Singapore recommended a prohibition on individual investors borrowing to fund cryptocurrency purchases as part of a raft of proposals to tighten the city-digital state’s asset regulatory environment.
Other possible actions are to forbid businesses from using tokens placed by small investors for lending or staking in order to earn returns, according to a Monetary Authority of Singapore consultation paper. Staking is the process of deploying money for cryptocurrency applications in order to gain incentives.
The central bank stated in the report on Wednesday that cryptocurrency values are “extremely unpredictable” and leverage can subject users to significant losses. It also stated that the retail sector shouldn’t be allowed to use credit cards or other credit facilities to purchase tokens.
Singapore’s restrictions don’t apply to high-net-worth investors
High-net-worth investors are exempt from the limits and are therefore eligible for a greater choice of investments in the city-state.
The text states that stablecoins, or tokens with a fixed value, would have to be completely backed by reserve assets of the same denomination and tied to the local currency or a currency from the Group of 10. On issuers as well, minimum capital standards would be required.
Following a $2 trillion selloff in digital assets, which destroyed the TerraUSD algorithmic stablecoin, Singapore has been hit by a string of cryptocurrency explosions. Regulators throughout the world are debating how to safeguard consumers while utilizing the innovation that cryptocurrency brings.
Retail investors’ access to decentralized finance, or DeFi, which is frequently hailed as crucial for cryptocurrency adoption, will be restricted if they are barred from lending tokens or staking. But a string of hacks and the greater yields now offered in traditional investments like Treasuries have hurt DeFi.
Singapore had already taken action prior to the consultation, such as restricting cryptocurrency marketing. Virtual asset providers must also obtain a local license, even if they exclusively conduct business abroad.
According to the central bank, outright banning cryptocurrency services for retail customers would drive customers to unregulated platforms. This was stated in the paper published on Wednesday.
The consultation document is open for comments until December 21. Following that date, the final rules will be decided. Providers of digital asset services will then have six to nine months to follow the guidelines.