$DBS GROUP HOLDINGS LTD(D05.SI)$
DBS’s about-face decision on a retail crypto exchange – canceling its plans to open one by the end of 2022 – leaves us with two questions: Is this another chapter in Singapore’s continued tightening of crypto regulations? And will this stymie OSL, the Hong Kong-based institutional exchange that provides DBS with exchange software?
The answer to both is, not really.
It’s not a secret that authorities in Singapore aren’t fans of retail crypto trading. Earlier this year, regulators banned direct-to-consumer marketing for exchanges and told crypto ATM operators to turn off their machines. It also put DeFiance Capital, one of the larger crypto funds in the city-state, on an investor alert list because it was “wrongly perceived as being licensed or regulated by the Monetary Authority of Singapore.”
But Singapore hasn’t changed its tone on institutional investment in crypto. That has always been what the country has been interested in crypto. That has always been what the country has been interested in developing as a hub, not retail, which requires nanny-like regulations to ensure amateur traders leveraging their retirement savings don’t get rekt when their crypto position is liquidated. Needing to regulate with a heavy hand isn’t what Singapore wants.
If DBS were to actually launch a retail crypto exchange it wouldn’t look like what many retail traders are used to seeing. There would be a limited selection of tokens, and decentralized finance (DeFi) would definitely be out of the question. While there would undoubtedly be an element of convenience because of the integration with the bank, it would be challenged to attract significant volume because it wouldn’t be competitive with leading exchanges in terms of features.
In its recent earnings, OSL’s parent, BC Technology Group, highlighted its Software-as-a-Service (licensing its exchange software to other entities) as a growth point.
The company cites “service fees from SaaS of HK$10.1 million (US$1.2 million), an increase of 104.2% year over year,” as a driver of this quarter’s growth, specifically naming its partnership with DBS as a way to expand the business past institutional only and on to retail.
But against group revenue of HK$352 million (US$45 million), this amount is insignificant.
“OSL’s institutional exposure and licensed status far eclipse that slight negative,” Esme Pau, an analyst with Tonghai Securities, told CoinDesk. “With [its] core business in serving professional investors. OSL is a proxy to digital assets institutionalization. In the broader scheme of things, increasing regulatory clarity is the definite future direction of travel for digital assets.”
Investors didn’t seem to care either. Even after the news broke, the stock continued its week-long winning streak on the Hong Kong markets up 5%.
Tonghai predicts the company will turn a profit in the medium term given the competitive moat it has of being the only licensed exchange in Hong Kong – a much larger, and less competitive, market than DBS’s retail crypto play.
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