This article was originally posted on Forbes New York Business Council
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2018 was the year of cryptocurrency, to hear the news tell it. Even as bitcoin, Ethereum and others rose to unprecedented heights, fell and fell some more, one thing is now certain: Love them or hate them, blockchain and cryptocurrencies are here to stay.
If you’re a technologist or crypto enthusiast, what does this mean? Blockchain and crypto are emerging from their decadelong infancy, and governments around the world are all reacting differently. Cryptocurrencies were originally designed to avoid a centralized authority, relying on a decentralized system that permits people to trade among each other and avoid the too-big-to-fail moral hazard of the 2008 financial crisis. Asia, in particular, has been enamored with crypto, but the absence of a centralized authority has unsettled many governments and provoked a wide range of responses.
Leading The Pack: Japan And Singapore
Of the major Asian markets, Japan and Singapore have made the most progress in accepting and regulating cryptocurrency. These two nations can provide a template for how crypto and governmental authority, long seen as two incompatible forces, can coexist and prosper.
Crypto has already become mainstream in Japan. Mrs. Watanabe, the metaphorical, prototypical Japanese housewife, has moved on from FX trading to investing some portion of her savings in crypto. Faced with a rapidly aging (and shrinking) population, the nation’s pension funds have a challenging future, with too many recipients and not enough contributors. This top-heavy structure has led the government to encourage citizens to find their own retirement plans, from defined contribution accounts (similar to an IRA in the U.S.) to crypto.
In April 2017, Japanese regulators revised legislation to define virtual currency as a form of payment and to order all currency exchanges to register with financial authorities. By regulating cryptocurrency, Japan is accepting it and hedging against instability. Exchanges are held accountable and are required to maintain reports and records, undergo background checks, and perform regular audits. Japanese regulators are also moving toward legalizing ICOs to prevent money laundering and protect investors.
Singapore has taken an even more active approach than Japan. The Monetary Authority of Singapore (MAS) recognized cryptocurrency in its mandate as early as January 2018 and has explored additional consumer protection rules specifically for crypto investors. Much of the activity previously centered in China has moved to Singapore, lured by its strong legal system and openness to both blockchain and cryptocurrency.
Moving Ahead With Some Speed Bumps: South Korea And Hong Kong
South Korea was on the verge of outlawing crypto in 2017. The nation, by then the third-largest crypto market, banned fundraising for ICOs as well asanonymous crypto accounts. Yet by February 2018, around the same time China began dismantling its homegrown exchanges, South Korean regulators decided against an outright ban. Instead, officials mentioned that they were committed to “normalizing” and mainstreaming crypto.
This change likely had to do with the popularity of cryptocurrency among South Koreans: Close to 30% of the nation’s full-time workers have invested in crypto (in comparison, only about 11% of Americans have invested in any cryptocurrency). Also due to the famously activist nature of the South Korean public, its overall popularity contributed to the government’s about-face.
Hong Kong has also become a major crypto hub in Asia, reinforced by China’s ban on cryptocurrency. Hong Kong’s Securities and Futures Commission announced comprehensive rules governing cryptocurrencies in an effort to become a major trading center. The new rules ban retail investors from participating in digital currencies but represent a net positive for providing clarity to institutional funds and exchanges on where they can and cannot operate.
Blockchain Is Great, But Cryptocurrency Is Not: China
This leads us to China, the most heated cryptocurrency market. In early 2018, the Chinese government banned cryptocurrency completely, citing a need to “prevent financial risks” by removing “onshore or offshore platforms related to ICOs.” This is likely because the government doesn’t want alternatives to the renminbi that allow capital to flow easily out of the country. Prior to this, however, China had been among the largest of cryptocurrency markets for mining and trading.
Still, China had begun to shut down fundraising for initial coin offerings as early as 2017. There continue to be rumors that China has its own national cryptocurrency offering in the works, though Chinese exchanges have reacted to the ban by moving to more crypto-friendly locations, like Malta, Bermuda, Taiwan and Singapore.
Other crypto-related areas in China remain strong, despite the government’s hard line against cryptocurrency itself. For one, manufacturers of crypto mining devices are hardly affected, and there continues to be a brisk trade in mining hardware and software. China continues to encourage the development of blockchain, even if it does not like the cryptocurrencies that run on top of them.
What This Means For Investors
Globally minded investors might find the tumult surrounding Asia’s cryptocurrency scene unnerving, though that doesn’t necessarily mean the news is all bad. For projects that have already been funded, the promise of regulation in countries such as Japan, Singapore, South Korea and Hong Kong means they can move forward with relative ease. These projects can also serve as examples for investors of what types of projects are more likely to succeed in Asia, based on factors like economic impact and clear use cases.
But unfunded projects that are currently trying to raise capital are struggling. The stop-and-start nature of regulation and acceptance in Asia means that for the crypto/blockchain-based startups and organizations still seeking approval, the process remains an uphill battle. In the case of the entire Asia region, most projects will likely have trouble gaining momentum until more regulation is in place. But, of course, that regulation is very much on the way for many Asian countries.
Asia continues to have a love affair with blockchain and cryptocurrencies. Clearly, the technology is not going away. Even as governments seek to regulate, control or ban it, crypto has found a home with Asian institutional and retail investors, miners and equipment manufacturers.