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The Lanturn Blog

Carefully curated and thoughtfully written content for businesses of any size.

FUND MANAGEMENT

3 Things to Consider When Starting a Crypto Fund in Singapore

June 2022

The Lanturn Team

The cryptocurrency boom that happened in 2021 made the relatively new asset class go mainstream. Billionaires and celebrities, including Elon Musk, Mark Cuban, and Paris Hilton, promoted digital tokens, increasing the crypto craze that made retail investors dip their toes into the market.


Such a view is supported by the fact that the number of crypto owners keeps rising. In 2021 alone, the number experienced a 178% surge from the year before, reaching 300 million. It is a simple supply and demand principle; the greater the demand for an asset, the higher the price. No wonder bitcoin reached its peak in November 2021, priced at US$69,000, a 108% increase from its price at the beginning of the year.


However, the fantastic gains didn’t last long as it fell 65% less than six months later, affirming that cryptocurrency is still highly volatile. Whatever your stance is, Singapore looks to be a promising ground for crypto, as its crypto ownership rate stands at 21.9%, well ahead of the global average of 14.6%. Crypto is risky but there are ways to mitigate those risks.

If you do decide to open a crypto fund here, here are three considerations that you have to take into account:

1. Choose the right fund structure


Fund managers who want to establish a crypto fund must register with the Monetary Authority of Singapore (MAS) or hold a Capital Markets Services (CMS) licence to operate either as a Registered Fund Management Company (RFMC) or a Licensed Fund Management Company (LFMC). 


Becoming an RFMC means the company may have up to 30 accredited and institutional investors with a total of S$250 million in assets under management (AUM). Meanwhile, LFMC is further divided into retail or accredited/institutional (A/I) investors, each with a different amount of capital needed; S$250,000 for RFMC and A/I LFMC, and S$500,000 for LMFC (Retail). Aside from the capital needed, there are different requirements for appointing a director.


Therefore, it all depends on your existing cash flow and your talent pool of directors. 

2. Tax is applicable to crypto


Singapore is considered one of the ideal places to establish a fund because of the various tax incentives it offers to fund managers and investors. However, such incentives do not apply to crypto since it is not considered a capital market product. 


As a result, the income tax rate will apply to crypto, digital tokens, and non-fungible tokens (NFTs). Remember that the individual income tax rate is capped at 22%, whereas the tax rate is capped at 22% for corporations. The Prime Minister emphasized that the income tax treatment will be based on their nature and use. For example, it will apply to those who derive income from crypto trading and transactions.

3. Limited marketing and advertising choices


In January 2022, MAS issued guidelines to curb the promotion of cryptocurrencies to the public. The guidelines dictate that cryptocurrency businesses should not engage in marketing or advertising activities in public areas, including public transport, public transport venues, public websites, social media platforms, broadcast and print media, or physical ATMs.


Moreover, engaging a third party, such as social media influencers, in promoting one’s services is prohibited. This means that crypto advertising is only allowed on the company’s website or social media, forcing fund managers and other personnel to be more creative in attracting clients. 

As technology becomes more sophisticated and ingrained in our daily lives, cryptocurrency will likely be here for the foreseeable future. While this may become an excellent opportunity for Singaporean fund management companies, establishing a crypto fund needs careful planning and consideration as explained above.

Need help registering your business or wondering how to get a licence for crypto funds? Lanturn can help.

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