintech in apac
Entire Asia-Pacific has seen a significant rebound in both deal count and value in 2021, though still some distance off from the peaks of 2018. This suggests that new records are still ahead of us. / Image Credit: KPMG

Despite market hiccups and an increasing regulatory scrutiny, KPMG predicts that this year should bring more growth to fintech in Singapore, which — on the whole — surged nearly three times from S$1.4 billion in the second half of 2020 to S$4 billion in the second half of 2021, confirming a robust growth trend.

Recent opening to SPAC listings on Singapore Exchange — corporate vehicles enabling pre-emptive investment in IPOs of attractive future companies — coupled with its long-standing reputation as a financial centre, is likely to increase attractiveness of the city-state among the fintech startups, including those dabbling with blockchain.

Given how many banks are beginning to see the major limitations inherent in their legacy architecture and technologies, we are also expecting a surge in investment into banking replacements able to help them rethink core banking services.

– Anton Ruddenklau, Global Fintech Leader, KPMG International

Won’t more regulation hurt crypto investments in Singapore?

There’s a worry that tight rules imposed by MAS, which seems reluctant to speed up approval of licenses to crypto/blockchain tech companies, may drive investors away to greener pastures.

In reality, however, the result may be quite the opposite.

While other markets may seem to be free from the shackles of regulation, it’s only a matter of time before some rules are imposed, which would likely hurt existing investments. Singapore is acting preemptively to set reasonable rules in place and bring regulatory clarity to investors, so that they are not surprised with sudden changes down the road.

It’s an extension of the philosophy, which is behind Singapore’s economic success — political and legislative stability that made it so popular with international business and high net-worth individuals.

In fact, nothing could highlight the differences in mentality than comparisons between the Lion City and Dubai, where Binance decided to settle.

Dubai is known for breakneck development and daring, headline-grabbing, often very novel investments. It wants to show the world that it is unique, whereas Singapore prefers to communicate that it is solid and trustworthy.

Both approaches have their advantages and weaknesses, and both stem from histories of respective cities.

Dubai, contrary to popular belief, lacked oil that made neighbouring Abu Dhabi so rich. It had to cobble together whatever wealth it had and leapt ahead, trying to find its footing in business, real estate, services, transportation (through the airport and the Emirates airlines, as well as growing port in Jebel Ali). It had to build something from nothing, since the only thing it has abundance of is sand.

Satellite view of how Dubai has changed over the years.

Singapore, on the other hand, has long been an established colonial port, attracting business even prior to its independence, benefiting from a century of colonial patronage.

It inherited this reputation and location, despite somewhat less glamorous decades post-World War 2, and built on them attracting foreign investment with business-friendly conditions, good infrastructure and freedom from corruption rampant elsewhere in the region.

This is why it is naturally more cautious and focused on fundamentals rather than glamour and oftentimes, “hype”, of new ideas, solutions, technologies. On the other hand, Dubai seeks to thrive on them, jumping from one to another, seeking global attention.

Video: Cops on flying bikes to patrol Dubai by 2020 | Crime – Gulf News
One of many outrageous ideas of the emirate – a flying police hover-bike, which is more of a PR stunt than an actual solution. This summarises the difference in approach compared to the more conservative Singapore.

Both have their place in the world, and I’m sure both will see their share of successes.

This is why foreign capital is not deterred — and I wouldn’t expect it to be in the nearest future — from placing its bets on Singapore, driving investment in the city’s blockchain startups not despite, but largely thanks to regulatory environment.

Clouds on the horizon

Despite all of the positives mentioned above, not even the most innovative IT sectors are immune to broader macroeconomic reality.

Inflation surging all over the world, but particularly in the US, is certainly going to lead to increase in interest rates as well as a rollback to Quantitative Easing and other loose monetary policies enacted in the years post 2009 crisis, and enormously amplified due to Covid-19 pandemic.

There’s a risk that a reduction in money supply, whose goal would be to keep inflation at bay, is going to crash the prices of cryptocurrencies and reduce attractiveness of investment in related technologies. It is already having a detrimental effect on stock prices, with major markets witnessing significant drop from 2021 records.

This also reduces the pool of available capital, as market capitalisation of many IT companies is suffering, thus reducing their — and their investors’ — appetite for deals (and considerably cutting their value).

nasdaq
NASDAQ lost 10% this year alone. Around half of the companies on the index are down about 50% from their last year’s highs / Image Credit: Google

So, while the trends heading into 2022 have thus far appeared to be very positive, there is a risk of a slowdown as we go through the year, particularly if serious international events (like a possible military conflict in Ukraine) shake the markets.

No matter what, however, it’s clear that fintech is bound to be the backbone of financial services of the future, regardless of any hiccups on its way there. And Singapore is bound to be one of its shining beacons.

Featured Image Credit: AP

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