Crypto’s future is Asia | Bankless

Prominent traders such as GCR and Arthur Hayes have discussed at length the long-term impact Asia will have on crypto, with some making the argument that investors in the region will be the driving force in this current cycle.

With a brutal US regulatory environment and increasingly positive developments in Hong Kong and China, Asia’s case to lead the crypto industry continues to strengthen.

Hong Kong’s Bitcoin and Ethereum spot ETFs came online as Chinese investors significantly increased their holdings in offshore assets. Investors’ lack of confidence in the domestic market has led to record sales of Qualified Domestic Institutional Investor fund units – a state-sanctioned instrument for investing in foreign securities – to the point that Chinese funds are placing limits or pauses on investment. Despite China’s infamous Bitcoin ban, Hong Kong’s new clear crypto regulations and political ties to the mainland point to China’s indirect support, positioning Hong Kong as a controlled crypto hub. Recent approvals of Hong Kong’s crypto ETFs further support this view.

In contrast, the US presents a different scenario with recent SEC actions against Metamask and Uniswap and FBI warnings depicting a regulatory attack on crypto. These actions reflect increasing scrutiny in the US of crypto operations, possibly driving our development overseas to Asia’s more favorable environment and bringing the industry’s epicenter with it.

🇭🇰 Hong Kong + 🇨🇳 China

Hong Kong and China are poised to be at the center of Asia’s positive impact on crypto thanks to Hong Kong’s favorable regulations, China’s history with crypto, and the interplay between these two areas.

Besides ETF approvals and transparent regulations, Hong Kong has several other characteristics that make it an Eastern crypto hotbed. A recent report ranked Hong Kong as the best place for crypto adoption due to:

Zero percent tax rates on crypto profits that attract traders and investors. Dense network of crypto ATMs facilitating easy fiat-to-crypto conversion. Strong industry presence, with top firms such as Consensys, OKX and Animoca Brands with headquarters or offices in Hong Kong. position as a center of trade and finance that positions Hong Kong well to be a nexus for crypto activity in Asia.

These recent developments did not happen in a vacuum. Greater China, including Hong Kong, has a rich history with crypto, pioneering many trading innovations and technical achievements such as stablecoins.

These innovations spurred Hong Kong’s crypto market growth. Despite the fact that mainland China has publicly soured on crypto, Hong Kong has still managed to carve out a clear regulatory path that could lead to it becoming a global crypto hub. To claim that this happened without China’s consent would be ignorant, given the Hong Kong National Security Law (passed in 2020), which gives mainland China significant legal control over Hong Kong, as well as the Ordinance on the Protection of National Security (adopted in Hong Kong this year) , which aligns Hong Kong’s security practices even further with those of mainland China. Considering the mainland’s restrictions against crypto, Hong Kong’s recent adoption of crypto implies that the CCP believes it is in their best interest to have a strong foothold in the industry. The CCP’s serious approach to blockchains can also be seen in the development of their own Central Bank Digital Currency (CBDC). This official digital currency raises significant privacy concerns due to potential government surveillance. Nevertheless, it shows the CCP’s cautious acceptance of blockchain, understanding its power and potential.

Furthermore, another aspect of Hong Kong and China that makes the region ripe for adoption comes from capital trends, such as the desire to invest outside of China, as previously mentioned. Hong Kong has long attracted wealthy Chinese spending on luxury goods such as jewelry and luxury brands. This trend, coupled with the enthusiastic desire to invest in non-domestic assets, positions Hong Kong as an outlet for mainlanders to invest in alternative assets, such as spot ETFs. Although not equivalent to crypto, luxury spending reflects a financial trend among the wealthy to invest and engage in foreign markets. Even if it does not directly affect ETF flows, it exposes a rich sub-sector of mainland China to the ETFs and their advertisements across the city.

China has been actively reducing its dollar dependence for over a decade, reducing its treasury holdings by ~40%. Yet, given the dollar’s dominance in trade, they continue to accumulate a steady supply of dollars, which they find difficult to dispose of. By tipping these dollars into crypto, they will help reduce their USD holdings and provide a globally decentralized asset that is independent of any government – ​​an attractive quality for a country with strained Western relations.

Finally, Hong Kong’s crypto adoption, its ties to mainland China, and Greater China’s innovation position the region as an industry powerhouse, poised to drive this cycle’s growth.

Further examples of Asian adoption

Beyond Hong Kong and China, the broader Asia region presents a kaleidoscope of regulatory approaches and levels of acceptance, contrasting the hostility of the US and demonstrating Asia’s willingness to engage with crypto.

🇮🇳 India

Despite strict regulations and high taxes, India leads in global crypto adoption.

According to Chainalysis, India ranks first in global crypto adoption and second in transaction volume, outpacing many wealthier countries across various crypto uses, including decentralized and centralized exchanges, DeFi and NFTs. India’s crypto market is thriving despite a harsh 30% capital gains tax that favors international platforms. This resilience underscores the strong, ongoing demand for cryptocurrency in the world’s second-largest country, confirming its significant global influence on crypto.

🇸🇬 Singapore

Singapore is competing with Hong Kong to become Asia’s Web3 hub.

Already a leading global financial hub, the country has adopted a sophisticated and deliberate approach to crypto. It provides a supportive environment for startups, including a $150M Singapore dollar fund to support fintech such as Web3 and a regulatory sandbox for experimentation. The country balances this with strict, consumer-focused oversight of transactions, ensuring safety for its citizens.

🇵🇭 The Philippines

Finally, the Philippines, ranked sixth in Chainalysis’ adoption report, is one of the nations most driven by its socioeconomic context when adopting crypto.

With a significant portion of the population unbanked, the country viscerally understands the potential of blockchains to be used not only for financial transactions, but as a comprehensive tool for socio-economic improvement. As a country dealing with consistent inflationary pressures, crypto, especially stablecoins, have become essential in remittances and payments, offering security, low transaction fees and fast processing times.

From India’s adoption to Singapore’s frameworks and the Philippines’ resilience, Asia’s diverse crypto involvement positions it as a global heavyweight while showcasing blockchain benefits for developing countries.

As US regulations become more hostile to our industry, Asia’s emerging crypto hubs are poised to attract significant future investment and innovation, potentially shifting the industry’s economic and technological epicenter from West to East.

Proactive measures in Hong Kong and broad adoption across Asia can make the region a formidable force in this cycle. While the SEC drags its feet and overextends its reach in the US, Asia continues to embrace the crypto industry, fueling not only their local economies but potentially sending the global market into a new era fueled by Asian technological leadership is dominated.

While it may be premature to say the US’s position in the industry has declined, the winds continue to blow more in Asia’s favor.