A major theme of 2023 is Asia’s continued rise as a crucial region in the cryptocurrency world. This is largely thanks to prominent digital asset hubs such as Singapore, as well as the re-emergence of Hong Kong and Japan.
While these jurisdictions do welcome digital assets, the hype surrounding them can be somewhat misleading. Crypto-friendly does not mean crypto is easy. These Asian jurisdictions dubbed “crypto-friendly” actually implement some of the strictest regulations in the world. Provisions.
Singapore has gained a reputation for supporting cryptocurrencies due to its early initiatives to regulate the industry and the regulator’s consultative approach. While Singapore may be all-in on asset tokenization, in reality it is not “crypto-friendly” at all. Last year, Ravi Menon, managing director of the Monetary Authority of Singapore, gave a speech titled “Supporting Digital Asset Innovation and Opposing Cryptocurrency Speculation.”
It’s not just talk either, MAS has issued guidelines to prevent the public from engaging in cryptocurrency transactions, which include banning cryptocurrency service providers from advertising in public areas. In contrast, Singaporean regulators are extremely enthusiastic about the tokenization of foreign exchange, bond and other funds.
Hong Kong’s re-emergence as a cryptocurrency hub is also exciting. In June, Hong Kong’s Securities and Futures Commission (SFC) began accepting applications for cryptocurrency exchange licenses. On the surface, Hong Kong appears to be more friendly to cryptocurrency trading than Singapore. For example, Hong Kong regulators are urging banks to accept more cryptocurrency exchanges as clients.
But again, this kind of friendliness comes with many conditions. Hong Kong still has only two licensed exchanges, with only spot trading and a limited token list. 98% of the exchange’s assets must be stored in cold wallets. The exchange must also set up a legal entity in Hong Kong for custody. Running an exchange in Hong Kong is neither simple nor cheap, as getting approval requires a team of lawyers, consultants and insurance providers. According to reports, obtaining a new license could cost $12 to $20 million.
Then there’s Japan, whose ruling Liberal Democratic Party has made clear its intention to make Japan the Web3 capital. But following the Coincheck hack in early 2018, Japanese regulators have become so harsh on cryptocurrencies that some fear the local industry is in crisis. But when FTX collapsed in November 2022, Japan’s regulatory approach scored a major victory. Japan requires cryptocurrency exchanges to separate exchange and customer assets, which helped FTXJapan users actually get their funds back.
Although Japan was one of the first countries to implement stablecoin regulations, its standards are also very high. Only specific institutions can issue stablecoins, and assets are required to be held entirely in a Japanese fiduciary. Given Japan’s low interest rates, this could make it very difficult to profit from yen-based stablecoins. In addition, high taxes have become a major obstacle for Japan to attract cryptocurrency companies.
Singapore, Hong Kong and Japan have some important things in common. They may not be easy on encryption, but they are relatively clear. The exchange knows what it can and cannot do. Regulators in all three jurisdictions have invested time in developing comprehensive regulatory frameworks and have shown a willingness to work with the industry. In other words, you may not like the rules, but at least you know how to find them.
This approach is in sharp contrast to the United States. Cryptocurrency advocates have often criticized the U.S. government, especially SEC Chairman Gary Gensler, for being unfriendly to cryptocurrencies. The bigger problem is not that regulation is too strict, but that people are still debating what is a security and what is a commodity.
The result is that, in the absence of a national encryption framework, clarity is sought from court decisions. The U.S. Securities and Exchange Commission has filed multiple complaints. Many people in the industry are paying attention to the Ripple court decision, hoping it will set a clarifying precedent. But not all companies have the time and capital to spend years fighting the SEC in court. The U.S. crypto environment is decidedly unfriendly, but not because the rules are too strict, but because no one agrees on what they are.
Globally, cryptocurrency regulations are becoming stricter, as shown by Europe’s upcoming MICA regulations. The EU's 27 member states cover a population of about 450 million. Its regulatory scope is wide-ranging and will never be lax. It is very likely that it will be too strict. That’s why regulators must be flexible and open to dialogue with industry to make appropriate changes when arbitrary rules prevent businesses from thriving.
Summarize
Maybe it’s time to do away with the term “crypto-friendly” as it comes across as light-hearted. A more accurate term is "cryptographically transparent". If the crypto market fully recovers, this clarity will bring distinct advantages to places like Singapore, Hong Kong, and Japan. At the same time, don’t completely bash the United States. The United States still has a lot to learn from Japan, Singapore, and Hong Kong in its cryptocurrency regulation.