DBS Bank Limited of Singapore (‘DBS') announced the launch a digital exchange on 10 December 2020.1
According to DBS's announcement, its digital exchange will facilitate trading of four fiat currencies, namely the Singapore Dollar, United States Dollar, Hong Kong Dollar and Japanese Yen and four cryptocurrencies namely Bitcoin, Bitcoin Cash, Ether and XRP and enable spot exchanges between the aforementioned fiat currencies and cryptocurrencies.
The digital exchange will also provide a platform for issuance and trading of digital tokens backed by financial assets, such as shares in unlisted companies, bonds and private equity funds, as well as custody services (including cryptographic keys) for digital assets.
DBS also announced that the Singapore Exchange Limited (‘SGX') will take a 10% shareholding in the digital exchange.
The digital exchange will be accessible only to institutional and accredited investors.
According to media reports, the cryptocurrency exchange is expected to be operational within one week from the announcement by DBS while the securities platform is expected to be launched by the first quarter of 2021.2
North of the causeway
In Malaysia, the offering, trading and custody of digital assets
are regulated primarily under the
Guidelines on Recognised Market
Operators (‘RMO Guidelines') and
Guidelines on Digital Assets (‘Digital
Assets Guidelines'), both of which are issued by the
Securities Commission Malaysia (‘SC'). Briefly, the
framework is as follows:
- Digital asset exchange: an entity that seeks to operate a platform for trading of digital assets must be registered as a recognised market operator under the RMO Guidelines;
- Hosting initial exchange offerings: an entity that seeks to operate an electronic platform for hosting initial offerings of digital tokens must be registered as an initial exchange operator (‘IEO operator') under the Digital Assets Guidelines;
- Custody of digital assets: an entity that seeks to provide services for safekeeping, storing or maintaining custody of digital assets must be registered as a digital asset custodian under the Digital Assets Guidelines; and
- Fund raising through digital token offering: an entity that seeks to raise funds through an offering of digital tokens must do so under the Digital Assets Guidelines through an initial exchange offering approved by a registered IEO operator.
To-date, the SC has registered three entities to operate digital asset exchanges, namely Luno Malaysia Sdn Bhd, SINEGY Technologies (M) Sdn Bhd and Tokenize Technology Sdn Bhd and permitted four digital assets for trading.3 Based on information on the websites of the three registered digital asset exchanges, the four digital assets that are permitted for trading are Bitcoin, Ethereum, XRP and Litecoin.
The trading of digital asset appears to have been well received by the Malaysian public. The three digital asset exchanges in Malaysia have collectively opened more than 400,000 accounts.4 The largest of the digital asset exchanges has processed transactions worth more than RM287 million since October 2019.5
The Digital Assets Guidelines were issued on 28 October 2020 and parties who are interested to be registered as an IEO operator or a digital asset custodian may submit their applications to the SC on or before 15 February 2021.6 Hence it is likely that initial exchange offerings of digital assets will only come on stream in the second-half of 2021.
The combination of liquidity in the financial markets and the search by investors for higher yields and for alternative classes of investments have led to the resurgence in the prices of cryptocurrencies, with bitcoin hitting an all-time high of USD19,918 on 1 December 20207 about two years after its previous peak of USD19,511 in December 20178 while Etherium and Ripple have increased in value by 330% and almost 200%9.
The significant increase in trading volumes of cryptocurrencies in year 2020, the emergence of institutional investors and funds that specialise in investing in such assets and the emergence of DBS and SGX as players in the digital assets space are signs of the growing acceptance of digital assets as an alternative class of investment. These trends suggest that digital assets may have come of age.10
2 ‘ DBS to launch digital currency exchange; trading may start as early as next week'; The Straits Times (online); 10 December 2020; and ‘ DBS launches digital exchange; crypto trading to start in a week'; The Business Times (online); 10 December 2020.
5 ‘ Luno processes over RM287 mil worth of transactions a year'; The Star Online; 7 December 2020.
6 The SC's media release of 28 October 2020 can be accessed here.
7 ‘ How America investors are gobbling up booming bitcoin'; The Star Online; 3 December 2020.
8 ‘ Bitcoin's rebound puts US$20,000 level in sight as next big test'; The Star Online; 2 December 2020.
9 ‘ Can cryptos be an asset class?'; StarBiz; 12 December 2020.
10 Rightly or wrongly, the oft-cited concerns over risk of theft of digital assets through cyber-crimes and heightened money laundering risks posed by digital assets appear to have given way to the quest for higher returns on investments.
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