Set Up a Cryptocurrency Hedge Fund in Singapore
Updated on Monday 25th March 2019
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2017 was the most important year for cryptocurrency operations. The industry developed at an astonishing rate in numerous countries, including in Singapore. This country stands out as one of the leading financial markets for investments in the field of cryptocurrencies, as stated by numerous experts in the field.
Investors who want to set up a hedge fund startup in Singapore should also consider that this jurisdiction is highly developed in operations for fintech companies. Several investors have already registered startup companies in Singapore or investment funds, which can be opened as a cryptocurrency hedge fund. One of the aspects that should be concluded for the latter option refers to obtaining special licenses, as presented below.
Investors who want to set up a hedge fund startup in Singapore should also consider that this jurisdiction is highly developed in operations for fintech companies. Several investors have already registered startup companies in Singapore or investment funds, which can be opened as a cryptocurrency hedge fund. One of the aspects that should be concluded for the latter option refers to obtaining special licenses, as presented below.
Regulations for hedge funds in Singapore
As a general rule, a hedge fund is registered for performing investment strategies that will provide a rapid return on investment. In Singapore, the main regulatory agency for hedge funds is the Monetary Authority of Singapore (MAS). The following video offers a short presentation on how to set up a cryptocurrency hedge fund in Singapore:
The hedge funds in this country are regulated under the Singapore Code on Collective Investment Schemes, which prescribes two main categories of vehicles, as follows: hedge funds that make investment strategies through leverage or derivatives and investments in non-mainstream assets. In this situation, investors have to apply for special licenses issued by the local authorities. In this sense, the investors should apply for one of the following: Capital Markets Services License or the Financial Advisers License.
Still, not all types of hedge funds have to obtain a license, as long as special criteria are met. For example, the fund manager can be exempted from obtaining a license, as long as the fund has less than 30 qualified investors.
What is the current situation of cryptocurrencies in Singapore?
What is the current situation of cryptocurrencies in Singapore?
Cryptocurrency exchanges are legal in this country, but cryptocurrencies are not considered legal tenders in Singapore. However, cryptocurrency transactions are imposed with the Goods and Services Tax (known as the value added tax in other countries). Investments concluded through a hedge fund startup that invests in cryptocurrencies have to comply with the requirements stipulated by the Securities and Futures Act. Other relevant matters are presented below:
- MAS also issued official guidelines related to the current state of digital tokens offerings;
- although the guidelines concerning digital tokens offerings are not legally binding, MAS declared that certain token offerings can be considered securities, in which case they have to respect the regulations set out in this sense;
- digital tokens securities can fall under the Section 2(1) of the Securities and Futures Act;
- at the same time, provisions of the Financial Advisers Act can be applied to these investment instruments;
- digital tokens can be considered capital market products and they can refer to securities, futures contracts, contracts for foreign exchange trading and others.
What is the legislation concerning digital tokens offerings in Singapore?
The digital token offerings, which refer to the offer to sell digital tokens, are used for obtaining capital. This became a popular way of funding a cryptocurrency business or a cryptocurrency investment fund and the procedure has the same basic characteristics as in the case of crowdfunding. Digital token offerings are also known as initial coin offerings (ICOs).
Businessmen who are interested in how to start a fund in Singapore that will use digital tokens offering should take into consideration that MAS issued at the end of 2018 (on 30th of November), the latest version of a guide for this type of transactions – “A Guide to Digital Tokens Offerings”. Through this document, entities that issue digital tokens are required to comply with a set of requirements, where applicable.
The regulation is available as long as the respective tokens are considered securities, as we presented above. In this sense, MAS recommended all token issuers to request for legal advice from professionals who are accustomed with the financial legislation applicable in Singapore, with the purpose of determining whether the tokens they issue fall into this category or not.
If their characteristics fall under the definition of securities or of capital market products, then they will be considered securities token offerings. Under the guidelines issued by the MSA, the digital token can refer to a wide category of assets and in this case, the issuer is legally required to submit a prospectus with the institution. A digital token in Singapore can define the following:
- a share, as long at it represents an ownership characteristic in a corporation;
- a debenture, which refers to the evidence of indebtedness of the token issuer in relation with the token holder;
- a unit owned in a business trust and which shows ownership in the property of a trust;
- any type of derivatives contracts that have as an object a share or a unit;
- a unit held in a collective investment scheme, defining a right the holder has in the respective fund.
Are there any exemptions regarding the prospectus requirements in Singapore?
Yes, investors can be exempted from filing a prospectus with the MAS when they are involved in securities tokens offerings provided that certain conditions apply. One of the legal requirements which exempts investors from this procedure is to have a securities token offering with a value of maximum $5 million for a period of one year.
The exemption is also applicable when the securities tokens offering is set up as a private offer, which was made to a maximum of 50 persons in a period of one year. The regulation is applicable as well in the case in which the offer is made to accredited investors and to institutional investors.
What are accredited/institutional investors in Singapore?
Businessmen who are interested in how to start an investment fund operating with cryptocurrencies and who make their offerings to accredited investors should know that the term defines a person who has personal assets with a value of above $ 2 million and who, at the same time, holds financial assets with a value of minimum $ 1 million. An institutional investor, as its name suggests, defines an official institution, such as the country’s central bank or the government.
Cryptocurrencies in Singapore
Investors have set up numerous businesses by using virtual currencies, from companies with commercial purposes, to specialized investment funds. Singapore already has a coffee shop where the customers can pay by using a cryptocurrency ATM. Also, other cryptocurrencies investment funds have been set up here and the investors are mainly performing their activities through Bitcoin and Ethereum transactions. Foreign investors can contact our team of affiliates in Singapore for in-depth information on how to start an investment fund performing investments in cryptocurrencies.