Excerpts from speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at Money20/20, Singapore, 15 March 2018.

The past year has seen explosive growth in the trading and use of crypto assets. We have also seen a roller-coaster ride in their prices. Bitcoin – the most well-known of the cryptocurrencies or assets – hit a high of nearly US$20, 000 in December last year, and then lost two-thirds of its value in just over a month.

MAS’ views are still evolving but let me share with you the current state of our thinking and our evolving regulatory approach. I will use the more generic term “crypto tokens”, which began life as the medium of exchange within the blockchain ecosystem. But the token has now assumed a life of its own, outside the blockchain.

One of the potentially strongest use cases of crypto tokens is to facilitate cross-border payments in traditional currencies. This is the challenge that Singapore’s Project Ubin has set itself to solve: to use blockchain technology to enable entities across jurisdictions to make payments to one another: without intermediaries; with greater speed and efficiency; and at lower risk and cost. Following two successful proofs-of-concept domestically, MAS has entered a collaboration with the Bank of Canada to test and develop a cross-border solution using crypto tokens issued by the two central banks.

However, the anonymity of crypto tokens has unfortunately made them well suited for facilitating illicit transactions. A significant portion of Bitcoin transactions globally is suspected to be for illicit purposes. Questions abound as to how sanctions lists, black lists, KYC or anti-money laundering controls apply in crypto token transactions. Crypto tokens have also facilitated ransomware – one of the fastest growing cyber crimes.

And in terms of the ugly: crypto tokens have sparked a speculative fever across the world, with a vicious cycle of astronomical prices drawing a growing number of investors sparking further exponential price increases. History has shown us repeatedly – from Dutch tulips to South Sea stocks – that speculative bubbles eventually end very badly. The recent crash in prices ought to be a warning signal. But the marketing pitch by crypto token operators to seize the current lower prices as a buying opportunity only serves to illustrate how unstable, risky, and ugly this game has become. Investors in schemes involving crypto tokens may also be exposed to a heightened risk of fraud. These schemes are often conducted online by operators whose authenticity and credibility are difficult to verify.

The challenge for central banks and regulators is this: how can we harness the potentially transformative benefits of blockchain technology and crypto tokens while containing some of their risks?

MAS has to-date chosen not to regulate crypto tokens directly. But we are: focusing on the activities associated with crypto tokens, evaluating the different kinds of risks these activities pose, and considering the appropriate regulatory responses, all the while, seeking to ensure that we do not stifle innovation. The key risks MAS is monitoring in the crypto world are in the areas of financial stability, money laundering, investor protection, and market functioning.

There is also the issue of market integrity and functioning. Several cryptocurrency exchanges abroad have suffered cyber attacks and theft of their crypto tokens. There are also rumours and reports of rampant market manipulation and other fraudulent activities on crypto-exchanges. We are watching with interest developments in the US, where futures contracts based on crypto tokens have been introduced on regulated exchanges. There may be some advantages here from a market integrity perspective because these exchanges have clear rules governing trade and post-trade activities, and such products could also potentially have a stabilizing influence on crypto token prices as they provide two-way hedging opportunities for investors.

But regulation cannot address all the concerns around crypto tokens. The industry too has a part to play in strengthening the ecosystem, for instance, by adopting best practices around transparency, cybersecurity, and record-keeping. This is a future worth securing.

Read the full speech