Singapore proposes borrowing ban to fund crypto purchases

Singapore proposed to ban retail investors from borrowing to fund cryptocurrency purchases, part of a slew of suggestions to further tighten the city-state’s regulatory regime for digital assets.

Other potential steps in a Monetary Authority of Singapore consultation paper include stopping companies from using tokens deposited by such investors for lending or staking to generate yields. Staking is the process of earning rewards by deploying coins for crypto applications.

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Crypto prices are “highly volatile and leverage can saddle customers with big losses,” the central bank said in the paper Wednesday, adding the retail sector shouldn’t be able to use credit cards or other credit facilities to buy virtual coins.

Stablecoins — tokens that are meant to have a constant value — would need to be pegged to the local dollar or a Group of 10 currency and be fully backed by reserve assets of the same denomination, according to the document. Minimum capital requirements would be imposed on issuers too.

Singapore has been hit by a series of crypto blowups following a $2 trillion rout in digital assets, a selloff that took down the TerraUSD algorithmic stablecoin. Regulators globally are grappling with how to protect consumers while harnessing the innovation crypto offers.

Locking out retail investors from lending tokens or staking limits their access to decentralized finance or DeFi, which is often touted as important for crypto adoption. But DeFi has been dented by a series of hacks as well as the higher yields now available in conventional investments like Treasuries.

Before the consultation, Singapore had already taken steps like clamping down on crypto marketing. It also requires virtual-asset providers to be licensed locally even if they only do business overseas.

The central bank said in Wednesday’s paper that it rejected entirely banning cryptocurrency services for retail consumers because that could lead them to unlicensed platforms.

The window for feedback on the consultation paper lasts until Dec. 21 after which final guidelines will be set. Digital-asset service providers will then have six to nine months to adhere to the rules.

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