“Cryptocurrency regulations in Asia have moved along faster and with more clarity — green light or red light — than in the U.S.,” said Ben Charoenwong, assistant professor in finance at the National University of Singapore Business School.
“This has made Asia the premiere location for much of fintech innovation,” said Charoenwong.
Earlier this month, Hong Kong officially opened crypto trading to retail investors and upgraded licenses of two exchanges. HashKey and OSL can now expand their business beyond professional investors to now include retail investors.
“It shows that virtual assets are becoming a recognized asset class with a similar regulatory status as traditional asset classes,” said Lennix Lai, global chief commercial officer at crypto exchange OKX.
“This will further boost investor confidence, making Hong Kong more attractive as a potential global virtual asset hub,” said Lai. OKX is applying for a virtual assets trading license in Hong Kong.
Last year, Hong Kong said it recognizes “the potential of distributed ledger technologies and Web 3.0 to become the future of finance and commerce” and expects to enhance efficiency and transparency with proper regulation.
Rival regional financial hub Singapore has also been a frontrunner in crypto regulation. The Monetary Authority of Singapore granted Blockchain.com a license in August, an upgrade to the in-principle approval it got in October. Another player Ripple received in-principle approval in June. This means that Blockchain.com and Ripple can provide regulated crypto services in Singapore.
Meanwhile, Thailand and Indonesia have banned the use of crypto for payments, but allows it to be traded as a commodity.
In contrast, Coinbase and Ripple are embroiled in lawsuits with the U.S. Securities and Exchange Commission, which has accused them of securities laws violations. Both Coinbase and Ripple, as well as other crypto firms, have threatened to leave the U.S. in response to the SEC’s crackdown.
Turmoil in the U.S.
To be sure, the sector has been embroiled in scandal and high drama over the past year. In November, FTX filed for bankruptcy while Terraform and its CEO Do Kwon were charged in February for defrauding investors.
Bitcoin has dropped to trade near $28,373, far below its all-time high of more than $65,000 in 2021.
Crypto leaders have slammed the U.S. and its approach to regulation, particularly for a lack of clarity.
In 2020, the SEC accused Ripple and its co-founders of breaching securities laws by selling its native cryptocurrency XRP without first registering it with the SEC. But in July, a landmark ruling determined the token was not, in itself, necessarily a security.
“I think it’s fair to say the U.S. has made it as confusing as possible as to what the rules of the road are for the crypto industry. The SEC has really been at the forefront of that confusion,” Ripple CEO Brad Garlinghouse said in an interview with CNBC in May. He concluded some crypto firms could leave the U.S. for more progressive jurisdictions as a result.
Asia’s regulatory clarity
Across the Pacific, Singapore and Hong Kong offer far more operational clarity for many industry players
“Singapore has the first mover advantage in the Asia Pacific region, including being ahead of Hong Kong. There were no other countries that were so far ahead in having quite an advanced licensing regime,” Janice Goh, partner at Cavenagh Law, told CNBC.
Singapore’s Payment Services Act — a framework for regulating payment services and the provision of crypto services to the public — came into effect in January 2020.
“Whereas in Hong Kong, it had the opportunity and hindsight to go through the crypto winter and look at what other regulators have done to enhance and roll out its regime,” said Goh.
Singapore has stepped up supervision on crypto firms. It ordered firms to safekeep customer assets under a statutory trust before the end of the year. MAS is also restricting firms from facilitating lending or staking of their retail customers’ assets.
On Tuesday, the city-state put forward rules for stablecoins, a type of digital currency, becoming one of the first countries in the world to do so.
In November, Ravi Menon, managing director of MAS, made it clear that Singapore wants to be a hub for digital assets, but not one for speculating on crypto.
“Hong Kong and Singapore are both similar in terms of the approach to maintaining very high regulatory standards, as well as being very proactive in creating an enabling environment for digital asset businesses,” said Ong Chengyi, head of APAC policy at blockchain analytics firm Chainalysis.
Ong expects Hong Kong to issue more licenses and for more crypto firms to flock to Asia.
In June, Gemini said it will increase its headcount in Singapore and that the city-state will serve as its regional hub, joining Coinbase and Ripple in expanding their Asia operations.