Why Singapore’s Crypto Crackdown Is Driving Liquidity Offshore

Singapore’s blanket exit order for unregulated crypto players ignited a wave of market-making migrations to Hong Kong and Dubai, where regulated venues stand ready to absorb fresh liquidity. Firms now turn to Hong Kong’s clearer licensing framework and yuan-pegged stablecoin initiatives.

Zero-Grace Crackdown Sparks Global Reshuffling of Crypto Hubs

The Monetary Authority of Singapore (MAS) crackdown stems from the Payment Services Act’s stricter enforcement phase, under which any crypto firm lacking a Major Payment Institution (MPI) license must wind down by June 30, 2025. More than 20 global exchanges, including Bybit and Bitget, operate in Singapore without local licenses, representing over 15% of Singapore’s daily spot volume in 2024.

Some smaller platforms are unable to reapply and may simply wind down or pivot to peer-to-peer models, thereby shrinking the choice for Singapore users. The crackdown could reduce Singapore trading volumes by up to 30%, potentially diverting as much as $3 billion in daily liquidity to other hubs, mainly Hong Kong and Dubai. 

Meanwhile, Hong Kong’s Securities and Futures Commission (SFC) began granting crypto exchange licenses in June 2023. As of early 2025, nine platforms have been approved, with another 15 applications under review. Those venues handle an estimated $1.2 billion in daily turnover – up 35% since Singapore’s announcement.

Dubai’s Virtual Assets Regulatory Authority fast-tracked licensing for 30+ firms, while Abu Dhabi introduced “regulatory sandboxes” for token issuers to capture outflows from Singapore.

Singapore’s MAS signaled no grace period, leaving zero room for transition, forcing firms either to secure MPI licenses or pack up. That binary deadline contrasts with Hong Kong’s phased rollout, which allows existing players a two-year compliance window under its transitional licensing regime.

Hong Kong Gains Momentum with Stablecoin Plans and Capital Access

Singapore’s strict regime cements its position as a well-regulated hub but risks eroding market share. Meanwhile, Hong Kong stands to cement its status as Asia’s crypto hub, combining a common-law framework with active regulator outreach. But will this influx spur further SFC licensings or flood the market with thinly-capitalized operators?

The Hong Kong Monetary Authority (HKMA) is reportedly preparing stablecoin guidance to support on-shore liquidity pools, potentially attracting yuan-denominated trading pairs and mainland Chinese capital. That could widen Asia’s digital-asset corridor between Hong Kong and mainland China.

Singapore’s insistence on strict KYC/AML compliance may reduce wash-trading and fraud, but collateral damage looms as liquidity clusters migrate eastward. On the tech front, decentralized exchange protocols may see renewed interest from Singapore users seeking peer-to-peer alternatives, while centralized players bulk up Hong Kong offerings with deeper order books and tighter spreads.

Meanwhile, Dubai’s virtual asset law and tax-free zones remain in play, offering a three-cornered contest for Asia’s crypto crown. Whoever captures the most market share will shape the region’s innovation paths.

Stablecoins Ordinance’s Regulatory Blueprint

Hong Kong’s Stablecoins Ordinance, effective August 1, 2025, sets clear licensing rules for fiat-referenced stablecoins (FRS), requiring 100% reserve backing in high-quality liquid assets and mandatory par-value redemption, laying a solid foundation for trust and stability. By comparison, Singapore’s Payment Services Act enforcement phase offers no transition for firms, intensifying the regulatory arbitrage that drives liquidity toward Hong Kong.

Major financial institutions and Web3 players are racing to secure Hong Kong licenses. Standard Chartered, Animoca Brands, and HKT formed a joint venture in February 2025 to issue an HKD-backed stablecoin, leveraging bank-grade custody and telecom distribution networks. Meanwhile, Ant International (Alibaba’s fintech arm) plans to apply for an FRS license to issue CNH-pegged tokens, aiming to channel mainland Chinese capital into regulated liquidity pools.

Stablecoin market volumes in Hong Kong have surged since the Ordinance was gazetted. Daily FRS turnover on licensed platforms crossed $800 million by early July 2025 (a 40% jump), driven chiefly by migrations from unlicensed Singapore exchanges. Tether (USDT) and Circle’s USDC still command over 70% of this volume, but upcoming HKD- and CNH-pegged tokens threaten to diversify the on-shore pool.

Capital flow dynamics now favor jurisdictions with robust stablecoin guardrails. With Hong Kong’s clear rules, up to $3 billion daily in stablecoin liquidity could permanently shift from Singapore and offshore venues to HKMA-regulated platforms. 

Looking ahead, Asia’s crypto-asset landscape will hinge on stablecoin frameworks. Hong Kong’s “same activity, same risks, same regulation” principle aims to align with global standards while fostering innovation, potentially spawning tokenized bonds and funds atop stablecoin rails. For Web3 enthusiasts, these shifts may bring a matured era for programmable money, where transparent reserve practices and regulatory certainty underpin the next wave of DeFi and enterprise blockchain use cases.

Dubai’s Regulatory Pull and Liquidity Influx

Dubai’s Virtual Assets Regulatory Authority (VARA) has licensed 46 virtual asset service providers (VASPs) and issued 28 In-Principle Approvals as of July 2025, creating clear pathways for exchanges displaced by Singapore’s deadline to restart operations under robust oversight. VARA’s 2025 rulebook update introduced stricter market‐abuse standards and detailed frameworks for custody, trading, and token issuance.

Beyond VARA, Dubai’s free‐zone regimes, such as the Dubai International Financial Centre (DIFC) under the DFSA, and Abu Dhabi Global Market (ADGM) under the FSRA, each provide distinct licensing routes and sandbox environments, enabling VASPs to pilot tokenized bonds, sukuk, and real-world asset offerings. DIFC’s Tokenisation Regulatory Sandbox alone attracted 96 expressions of interest by March 2025, illustrating keen demand among fintech innovators for experimentation with token frameworks in the UAE.

Tax incentives bolster Dubai’s appeal: free-zone entities benefit from 0% corporate and capital-gains tax, 100% foreign ownership, and profit repatriation, while onshore VARA-regulated firms face a flat 9% corporate tax only above AED 375,000 in profits. These fiscal perks have prompted mid-tier exchanges like Bitget to announce staff relocations to Dubai in the wake of Singapore’s crypto crackdown.

VARA mandates rigorous AML/CFT controls, independent audits, and segregation of client assets, aligning its governance with FATF recommendations and offering a compliance framework that rivals traditional financial centers. Issuers of Asset-Referenced Virtual Assets (ARVA) must also adhere to new tokenization rules that classify real-world tokens under a clear regulatory umbrella, reducing legal uncertainty for structured products.

Regulatory Lessons from Singapore’s Exit Policy

Singapore’s abrupt enforcement under the Payment Services Act, with no transition, has fragmented markets and driven liquidity into offshore venues. Jurisdictions that impose sudden, high-barrier licensing (e.g., $2 million capital) risk stifling smaller firms, shrinking user choice, and incentivizing peer-to-peer migration outside regulated rails. Inconsistent AML/CFT standards across regions can spur regulatory arbitrage as platforms chase the lightest compliance load rather than harmonized safeguards.

Finally, over-reliance on punitive measures without supportive guidance may erode trust and slow on-chain adoption, showing that balanced rule-making, which combines clarity with flexibility, remains the toughest yet most critical regulatory challenge.