Cryptocurrency is more important in Asia than in any other part of the world. Subsequently, a wide range of government responses has created a testing ground for crypto regulation in the region.
Why Asian Cryptocurrency is So Important
Two factors have caused cryptocurrency to become particularly prominent in Asia.
One is the prevalence of mobile phones, which has encouraged widespread use of crypto. In Japan, crypto has hit the high street, with more than 4,000 stores accepting bitcoin. South Korea is home to the most active crypto exchange in the world and a thriving crypto market which includes 35-40% of Ethereum trading. Only 27% of the population of Southeast Asia have access to a bank account, compared with 62% globally, so crypto offers electronic payment to those who don’t have the traditional means to it. It’s also seen as a novelty for the tech-savvy.
Meanwhile, cheap electricity has made the region a prime location for crypto mining. This is particularly true in China, where lax pollution rules allow extensive use of coal power. As a result, roughly 70% of all bitcoin mining happens in China.
With so much crypto activity in the region, the state of regulation in Asia is important for the whole industry.
Cryptocurrency Regulation in China
Of all the major players in Asia, China has been most adamant in pushing for tight regulation.
The People’s Bank of China (PBOC), the nation’s central bank, banned financial institutions from dealing in digital currencies in 2013 while allowing individuals to continue. A further ban on all crypto activities (among individuals as well) in 2015 led to a downturn in the crypto market.
Since then, the PBOC has softened its stance slightly, shifting to regulation instead of bans on crypto. Initial Coin Offerings (ICOs) were banned in the country in 2017 because of a high rate of fraud. The authorities closed crypto exchanges and seized mining hardware. Local authorities have been instructed to encourage businesses to leave crypto behind, and moves are being made to cut power consumption on crypto.
A strongly centralized government like China would likely always be opposed to the destabilizing and decentralizing effect of crypto. The PBOC’s most recent report indicates that the bank is working hard to understand and ultimately control cryptocurrency in China, but it would need to swim against the tide as regulation is likely to remain stiff.
Cryptocurrency Regulation in Japan
Japan has quite the opposite approach to China. While both countries have grappled repeatedly with the regulation of cryptocurrencies, Japan has done so in a spirit of encouraging rather than banning them.
The focus on regulation has been on protecting consumers and the economy, creating rules designed to prevent money laundering and market collapses. This means close scrutiny, with exchanges being registered and bound by clear rules. Regulators heavily criticized Coincheck after a $540 million heist, making clear that the exchange company is responsible for the security of its operations and investors’ money.
It’s an approach to regulation designed to make investors feel secure, not to discourage them.
Cryptocurrency Regulation in South Korea
Despite its prominent place in the crypto market, South Korea’s authorities have a tense relationship with crypto enthusiasts. The country’s head of financial services recently indicated an intention to ease up on tight cryptocurrency regulations. Meanwhile, the National Tax Agency is collecting data ready to introduce tax policies specifically designed for crypto.
But while this implies Japan-style regulation that’s pro-crypto, the authorities have also shown suspicion of crypto. Investigations on all exchange companies are underway and particularly on the country’s largest exchange, Upbit. Seven employees of exchanges have recently been arrested as a result of such investigations.
Of the three big players in Asian crypto, South Korea stands somewhere between China’s strict hand and Japan’s supportive stance. All are embracing regulation, but with very different attitudes. China has imposed a staunch control over crypto, Japan is all about safely encouraging it, and South Korea is fighting corruption from its national crypto scene.
Cryptocurrency Regulation in India
Though currently playing a less important role in the crypto market, India’s vast size and buzzing energy have the trappings that make the country have great potential to shape the market. Hundreds of thousands of Indians already use bitcoin, and so the government has turned its eye to the vital issue of regulation.
Following a consultation in 2017, the Indian government has spent a year carefully considering how best to deal with cryptocurrency, and the results are close to being finalized. In April 2018, the Reserve Bank of India banned the country’s banks from allowing cryptocurrency purchases, further sinking India’s already falling crypto market. Yet despite this, it seems that the country will settle on close regulation rather than a ban on cryptocurrency trading. This may provide the stability needed for one of the world’s most populous nations to fully embrace crypto.
