MAS plans to restrict use of leverage for cryptocurrency trading
The Monetary Authority of Singapore (MAS) is planning measures to reduce consumer harm caused by cryptocurrencies. This was made evident in a speech delivered by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at the Green Shoots Seminar today.
Mr Menon noted that cryptocurrencies are actively traded and heavily speculated upon, with prices that have nothing to do with any underlying economic value related to their use on the distributed ledger. The extreme price volatility of cryptocurrencies rules them out as a viable form of money or investment asset. This speculation in cryptocurrencies is what MAS strongly discourages and seeks to restrict.
MAS has since 2017 been reiterating the risks of trading in cryptocurrencies.
Since January this year, MAS has restricted digital asset players from promoting cryptocurrency services at public spaces. This has led to the dismantling of Bitcoin ATMs and the removal of advertisements in MRT stations.
But despite these warnings and measures, surveys show that consumers are increasingly trading in cryptocurrencies. This appears to be a global phenomenon, not just in Singapore.
Many consumers are still enticed by the prospect of sharp price increases in cryptocurrencies. They seem to be irrationally oblivious about the risks of cryptocurrency trading.
MAS is therefore considering further measures to reduce consumer harm. These include adding frictions on retail access to cryptocurrencies. These may include customer suitability tests and restricting the use of leverage and credit facilities for cryptocurrency trading.
But banning retail access to cryptocurrencies is not likely to work, Mr Menon said. The cryptocurrency world is borderless. With just a mobile phone, Singaporeans have access to any number of crypto exchanges in the world and can buy or sell any number of cryptocurrencies.
The cryptocurrency market is also fraught with risks of market manipulation. These risks include cornering and wash trades – actions that mislead and deceive market participants about prices or trading volumes. They compound the inherent volatility and speculative nature of cryptocurrencies and can severely harm consumers.
There is greater impetus now among global regulators to enhance regulations in this space. MAS says it will also do so.
First, global cooperation is vital to minimise regulatory arbitrage. Cryptocurrency transactions can be conducted from anywhere around the world. MAS is actively involved in international regulatory reviews to enhance market integrity and customer protection in the digital asset space.
Second, the industry has an important role in co-creating sensible measures to protect consumer interests. MAS has been sharing its concerns with the industry and inviting views on possible measures to minimise harm to consumers. The regulator will publicly consult on the proposals by October this year.
Third, consumers must take responsibility and exercise judgement and caution, Mr Menon concluded. No amount of MAS regulation, global co-operation, or industry safeguards will protect consumers from losses if their cryptocurrency holdings lose value.