A key theme for 2023 is that Asia continues to emerge as a crucial region for crypto assets.

This is largely due to the re-emergence of well-known digital asset hubs like Singapore, as well as Hong Kong and Japan. While these regions certainly welcome digital assets, their language can sometimes be misleading.

Places commonly referred to as “crypto friendly” and “crypto parent” actually have some of the strictest rules in the world. “Crypto asset friendly” does not mean “crypto asset easy”.

Strict stance on crypto asset speculation: Singapore

Singapore has earned its reputation as crypto-friendly thanks to its early moves to regulate the industry and the regulator’s consultative approach.

However, while Singapore may be proactive in tokenizing assets, it is not a “crypto-friendly” country at all. Singapore’s financial regulator also says so.

Ravi Menon, Director-General of the Monetary Authority of Singapore (MAS), gave a speech last year entitled “Yes to Digital Asset Innovation, No to Cryptocurrency Speculation”. Ta.

This year, Menon went further, saying that cryptoassets have “failed the digital money test,” arguing that cryptoassets do not perform well as either means of exchange or store of value. He also pointed to sharp speculative fluctuations and large losses suffered by investors.

It’s not just talk. MAS last year issued guidelines to curb crypto trading by the general public, including banning crypto service providers from advertising in public places.

In contrast, regulators in Singapore are very keen on tokenizing funds such as foreign exchange and bonds, or so-called RWA (real-world assets).

Establishing a strict licensing system: Hong Kong

Hong Kong’s re-emergence as a crypto asset hub has also become a hot topic. In June, the Hong Kong Securities and Futures Commission (SFC) began accepting applications for licenses for crypto asset exchanges. Hong Kong appears to be more crypto-friendly than Singapore. For example, Hong Kong regulators have pushed banks to bring in more crypto exchanges as customers.

However, this friendly attitude comes with many conditions. There are still only two licensed exchanges in Hong Kong, and only a limited number of crypto assets can be traded spot. 98% of an exchange’s assets must be held in cold wallets.

Additionally, exchanges must establish a legal entity for custody in Hong Kong. Operating an exchange in Hong Kong is neither easy nor cheap, as approvals require a team of lawyers, consultants and insurers. Obtaining a new license will cost between $12 million and $20 million (approximately 1.7 billion to 2.8 billion yen, equivalent to 142 yen to the dollar).

Protecting investors with strict regulations: Japan

And then there’s Japan. The ruling Liberal Democratic Party has made it clear that it intends to make Japan the mecca of Web3. “At a time when many countries are hunkering down in the face of headwinds, we have a role to play as a country that has witnessed the hardships of the crypto asset industry time and time again,” the Liberal Democratic Party’s web3 project team (web3PT) said in a proposal released in 2022. It is written.

Japan is used to headwinds and cold winds. After Coincheck was hacked in 2018, Japanese regulators became extremely tough on crypto assets, leading some to fear that Japan’s crypto industry was in crisis.

However, Japan’s regulatory approach led to a major victory when FTX collapsed in November 2022. Japan requires crypto exchanges to manage exchange and customer assets separately, and FTX Japan users were actually able to get their funds back.

Japan was also one of the first major countries to implement stablecoin regulations, but it has set a very high bar.

Only banks, trust companies, and fund transfer companies can issue stablecoins in Japan. A trust structure is likely to become a common method, but in this case, 100% of the assets backing the stablecoin must be stored in a trust in Japan, and operation is only permitted in domestic bank accounts. do not have.

Given Japan’s low interest rates, it will be very difficult for yen-based stablecoins to turn a profit. But in the end, high taxes may be the biggest obstacle to Japan becoming a destination for crypto entrepreneurs.

clarity is key

Singapore, Hong Kong, and Japan have important similarities. They may not be crypto-friendly, but they are relatively clear-cut.

Exchanges know what they can and cannot do. Regulators in these three jurisdictions have taken the time to develop comprehensive regulatory frameworks and are willing to engage with the industry.

In other words, you might not like the rules, but at least you can find them.

This approach is in contrast to America. Cryptocurrency advocates often criticize the U.S. government, particularly Securities and Exchange Commission Chairman Gary Gensler, as being unfriendly toward cryptocurrencies. The bigger problem is not that regulations are too strict, but that people still argue about what is a security and what is a commodity.

As a result, the lack of a national crypto asset framework has led people to seek clarity from court rulings. The SEC filed suit after lawsuit. Many in the industry had hoped that the ruling against Ripple would set a clear legal precedent.

But not all companies have the time or money to spend years fighting the SEC in court. The US crypto environment is clearly unfriendly, but it’s not because the rules are too strict. There is no consensus on what the rules are.

As we will see when MiCA (Crypto Asset Market Regulation) goes into effect in the EU next year, there is a clear trend towards stricter crypto asset regulations around the world. The EU’s extensive regulations, which cover around 450 million people in 27 member states, are unlikely to be relaxed. Yes, it can be too harsh.

That’s why it’s so important that regulators have flexibility and a willingness to talk with industry so they can make appropriate changes if excessive regulations are making it impossible for businesses to thrive. is.

It may be time to shelve the term “crypto-asset friendly,” which gives off a simplistic impression. A more accurate term would be “crypto-asset clear.” Once the crypto market recovers in earnest, regions like Singapore, Hong Kong, and Japan will have an advantage due to their clarity.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: T. Schneider / Shutterstock.com
｜Original text: Crypto-Friendly Does Not Mean Crypto-Easy