Is Asia a reason for the tide finally turning on cryptocurrencies?

Industrial metals such as copper and steel, dampened by a lack of Chinese demand in recent years, have rallied over 30 per cent off their October lows. Even under the close watch of Beijing, Hong Kong has been the epicentre of a number of exciting developments.

These measures look to lead the city into a virtual-asset hub, with the policy stance being more clearly communicated. There is also the possibility that Chinese citizens will be able to gain access to cryptocurrencies through Hong Kong. The region used to attract large cryptocurrency players such as Binance and FTX due to favourable policy, but were since deterred with the mainland’s harsher directives.

Charles Li, chairman at Micro Connect emphasised that ‘We need to find ways to help China do things that China itself is not yet prepared and able to do’, and that this was a vital ‘psychological step’.

By June 2023, virtual asset service providers will be subject to the same anti-money laundering and counter-terrorist financing laws as traditional financial institutions. This is primarily targeted to include the operation of virtual asset exchanges. Hong Kong also recently saw the launch of the first cryptocurrency exchange-traded funds (ETF).

CSOP Asset Management issued the long awaited securities that offer institutions easy access to Bitcoin and ethereum, whose ETFs initially raised $59 million and $20 million, respectively. The lack of accessible securities such as ETFs in the US have been argued to be, in part, a reason for the exodus of capital to offshore, less regulated jurisdictions.

The Securities and Futures Commission (SFC) has put forward a number of tokens that it will allow retail investors to trade, though it is aware of the risks the industry brings. Compulsory licensing programmes are planned for platforms looking to offer retail services, together with improved education.

China is also set to launch the first national Digital Asset marketplace – a state backed non-fungible token (NFT) platform. In addition to NFT collectibles, the marketplace will also facilitate trading of on-chain property rights and digital copyrights.

Across the East China Sea, Japanese authorities have given the green light to allow the local listing of foreign stablecoins. The Financial Services Agency (FSA) is eyeing regulations that will allow local distributors to process payments-focused stablecoins. Domestic exchanges are presently not allowed to list foreign stablecoins such as USDT and USDC.

The reversal of this ban may significantly pick up trading volumes in the region as local exchanges will be able to offer assets paired against the largest stable coins. Presently, close to 90 per cent of all BTC trades are conducted in stablecoins. FTX Japan is also one of the solvent subsidiaries of the FTX group of companies. The assets are likely to be put on sale, pending court approval. Customer withdrawals for FTX Japan are likely to resume in February.

South Korea recently announced the launch of a Metaverse that will be a replica of its capital city, Seoul. Citizens are being encouraged to use their virtual avatars to access tax advice, youth counselling, and small businesses. The Metaverse will soon incorporate augmented-reality and cryptocurrency, along with investor services.

This forms its Digital New Deal initiative, which seeks to improve public services.

Inflation slowing in the US, together with a decrease in the pace of rate hikes and a resumption in Chinese demand, could be the catalyst for an Asian-led recovery. We view these developments as overwhelmingly positive for the industry.

While it may be too early to call a bottom, Bitcoin is currently trading in deep value territory. Chinese and other Asian markets are substantial in size, and are what the industry may need to drive us into a new bull market.