This post is part of CoinDesk's 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Michael Ou is CEO of CoolBitX, a blockchain security company and creator of the first hardware wallet that enables bluetooth-to-smartphone pairings.
In 2019, it became clear that Asia was moving ahead in cryptocurrency and blockchain adoption and application. Because of internal and external drivers, Asia has been setting the pace in turning ideas in the blockchain space into reality.
Investors in China, Japan, and South Korea are being driven into crypto markets by global and regional trade wars, currency devaluation, and tight government control of individual assets. Global trading platform, eToro, has found consistent spikes in bitcoin activity during key moments of the US-China trade war.
In May, after China announced a tariff hike on $60 billion worth of American goods, and investors immediately moved to divest their wealth elsewhere. The number of new bitcoin positions soared 139% (along with a 108% rise in new gold positions). The increase in both new gold and bitcoin positions has been consistent as the trade war between both powers has continued — with bitcoin witnessing more significant benefits than the precious metal. It seems that amidst increasing uncertainty upon the global economic stage, bitcoin is reaping the benefits.
Additionally, in 2019, Chinese consumers were the greatest users of Tether—using the stablecoin to transfer their yuan across borders, free from government supervision and sanction. While the Chinese government doesn’t allow yuan trading on domestic exchanges, Tether has allowed Chinese consumers to partake in global cryptocurrency markets—with up to 99% of bitcoin spot trades conducted using Tether according to Chainalysis.
Established Markets: Where Fintech Innovation is Commonplace
Korea, Taiwan, Hong Kong, and Singapore are established hubs for digital payments adoption and fintech innovation. In the first 9 months of this year alone, investments into Singaporean fintech companies exceeded $1 billion USD, with the Monetary Authority of Singapore stating that this was the result not only of local startup activity but also international fintech companies using Singapore is a base for global expansion.
China is perhaps the first country to be in a position to credibly claim “cashless” status. A 2017 Penguin Intelligence study has shown that 92% of inhabitants in China’s top cities use WeChat Pay or AliPay as their primary payment method. In addition to their prowess within the fintech space, the more traditional markets of Asia’s leading economies have been dubbed as the next bastion of economic growth globally, with the Financial Times predicting that by 2025 we will have entered into a new “Asian Century”. With regional fintech players dominating digital payments, one would question whether crypto can compete and find a foothold to demonstrate its use as a digital payments system.
Global instability has provided opportunities for alternative assets. The Chinese economy and the Yuan are continuing to trend downward amidst a trade war with the US. Hong Kong’s financial sector is suffering the consequences of increased political instability and security risks within the country. Hong Kong’s stock market was the world’s worst performer in Q3. Meanwhile, fraught relations between South Korea and North Korea, as well as Japan, are doing nothing to improve investor confidence in the capital markets, hurting the value of national currencies. With stability increasingly in question, traditional investors and institutions are looking at cryptocurrencies as a means to hedge their assets and diversify their portfolios, creating capital flows into the digital assets space, which has been largely insulated from the knock-on effects of regime instability and international trade conditions.
Emerging Economies: Growth Without Trust
Blockchain and cryptocurrency has a different sort of role in emerging economies, like Philippines and India, where trust in local institutions remains low and new systems and structures created in the crypto markets can bolster feeble financial infrastructures.
From the use of cryptocurrencies as a remittance tool—facilitating more convenient, secure, and transparent international payments than legacy payments systems—to interbank transactions, crypto-adoption is offering tangible benefits within countries’ struggling to provide adequate services and solutions to consumers. Far removed from the inefficiencies of local governments and financial apparatus, decentralized finance potentially provides a more stable, secure means of holding and transferring wealth.
2019: Regulating a Grassroots Movement
Singapore, one of the leading hubs for blockchain adoption, now boasts more than 400 fintech firms within the island nation, one for every 14,000 people living in the country. “Blockchain” is the fastest growing job skill in Singapore, and among the top 3 in China, Japan, Taiwan, South Korea, Hong Kong and Vietnam, according to LinkedIn studies. While BTC and ETH continue to enjoy popularity within the region, altcoins like TRON and EOS have special status in Asia. With all of this activity, the region’s regulators have been paying attention. This has resulted in much regulatory proactivity—with countries from Malaysia and Singapore to Japan and South Korea having unveiled comprehensive guidelines for the issuance and purchase of digital assets, while other regions have lagged behind. This may well signal more things to come in the year ahead.
Big companies like Facebook entered the crypto space this year, but there is still a long way for them to go in drawing large consumer-tech firms into the cryptocurrency fold. Mature businesses and institutions are unlikely to enter into the nascent crypto sector if they believe they are rolling the dice on regulatory compliance. Enticing them into the blockchain ecosystem will require clear regulation. Asia is where they may be able to find it.
The region’s regulators have become the forerunners in establishing clear “rules of the game” when it comes to digital assets, engaging closely with groups such as the Financial Action Task Force and key industry players. While the U.S. continues to grapple with the regulation of digital assets, Singapore, Japan, and South Korea, and particularly within the island of Jeju, have outlined more comprehensive regulatory boundaries for actors within the blockchain industry. While China has taken a heavy-handed regulatory approach, the government has been nonetheless consistent and clear in the communication of policies surrounding the blockchain sector. This clarity leaves Asia’s regional blockchain sector well-positioned to serve as a vanguard for the development of real-world use cases of cryptocurrency technology and as a leader in consumer engagement.
2020: Cryptocurrencies Coming of Age?
In 2019, Asia became a testing bed for cryptocurrency adoption, presenting real use cases of cryptocurrencies in both highly developed and emerging markets. Pervasive economic tensions, structural instability, and downward market pressures may prove the headwinds necessary for cryptocurrency to finally enter the mainstream.
In 2020, FATF members need to ensure virtual asset service providers (VASPs) are compliant to Recommendation 16 aka the “travel rule” by a September deadline, and regulators, looking to maintain control over local finance and consumer technology, will look to bring in institutional finance and enterprise to the space. If this is the case, the crypto heartland of tomorrow will lie in Asia. We are prepared, and excited to see what the future will bring.