2017 will be remembered as the year in which cryptocurrencies went mainstream. Not only have retail investors across the globe embraced individual cryptocurrencies as an asset class, through the use of Initial Coin Offerings (ICO’s), entrepreneurs and innovators have also begun to use cryptocurrency to assist in the financing and funding efforts of enterprises.
When you include the growing interest in the commercialization of Blockchain, cryptocurrency’s underlying technology, the result is a growing, diverse, and dynamic ecosystem.
Not surprisingly, the continued development of the cryptocurrency market has attracted considerable interest from regulators. While many countries, including the United States and Europe, continue to mull an appropriate response, regulators in Asia have been quicker than most to enact laws and regulations that begin to set ground rules. In doing so, Asian regulators have attempted to strike a subtle balance between protecting their monetary sovereignty, protecting consumers, and allowing innovation to flourish.
Rising popularity spurs rapid response
The rising popularity of cryptocurrencies in some of the region’s largest economies has undoubtedly spurred Asian governments to quickly recognize the public-policy implications of its use. Japan has been an early and rapid adopter of cryptocurrencies, and there are currently more than 4000 commercial points in the country accepting Bitcoin. Nearly one – third of global Bitcoin transactions are made with yen.
South Korea is not only home to the most active cryptocurrency exchange in the world, it is also the third largest market for Bitcoin trading and responsible for 35 to 40% of global Ethereum trading. In China, the world’s largest cryptocurrency market, more than US$1.1 billion had been raised prior the government’s outlawing of ICO’s. Astoundingly, in November, Japan, South Korea, and Vietnam accounted for 80% of global bitcoin trading.
While Asian countries have varied in the degree of response to the cryptocurrency market, there has been greater uniformity in the swiftness of their actions.
While Asian countries have varied in the degree of response to the cryptocurrency market, there has been greater uniformity in the swiftness of their actions. China, which has banned ICO’s and closed cryptocurrency exchanges amid concerns of fraudulent activity is said to be beginning the process to put an end to Bitcoin mining activities within the country.
Citing similar concerns over fraudulent activity, namely money laundering, South Korean banking regulators have initiated investigations into cryptocurrency-related compliance at some of the countries biggest banks. South Korean regulators are also implementing regulations that will outlaw anonymous trading. Like China, South Korea has already prohibited ICO’s.
In Japan, in a bid to increase transparency and consumer protections, regulators have officially approved the operations of 11 exchanges and 17 currencies for trading. Australian legislators are also evaluating laws that would place the regulation of cryptocurrencies in the purview of AUSTRAC, the country’s financial intelligence agency.
Despite the flurry of regional regulatory activity surrounding cryptocurrencies, it would be erroneous to conclude such developments will bode poorly for the cryptocurrency market. Rather, the introduction of clear regulations in some of the biggest cryptocurrency markets will create legitimacy and transparency, reduce fraud, and ultimately improve the integrity of such markets.
The cryptocurrency genie is out of the bottle
Furthermore, it would be incorrect to assume that government involvement in the sector signals the beginning of the end of the cryptomarket, whether in Asia or elsewhere. Instead, as has been the case in Asia, governments operating in a region known for early technological adoption, have been quick to realize that the proverbial genie has been let out of the bottle; consumers and investors have rapidly grown accustomed to the inclusion of cryptocurrency in both their wallets and in their portfolios.
Case in point, in an example of pragmatic, forward-looking policy, both China and Japan are exploring the possibility of launching their own, government-backed cryptocurrency. Bottom line: cryptocurrency, in one way or another, is here to stay.
As regulators in other regions begin to develop regulatory responses and explore the corresponding impact of such actions on the flourishing cryptocurrency market, they would be wise to look to Asian examples to guide future decisions.
Swift and decisive legislative and regulatory action may ultimately strengthen the market by creating much-needed protections for consumers and investors alike. The early and quick adoption of cryptocurrency in Asia, coupled with the rapid regulatory response by regional governments ultimately bodes well for the global cryptocurrency market. I’d bet on Asia to continue to lead the way.