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Legal Issues and Trends in the Singapore Crypto Scene | JD Supra

Singapore has become a popular destination for new and existing cryptocurrency funds, just in time for the perceived oncoming “crypto winter.” This LawFlash spotlights trends and legal issues that companies should be aware of when looking to set up cryptocurrency funds or businesses or utilize digital assets in this area.


The Variable Capital Company (VCC) is a relatively new and currently popular corporate structure for investment funds in Singapore. A VCC may operate as a single standalone fund or as an umbrella fund with multiple sub-funds, each with different investment strategies and a portfolio of segregated assets and liabilities.

Another popular fund vehicle is the limited partnership, which consists of a limited partnership agreement between at least one general partner (GP) and one limited partner (LP). GPs are the entities running the fund and the LPs are the investors. The Limited Partnerships Act 2008 of Singapore (LPA) governs the establishment of limited partnerships.

Funds that are structured as limited liability companies in Singapore are incorporated under the Companies Act 1967 of Singapore (Companies Act), where investors would subscribe for shares in the fund company and become shareholders. If a fund is structured as a company in Singapore, it would typically be in the form of a private company limited by shares. However, the limited liability company is a less commonly used structure for funds domiciled in Singapore today.


Beginning with the general decline in cryptocurrency prices and accelerated by the Terra/Luna saga, the estimated overall market capitalisation of cryptoassets has dropped from $3 trillion USD to under $1 trillion in the last seven months. The wipeout of over $2 trillion in value has placed tremendous strain on cryptocurrency exchanges and trade platforms. These exchanges are not just platforms and marketplaces for cryptocurrency trading, but also serve as both borrowers and lenders to individuals or other exchanges in what was a burgeoning decentralized finance (DeFi) industry. The interconnectivity of cryptocurrency exchanges due to their DeFi role through interconnected borrowing and lending arrangements has made some exchanges susceptible to counterparty risk and margin calls by other exchanges.

The abilities of exchanges to manage these risks, which include (1) the ability to mitigate counterparty risks; (2) the ability to manage the trading and withdrawals from customers; (3) the ability to coordinate the same across different regulatory environments; and (4) the ability to raise fresh capital in a rising interest rate environment, will determine the success of such business in weathering the “crypto winter.”

The spotlight has therefore turned to the various terms and conditions which govern the relationship between the exchanges and their customers/counterparties. If an exchange’s terms and conditions allow for the exchange to treat custodized assets as its own assets to deal with as such, and thereby treat custodial relationships as a debtor-creditor relationship between the exchange/custodian and customer (rather than an entrustment or bailment of property), the customers would merely be general unsecured creditors of the exchange, entitled only to a proportional distribution of the exchange’s residual assets after any secured or priority creditors have been repaid in an insolvency situation. Even if the holdings were ultimately deemed property of the customers, the customers would still experience extended disruption to their access to their holdings.

Related to this is whether the terms and conditions provide for the ability of the exchange/custodian to lend or provide security over cryptoassets to or in favour of third parties, and the precise terms for it. Another issue increasingly in the spotlight is the interoperation of these contractual terms when users or customers switch between various accounts or sub-wallets within an exchanges’ digital user interface, particularly if the exchange/custodian may in fact commingle the customer’s holdings with those of other customers, or even its own, in a single crypto wallet controlled solely by the exchange.


As crypto-related investments become more prevalent, those who derive a gain from the sale of digital tokens should be mindful of the potential tax liability that may arise. While Singapore does not have a capital gains tax, it is a common misperception that such gains must be tax-free. The charge of income tax in Singapore is underpinned by the income/capital distinction, where only gains of an income nature are taxable in Singapore. However, a gain in capital value does not necessarily mean that it will be regarded as a gain of a capital nature (and hence non-taxable). Relevant factors such as intention or purpose, length of holding and frequency of transactions are typically considered, and it is not only those who trade in digital tokens that will be taxed on the profits. Ultimately, it depends on the facts and circumstances of each case. 

More and more employers are also considering the use of digital tokens (e.g., Bitcoins) as employment remuneration. A practical consideration at the outset is whether the remuneration should be delineated by a fixed amount that is payable by digital tokens, or a fixed number of digital tokens which fluctuates in value over time. Generally, payments using digital tokens with a moratorium period will only be taxed when it is lifted. It should also be noted that the income tax treatment of a digital token may differ from another depending on its nature and use.


In Singapore, the type of regulations which apply to crypto businesses (and if they apply at all) and whether such businesses need to be licenced, depend on the business activities contemplated and the type of cryptoassets involved. Crypto products and services come in a variety of forms and are evolving continuously, and there is no one “crypto licence” that applies universally.  Different pieces of legislation may apply to different crypto products and services, depending on the scope of the product or service being offered. Therefore, the specific regulatory authority that regulates the activities of the crypto product or service will vary depending on the scope of the product or service. For example, businesses that:

  • deal in or offer digital exchange or custodian services for digital tokens that are deemed to be securities are required to be licenced (or exempt from licencing) under the Securities and Futures Act 2001 of Singapore and may be subject to the prospectus requirements of such act if offering/selling such securities;
  • ·offer financial advisory services relating to various types of cryptoassets may be required to be licenced (or exempt from licencing) under the Financial Advisors Act 2001 of Singapore;
  • ·offer services relating to digital payments (including digital payment tokens or emoney), or offer payment system services, are required to be licenced (or exempt from licencing) under the Payment Services Act 2019 of Singapore; and
  • ·operate in Singapore are also required to comply with Singapore’s laws and regulations in relation to anti-money laundering and countering the financing of terrorism regulations.

Even where an act is done entirely outside of Singapore, Singapore’s licencing requirements would still apply if the conduct has a “substantial and reasonably foreseeable” effect in Singapore.

A licence that is currently coveted in Singapore is the major payment institution licence under the Payment Services Act 2019 of Singapore. This licence allows holders to provide various larger-scale crypto services in Singapore. The Monetary Authority of Singapore has been thorough in reviewing the hundreds of applications for such licences and, as of 22 June, a total of only 14 licences and in-principle approvals have been granted to digital payment token service providers (including stablecoin players, crypto exchanges, and traditional financial institutions).

Consequent from the battered crypto market triggering prominent players in the crypto industry, including firms based here, becoming insolvent, more safeguards are being considered by Singapore to protect consumers. These may include limiting retail participation and imposing rules on the use of leverage, or borrowed capital when transacting in crypto currencies.

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