If bitcoin traders thought their woes were over, they got another surprise when Singapore joined India and South Korea in their fight against cryptocurrencies. Singapore is a global fintech center, but even Singapore has limits to what it will accept and allow.
The Monetary Authority of Singapore (MAS), is Singapore’s central bank and it is working on many fintech issues, which is one of the reasons Singapore has grown to become a fintech dominator. Ravi Menon, the MAS Managing director, has a lot to say about cryptocurrencies, and it all makes sense.
A legal tender is a currency that a country uses to represent value for trade. It is based on the countries reserves, resources, loans, and global market power, as well as its debts, trade deficits and market demand. Note and coin have a value that is estimated by these factors, and while excessive inflation can lead to a currency being devalued against other currencies unless the country is erased from existence, the currency will always have a base value that will bounce back one the country recovers. This was best observed in Germany post-WWI, and before the 20th century, most currencies were directly linked to Gold and Silver, where coins were minted in these metals. The paper notes printed were promissory notes that promised the bearer that they could trade the note for gold or silver to the value of the note. One of the terms used to represent paper bank notes is “securities” since a tangible asset secures the note. Coins are still made of metal, but now cheap metals are used that do not actually represent the real value of the coin, coins are now a hybrid of a promissory note and a base asset value used to bolster the representation of coins value.
Digital Currency (Cryptocurrency (CC))
Cryptocurrencies are not currencies. They are bits of code that are created through the authorization process of a blockchain transaction. A means of internal payment for “hashing,” a system that gives the blockchain its viability, and links the blockchain physically to its users. These linked PC’s enable the blockchain to use the PC’s CPU and creates one big CPU environment, sort of like a supercomputer with massive computation power. This power is used to calculate the complex algorithms required to authorize a transaction, that lends its name to the term “crypto.” CC’s are digitally created bits of code that are created by the blockchain as a form of decentralized bonus for services rendered maintaining the blockchain’s integrity and giving it speed and power. The concept is sound. However, the initial application outstripped the concept and moved CC’s away from its intended purpose making it another tool, or a preferred tool for binary commodity brokers seeking an additional incentive to the binary options market.
What we have today is the result of NLP (Neuro-Linguistic Programming) marketing of blockchain derivatives as a “currency. The original intent of blockchain was fine, but it was open to misdirection in the hands of unscrupulous entities intent on making a quick profit. Their gambit worked, the application of blockchain was perverted from a safe new transaction system to a cryptocurrency alternative to legal tender, using attractive words such as “democratization, “decentralization” as incentives for people that are naturally wary of regulation and control. Basically, CC ran away with the imagination of millions of users and software developers that saw potential in creating their own blockchain platforms, adding new CCs to the market. Since 2009, when the first blockchain was started, and the bitcoin was born, thousands of companies and small software sites have created different versions of their own blockchain platforms and CC’s, which has led to the proliferation of CCEX, Forex trading with CCs and even ATM’s for immediate trade in these commodities.
Cryptocurrencies are not legal tender and do not resemble currencies; their name is a false statement. At most, they are private company based assets that reflect the market value of the blockchain technology that they are traded on. Since each blockchain is a separate entity, the coin can only be traded on its specific platform. The value of the coin is set by supply and demand and is linked to a legal tender such as the USD. The USD exchange rate sets the market value and trades between coins must first be evaluated by the USD rate, and this sets the trade ratio between different currencies. Actual trading requires a digital wallet, and each wallet is specific to a blockchain and currency. Trading sites developed multiple currency wallets that provide a platform for trading in more than one coin. The value of the CC is so exaggerated that you now have coins such as Bitcoin, Ripple, Ethereum and Litecoin being traded at values over $100 billion, where the company that stands behind the CC is probably worth only a few thousand dollars or maybe single million-dollar values. This is like valuing your local grocery store or bike repair shop with the same value of Google or Microsoft.
Divergence in the CC Market
Since many traders are in fact speculators, and due to the decline in the attraction of binary options trading, which is Forex based. The naming of blockchain derivatives as a “crypto-currency” was a masterful stroke of marketing misdirection genius to attach CC to Forex, making CC the desired platform for trading. However, the original concept of bitcoin was to act as a decentralized trading platform for CC, where the blockchain generated its own CC, and as such limited supply. Ripple is a company that created a blockchain platform that does not generate a CC from its activates, it set a limit of coins and “sold” them in an ICO, released them for trade in CCEX, and the “coin” grew in value based on demand generated by a false supply. Today we have two types of CC, the blockchain dependent derivatives and the free coin, which is not dependent on a blockchain to generate it or limit it.
Menon finds the whole issue of CC problematic. Sure, central banks want to find ways to make trade easier, but there are some serious issues underlying the use of ccs and blockchain within central bank structures. One issue is the way a government controls its currencies. The printing of notes and the minting of coins is based on supply and demand as well as the strength in a currencies value. Devaluation will occur when too many notes and coins are created, or when a country weakens against others. When you get massive inflation, you get a run for the money, which can be controlled by closing banks and trade in currencies temporarily, trying to relieve the pressure from a hysterical run to get as much “cash” as possible. If you trade in CC’s, no one can stop a run, and that will cause a total devaluation of the currency, crippling a countries banking system in minutes. This is just one factor that has to be negotiated when setting up a central banking blockchain.
Menon states that “Our governing mandate, is very clear: financial stability has predominance over financial development.” Which is a very sound statement, and is one that current CC traders and speculators should consider. MAS is currently working on developing a blockchain infrastructure that will support the trade of interbank transfers via digital currencies. It is also working with ICO specialists; these are companies that specialize in raising funds through “Initial Coin Offerings,” the CC version of an IPO.
The current market frenzy and speculation does not worry Menon, and the fall from losing money to CC trading is irrelevant in his opinion, he asks rhetorically “Why would you want to bail out people from their folly? CC’s are issued by private agents; I think the role of the government is to warn people, which several of us have done.”
Singapore and Hong Kong are global leaders in Fintech, both are vying for greater control over the fintech market, and their competition is driving change forward. Singapore is a $1.2 trillion wealth management hub, and many analysts consider it will outrank Hong Kong in the near future. The financial world looks to Asia for trends, and with both HK and Singapore, where 60% of offshore trading comes out of Singapore, it makes MAS into a serious fintech market maker to watch. Whatever MAS considers worth doing will eventually become something that is done.
There is one difference between Singapore and Hong Kong, Singapore believes in market security, and that demands regulation and oversight. Hong Kong is more flexible toward a relaxed financial market, this makes Singapore a stronger site for reliable and solid business and not an offshore haven for money laundering, passing technological fads and shady deals. This is what stands between Singapore and the crypto-currency market, and it is only time which will tell if the MAS has enough global clout to persuade everyone else to follow suit.