Crypto-Friendly Doesn't Mean Crypto-Easy: Understanding the Nuances

• Asia's Steady Rise in the Crypto World in 2023
• Singapore: A Pro-Crypto Reputation
• Regulatory Action in Singapore
• Hong Kong: A Crypto Hub Reemerges
• Regulatory Conditions in Hong Kong
• Japan: Ambitions for a Web3 Capital
• Regulatory Clarity in Singapore, Hong Kong, and Japan
• A Contrast with the United States
• Global Regulatory Climate for Crypto

Asia's Steady Rise in the Crypto World in 2023

2023 marked the continued ascension of Asia as an area of critical importance in the crypto world. Popular digital asset hubs like Singapore, along with the resurgence of Hong Kong and Japan, largely contributed to this trend. Although these jurisdictions are open to digital assets, the hype surrounding them can be somewhat misleading. Places often referred to as crypto-friendly or pro-crypto actually enforce some of the world's strictest rules. Crypto-friendly does not mean crypto-easy.

Singapore: A Pro-Crypto Reputation

Singapore gained its pro-crypto reputation through its early measures to regulate the industry and a consultative approach from its regulators. However, despite Singapore's full involvement in asset tokenisation, it is not actually crypto-friendly. The country's financial regulator essentially stated the same thing. Ravi Menon, the former managing director of the Monetary Authority of Singapore (MAS), held a conference titled Yes to Digital Asset Innovation, No to Cryptocurrency Speculation. This year, he went further, claiming that cryptocurrencies failed the digital currency test. Menon argued that cryptocurrencies did not perform well as a means of exchange or a store of value. He also highlighted significant speculative fluctuations and substantial losses for crypto investors.

Regulatory Action in Singapore

This is not just talk. Last year, MAS issued guidelines aimed at discouraging crypto trading by the general public, including banning crypto service providers from advertising in public spaces. In contrast, Singapore regulators are extremely enthusiastic about tokenising funds such as currencies and bonds.

Hong Kong: A Crypto Hub Reemerges

Hong Kong's reemergence as a crypto hub also generated a lot of excitement. In June, Hong Kong's Securities and Futures Commission (SFC) started accepting license applications for crypto exchanges. Hong Kong appears to be more open to cryptocurrency trading than Singapore. For example, Hong Kong regulators have encouraged banks to accept more cryptocurrency exchanges as clients.

Regulatory Conditions in Hong Kong

However, this friendliness comes with many conditions. Hong Kong still only has two licensed exchanges, with only spot trading and a limited list of tokens. Ninety-eight per cent of an exchange's assets must be held in cold wallets. Exchanges must also establish a legal entity for custody in Hong Kong. Running an exchange in Hong Kong is neither simple nor cheap, as approval requires a team of lawyers, consultants, and insurers. Securing a new license could cost between 12 and 20 million dollars.

Japan: Ambitions for a Web3 Capital

Then there's Japan, where the ruling Liberal Democratic Party has expressed its clear intention to make Japan a Web3 capital. Japan is poised to play a unique role in the cryptocurrency industry, while many other countries remain stagnant and shrug off the cold wind, reads a 2022 proposal from the Japanese LDP project team. Japan is no stranger to cold winds. After the Coincheck hack in early 2018, Japanese regulators were so hard on crypto that some feared the local industry was in crisis. But when FTX$3.28 -5.38% collapsed in November 2022, Japan's regulatory approach led to a significant win. Japan requires cryptocurrency exchanges to separate exchange assets and client assets, which helped FTX Japan users recover their money.

Regulatory Clarity in Singapore, Hong Kong, and Japan

Singapore, Hong Kong, and Japan share an important commonality. They may not be easy on crypto, but they are relatively clear. Exchanges have an idea of what they can and cannot do. The regulators in all three jurisdictions have spent time developing comprehensive regulatory frameworks and have also shown their willingness to collaborate with the industry. In other words, you may not like the rules, but at least you know how to find them.

A Contrast with the United States

This approach starkly contrasts with that of the United States. Crypto advocates often criticize the U.S. government, and particularly SEC Chairman Gary Gensler, for his hostility towards crypto. The biggest problem is not that regulations are too strict, but that people are still arguing over what constitutes a security and what constitutes a commodity.

Global Regulatory Climate for Crypto

The global regulatory climate for crypto is clearly becoming stricter, as we will see when the European MICA comes into effect next year. The extended regulations of the 27 EU member states, covering about 450 million people, will be anything but lax. And yes, it is possible to be too strict. That's why it's so important for regulators

Edited by Jonathan Stoker