All eyes on Asia — Crypto’s new chapter post-China

A fundamental trait of crypto is as an asset class that transcends jurisdictions. Yet, one of the key hubs driving adoption and innovation is Asia. Since the heady days of Korea’s Kimchi premium and Bitcoin (BTC) arbitrage opportunities, the region is playing a role in defining crypto’s development pathways and anchoring its future.

According to Chainanalysis’ report, in the first half of 2021, Asia was already the destination for 28% of the overall global transaction volume — $1.16 trillion worth of cryptocurrency. Central and Southern Asia alone saw crypto transactions grow 706% year-over-year, making it the world’s third-fastest growing region.

Last year, headlines from Asia were dominated by developments in China. However, the rest of the region was also abuzz, boosted by the halo of perceived legitimacy with regulatory clarity in Singapore around digital assets. The pace of decentralized finance (DeFi) innovation in Southeast Asia was buoyed with a step-up in fundraising and investment in projects. As investors become more comfortable and confident in DeFi’s yield opportunities, institutional adoption is well-poised to continue on its growth trajectory in 2022.

A new chapter, without China

China’s stance on crypto is not unexpected, given the country’s long-standing policy of capital control. While the pace of recent enforcement took many in our industry by surprise, players have — to their credit — adapted swiftly. Miners resettled in Kazakhstan and the United States, with exchanges and traders settling in Singapore and Hong Kong.

Related: Finding a new home: Bitcoin miners settling down after China exodus

As a decentralized asset, crypto’s development and innovation are not limited to any single jurisdiction. Investment capital and talent flow to wherever there is a fostering environment, so countries with a welcoming regulatory framework that encourages innovation, coupled with progressive immigration policies, will be big beneficiaries.

Singapore, already a global financial service and wealth management hub, is a clear frontrunner — crypto has been regulated since 2019 under new legislation. With that said, a high bar has certainly been set, with many players reportedly struggling to meet the stringent requirements of the Monetary Authority of Singapore.

While this might have dampened some initial optimism around Singapore’s crypto-friendliness, the city-state is still a leader when it comes to a progressive regulatory framework, underpinned by a pro-business environment with a low corporate tax rate, robust infrastructure and political stability.

Asia’s other crypto rising stars

Outside of Singapore, Thailand has been buzzing with active participation from crypto startups and traditional financial institutions alike. Thailand’s fourth-largest bank — Kasikornbank — started experimenting with DeFi, on top of introducing recently its own nonfungible token (NFT) marketplace. The country’s oldest lender Siam Commercial Bank has also entered the game, having acquired a majority stake in Thailand’s largest digital asset exchange Bitkub. Meanwhile, the state-owned Tourism Authority of Thailand is exploring utility tokens, part of a payment ecosystem that negates the need for cash-based transactions.

With interest in digital assets expected to heighten in the next few years, the country’s central bank has planned to introduce more comprehensive rules around this asset class in early 2022. Players who seek to enter this market would do well to keep a close watch on the Bank of Thailand’s (BOT) consultation paper that’s coming out this year, which seeks consensus on certain restrictions around crypto business activities. Similar to the Singapore government’s stance, the BOT aims to mitigate systemic risks without stifling development and innovation.

Indonesia, with more than 66% of its population remaining unbanked, is an Asian market ripe for new use cases of crypto. Crypto transaction volume exploded by ten times, surging from nearly $4.5 billion to around $50 billion in October 2021. There are now more crypto traders than stock investors on the Indonesia Stock Exchange. Retail investors are attracted by the ease of trading crypto in the country, where all one needs is a smartphone with internet access, and approximately $.75.

Related: Indonesia’s crypto industry in 2021: A kaleidoscope

Signals from the Indonesian authorities have been mixed, banning crypto payments but legalizing trading, with plans for a national crypto exchange. The Central Bank of Indonesia is also exploring a national digital rupiah to “fight” against cryptocurrencies, hoping that users would find central bank digital currencies (CBDC) safer and more legitimate. As Southeast Asia’s largest economy, we can expect local conglomerates to participate in the development of crypto through partnerships with global incumbents.

Momentum into 2022: Increased funding spurs innovation

Crypto’s soaring popularity has led to not only retail traders but also institutional investors such as hedge funds and family offices who are now exploring the asset class’ promising growth potential. Asia is no exception, as large-scale investors accounted for a significant portion of crypto transactions in the past year, according to Chainlalysis’ 2021 report.

Having recognized crypto’s high yield potential, traditional asset managers are exploring how to best capitalize on this asset class, with players such as Fidelity Investments investing heavily into a Hong Kong-based crypto operator. Heightened institutional interest has also driven more digital asset management platforms innovating and coming up with more sophisticated products that cater to a wider range of users with diverse risk appetites. Last March, a Malaysia-based Bitcoin fund was launched, which claims to be the first in Southeast Asia to provide insured institutional crypto products.

Old money flowing into new

In the coming years, we can expect more investments into Asian crypto projects as “old money” conglomerates position themselves for a future around digital assets. Asia also represents an immense innovation potential to serve the unmet needs of the 290 million underbanked in the region, where DeFi services may accelerate with specific use cases such as services that serve the region’s underbanked with smartphone access.

Increased funding will drive more innovation alongside crypto adoption in a virtuous cycle of value creation across Asia.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.