Crypto's Future is Asia

With a U.S. regulatory onslaught, Asia could be this cycle's growth monster.
David C David C Apr 30, 20245 min read
Crypto's Future is Asia

Prominent traders like GCR and Arthur Hayes have long discussed the prolonged 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 U.S. regulatory environment and increasingly positive developments in Hong Kong and China, Asia's case for leading the crypto industry continues to strengthen.

Hong Kong’s Bitcoin and Ethereum spot ETFs have come online as Chinese investors have significantly increased their stake in offshore assets. Investors' lack of confidence in the domestic market has prompted record sales of Qualified Domestic Institutional Investor fund units — a state-granted vehicle to invest in foreign securities — to the point that Chinese funds are placing caps or pauses on investment. Despite China's notorious Bitcoin bans, Hong Kong's new clear crypto regulations and political ties to the mainland suggest 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 U.S. presents a different scenario with recent SEC actions against Metamask and Uniswap and FBI warnings depicting a regulatory assault on crypto. These actions reflect growing scrutiny within the U.S. towards crypto operations, potentially 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 stand poised to be 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 territories. 

Beyond ETF approvals and transparent regulations, Hong Kong holds multiple other qualities that make it an Eastern crypto hotbed. A recent report ranked Hong Kong as the top locale for crypto adoption due to:

  1. Zero Percent Tax Rates on crypto gains that attract traders and investors.
  2. Dense Network of Crypto ATMs facilitating easy fiat-crypto conversion.
  3. Strong Industry Presence, with top firms like Consensys, OKX, and Animoca Brands headquartered or holding offices in Hong Kong.
  4. Its longstanding position as a center of trade and finance positioning Hong Kong well to be a nexus for crypto activity in Asia.

These recent developments have not happened in a vacuum. Greater China, including Hong Kong, has a rich history with crypto, pioneering many trading innovations and technical feats like stablecoins.

These innovations spurred Hong Kong's crypto market growth. Despite mainland China publicly souring to crypto, Hong Kong still managed to carve out a distinct regulatory path that could lead to it becoming a global crypto hub. Claiming this happened without China’s consent would be ignorant, given the National Security Law in Hong Kong (passed in 2020), providing mainland China significant legal control over Hong Kong, as well as the Safeguarding National Security Ordinance (passed in Hong Kong this year), which even further aligns Hong Kong’s security practices with those of mainland China. Considering the mainland’s restrictions against crypto, Hong Kong’s recent embracing of crypto implies that the CCP believes it to be in their best interest to have a strong foothold in the industry. The CCP’s serious approach to blockchains can also be seen in developing their own Central Bank Digital Currency (CBDC). This official digital currency raises significant privacy concerns due to potential government surveillance. Nevertheless, this 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, like 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 high-end 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, like spot ETFs. While not equivalent to crypto, luxury spending reflects a financial trend among the wealthy to invest and engage in offshore markets. Even if not directly influencing ETF flows, this exposes a wealthy subsect of mainland China to the ETFs and their advertisements across the city.

China has actively reduced its dollar dependency for over a decade, decreasing its treasury holdings by ~40%. Still, given the dollar’s predominance in trade, they continue to collect a steady supply of dollars, which they have difficulty disposing of. Funneling these dollars into crypto would help them reduce their USD holdings and provide a globally decentralized asset independent of any government — an attractive quality for a country with tense Western relations. 

In conclusion, Hong Kong's crypto adoption, its ties with mainland China, and Greater China's innovation position the region as an industry powerhouse, ready 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 adoption, contrasting the hostility of the U.S. 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, surpassing many wealthier nations across different crypto uses, including decentralized and centralized exchanges, DeFi, and NFTs. India's crypto market thrives despite a harsh 30% capital gains tax favoring international platforms. This resilience underscores the strong, ongoing demand for cryptocurrency in the world's second-largest country, affirming 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 new ventures, 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’s 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, particularly stablecoins, has become vital in remittances and payments, providing security, low transaction fees, and fast processing times.

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

As U.S. regulations become more hostile to our industry, Asia's emerging crypto hubs stand ready to attract substantial future investments and innovations, potentially shifting the industry's economic and technological epicenter from West to East.

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

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

David C

Written by David C

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David is a writer/analyst at Bankless. Prior to joining Bankless, he worked for a series of early-stage crypto startups and on grants from the Ethereum, Solana, and Urbit Foundations. He graduated from Skidmore College in New York. He currently lives in the Midwest and enjoys NFTs, but no longer participates in them.

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