Future Of Digital Assets In Asia

12 April 2023 | ZebPay Trade-Desk

Asia is home to some of the most vibrant and diverse crypto markets in the world. Few notable events which have occurred in the recent past include: 

  • Japan introducing CBDC.
  • China bans crypto mining
  • Hong Kong vies for being the crypto capital.
  • Singapore is building a sandbox for innovation.
  • India aims to create crypto regulations during the G20 summit

Crypto environment in Japan

Japan can be considered as one of the most crypto-developed countries in the world. It was the first country to recognize bitcoin as a legal payment method and it regulated crypto exchanges in 2017. Japan is also home to crypto exchanges such as Bitflyer and Bitbank. As of March 2023, there are 23 licensed crypto exchanges in Japan. The country wants to protect consumers, but at the same time not stifle innovation. Crypto exchanges are required to register with the FSA and adhere to strict security, money laundering and reporting rules. They also required adhere to regular audits and assessments by the FSA and are members of the Japan Virtual Currency Exchange Association, a self-regulatory organisation (JVCEA). 

The Japanese crypto market is regulated, but it is still active. According to a survey conducted by Coinhills in February 2023, the Japanese yen ranked second in terms of bitcoin trading volume per currency, behind only the mighty dollar. The country has an ever growing crypto community that continues to supports various innovations and initiatives like the LayerX, a blockchain company that utilises ChatGPT.  Japan is actively investigating the potential of central bank digital currencies (CBDCs), which are digital versions of central bank fiat currencies. Since April 2021, the Bank of Japan (BOJ) has been experimenting with CBDC and plans to launch a pilot programme with private sector partners later this year. The BOJ wants to test the feasibility and functionality of CBDCs for various use cases such as payments, billing, remittances and digital identity. This may be loathed by the pro-crypto folks, but it aligns with Japan’s approach to crypto rules.

When it comes to crypto taxes, Japan is not too friendly. Crypto earnings are taxed as other income in Japan, meaning they are subject to the same tax rates as regular income. Depending on your income level, you can pay up to 55% tax on your crypto earnings. That’s more than double the tax rate for stocks, which are taxed at a flat rate of 20%. Japan’s crypto tax regime may seem harsh and unfair compared to other countries that offer lower tax rates or more favourable treatment for crypto investors. However, Japan is also one of the few countries with clear and comprehensive crypto taxation policies. The NTA has published a detailed document that explains how different types of crypto transactions are taxed and includes examples and calculations.

Situation in China

China used to be the center of bitcoin mining. The country then banned mining, and the crackdown forced many Chinese miners to relocate their operations abroad or sell their equipment at a loss. However, China’s crypto mining industry has recovered. According to Cambridge University’s Center for Alternative Finance (CCAF), China ranks second in terms of bitcoin hash rate behind the United States with a 21% share of the global hash rate as of January 2022. China’s Crypto Mining Situation Remains Uncertain. On the one hand, the country has a competitive advantage when it comes to cheap electricity from hydropower and coal. On the other hand, regulatory risks remain.

China is not completely against digital currencies as long as it is on its own terms. The digital yuan or e-CNY is a proof of this. The digital yuan is designed to be legal tender, fully endorsed by the People’s Bank of China (PBOC) and pegged to the renminbi. The digital yuan, unlike most digital currencies, is not decentralised or anonymous. Instead, it is controlled by the PBOC and allows real-time monitoring of transactions and users. It has been in development since 2014 and has undergone multiple pilot tests in different cities and regions in China. The PBOC has partnered with various platforms and institutions such as WeChat Pay to facilitate their adoption. Despite government efforts, like handing out free money, adoption has been slow. Two years after the launch of the e-yuan, only $14 billion worth of transactions have been processed.

Nevertheless, China has been working with Hong Kong, Thailand and the United Arab Emirates on a joint CBDC project called Multiple CBDC Bridge. The project aims to study the feasibility of using distributed ledger technology for cross-border money transfers between different currencies. China’s main motive for launching its own CBDC may be to challenge the US dollar’s dominance in global finance. An e-yuan with cross-border adoption would allow it to reduce its dependence on the dollar and increase its influence over international trade and monetary policy. However, the success of these efforts is yet to be seen.

What is Hong Kong offering to the Crypto world?

Hong Kong is one of the most crypto-friendly jurisdictions in Asia, with a supportive regulatory environment and a vibrant community of crypto developers and exchanges. However, the Hong Kong crypto industry also faces some challenges, particularly when it comes to access to banks and influence from the mainland. Many crypto companies in Hong Kong have reported difficulties opening local bank accounts or maintaining existing accounts following the closure of two major crypto-friendly banks, Silvergate Bank and Signature Bank.

Despite these challenges, Hong Kong remains committed to promoting its status as a fintech hub and fostering innovation. In October 2022, the city government proposed to allow retail investors to trade crypto assets and crypto exchange-traded funds (ETFs), which would open the market to more participants and demonstrate their determination to explore fintech with the global fintech community. The government also plans to review ownership of tokenized assets and look into legalizing smart contracts, which could pave the way for more use cases like real estate token offerings (STOs). In June 2023, Hong Kong will officially legalise crypto purchases for all its citizens. This will be a major milestone for the city’s crypto industry and should attract more investors and businesses to the city.

As a major player in the global crypto ecosystem, Hong Kong is attractive to crypto companies and investors. But it also has to clear some hurdles related to access to banks and regulatory uncertainty in mainland China.

India’s Crypto Scene Explained

The Indian crypto industry faces uncertainty and confusion due to the lack of a clear and consistent regulatory framework and frequent changes in government stance towards crypto assets. The country has a large population of young, tech-savvy users and a strong and active crypto community. But the Indian crypto industry also faces some challenges, especially when it comes to regulatory compliance and managing legal risks. A 2018 ban by the Reserve Bank of India (RBI) effectively barred many businesses and crypto users from accessing banking channels. However, in 2020 India’s Supreme Court rejected the ban as unconstitutional (though only after a protracted litigation between various interested parties).

Since then, various government bodies have proposed legislation to regulate crypto assets in India. However, none of these bills have been officially introduced or passed by Parliament. The latest development has been a tough AML law and a pre-emptive ban on crypto advertising and sponsorships in the local women’s cricket league. India is also exploring cross-border integration of a CBDC, joining the ranks of many other countries.  However, india is aiming to draft a “technology driven regulatory framework” for crypto in this year’s G-20 summit. This framework would be made in consultation with other participating G-20 nations. The Crypto community in India awaits for a positive stance from the government.

The views on crypto assets in different Asian countries are quiet varied. An honourable mention goes to the following countries:

  • Thailand, where crypto trading is legal and regulated by the SEC, which has approved four crypto assets as tradable assets.
  • Vietnam, where crypto adoption is among the highest in the world but trading is banned.
  • South Korea, where crypto trading is legal and regulated by strict rules for crypto service providers.

One thing is certain: the future of crypto is strongly tied to Asia.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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