Cryptocurrency Regulation in Singapore
As a city-state which prides itself on embracing technology and finance, Singapore seems like a natural home for the cryptocurrency. The Deputy Prime Minister has even confirmed that the government sees no distinction between fiat currencies and cryptocurrencies.
In 2017, Singaporean authorities confirmed that they regard cryptocurrencies as securities. As such, they are bound by the same rules as stocks and shares. This helps to legitimize cryptocurrency but means that cryptocurrency traders have to adhere to broader trading rules. As of March this year, the government is also looking at creating specific rules around cryptocurrency to protect investors.
Singapore continues to walk a fine line in trying to govern but not discourage crypto.
Cryptocurrency Regulation in Thailand
In June 2018, Thailand introduced new regulations specific to cryptocurrency. Overseen by the Thai Securities and Exchange Commission (SEC), these laws require all crypto brokers in Thailand to register with the SEC. They will have to hold a set amount of capital and pay annual fees.
This was followed in early July by rules for ICOs. To be launched in Thailand, these will have to go through an SEC-run process, take investments in specified fiat and cryptocurrencies, and have limits on how much individuals can invest. The Thai government has also announced that it will be introducing a 15% tax on crypto profits.
Thailand’s rules show that the government is taking crypto seriously, putting in thought to tailor regulation around the unique dynamic of the crypto market. Whether this is the right sort of regulation remains to be seen as this experimental approach plays out over the next few months.
Cryptocurrency Regulation in Hong Kong
In Hong Kong, the Securities and Futures Commission (SFC) is the main regulatory body concerned with cryptocurrency. It has created no specific rules or regulations for crypto. However, like many regulators, it has said that it regards many crypto tokens as securities, and therefore subject to existing regulations.
In March 2018, the SFC shut down the Black Cell ICO in Hong Kong, on the basis that its tokens were securities. The SFC has also contacted crypto exchanges operating in Hong Kong, warning them against trading certain tokens that the SFC considers to be securities.
It seems that Hong Kong is following the lead of mainland China, enforcing regulations strictly without adapting them to crypto.
Cryptocurrency Regulation in Taiwan
Taiwan is following Thailand in offering a more tailored and crypto-friendly form of regulation. The Taiwanese government’s main concern seems to be with money laundering, and existing anti-money laundering laws are set to become the basis of the new rules.
The current aim is for these rules to be developed and introduced by November 2018. The result will probably be more clarity over the status of crypto in Taiwan and a friendlier setting for exchanges and investors.
Cryptocurrency Regulation in Australia
Though not geographically part of Asia, Australia has strong economic ties to the continent.
In April, Australia became one of the first countries to introduce laws specifically governing cryptocurrencies. Cryptocurrency exchanges will have to be licensed and several have already registered with the authorities. Guidelines from the Australian Securities and Investments Commission already set strict rules around ICOs, where the nature of the token affects how it will be treated.
Like most attempts to regulate crypto, Australia’s rules put an emphasis on preventing fraud and criminality. It is clear that the country is taking a positive attitude. It has recognized bitcoin as a currency and removed a law that saw digital currency taxed twice. Though its introduction of regulation creates work for traders, it also creates clarity and cements crypto’s place in the Australian economy.
Cryptocurrency Regulation in the Rest of Asia
Outside of the big players, regulations vary hugely. The Pakistani government has no stance on crypto as such but treats it as a commodity. The Philippines and Singapore have embraced positive regulation, bringing in frameworks to make crypto use safer and more secure. Kazakhstan is trying to profit from crypto by becoming a regional hub, while Kyrgyzstan has taken the opposite approach, banning the use of bitcoin.
In Vietnam, the government tried to ban crypto in 2014 but now wants to regulate the industry so that it can tax it and avoid any harmful effects. Like Vietnam, Asia as a whole is moving towards regulation whilst recognising that crypto cannot be entirely stopped.
The Testing Ground
The variety of approaches in Asia has turned the region into a testing ground for crypto regulation. Most countries have either implemented regulations or are moving to do so. The most common approach in Asian countries is one of wary encouragement. Thailand, Taiwan, Australia and other countries covered in this article are creating laws specifically suited to this new market. But with China, the biggest crypto player, still trying to find ways to wipe out or control crypto, the future in the region remains unclear.