The central bank of Singapore and the financial regulators of Singapore warned on Tuesday of “strong swings of a speculative nature” and of great risks for retail investors who put their money in the volatile market of cryptocurrencies.
Singapore’s central bank “disapproves of cryptocurrencies and tokens as an investment asset for retail investors.” Ravi Menon, managing director of the institution, said at the Singapore Fintech Festival.
Bitcoin rose approximately 2.8% on Tuesday. Ethereum, which is the second largest digital currency in the world according to its market capitalization, also grew 1.57% and traded at $ 4,813.94, according to CoinMarketCap.
Likewise, Bitcoin has grown by 132% so far in 2021 and Ethereum has increased by 553% in this same period. Both cryptocurrencies have experienced volatile movements throughout the year.
However, the cryptocurrency market suffered billions of dollars in losses in the month of May of this year. After Tesla CEO Elon Musk will publish through a tweet that the electric vehicle manufacturer company would stop allowing the use of Bitcoin to acquire its vehicles and associated products.
“Cryptocurrency token prices are not based on any economic fundamentals and are subject to strong speculative swings, retail investors of these tokens are at risk of significant losses.” Menon added at the event.
Also, dozens of countries around the world are grappling with how to regulate cryptocurrencies. And at least so far only one country, El Salvador, has adopted Bitcoin as legal tender.
Singapore and its stance towards CBDCs
Singapore is in no rush to develop a central bank digital currency (CBDC) for retail use, Menon said. Which described CBDCs as a digital version of fiat currencies.
“The need for a retail CBDC in Singapore is not urgent, however a potential use case for these assets is for crypto tokens to facilitate cheaper and faster cross-border payments and trade financing,” Menon said.
“Physical cash is going nowhere, so the need for a digital Singapore dollar is moot at this point,” Menon argued.
The digital currency of a central bank offers benefits such as financial inclusion or expanding access to different financial services. But that’s “not a compelling reason” in Singapore, according to Menon. Since a high percentage of Singaporeans have electronic bank accounts. At the same time, electronic payments in the country are “widespread, highly efficient and competitive,” Menon added.
Another reason for a Singaporean digital dollar is to hedge against possible local currency substitution. As foreign stablecoins and CBDCs entering the market and becoming widely accessible.
“There is also the question of whether people in Singapore are comfortable with having only electronic bank deposits and not physical cash.” Menon added.
That said, Singapore’s central bank acknowledged that there are potential benefits in CBDCs, however, there is not strong demand for the asset. Menon added at the event that Singapore’s central bank will work with the private sector to begin developing the technology and infrastructure necessary to issue a Singapore CBDC if regulatory authorities decide to require it in the future.