When Satoshi Nakamoto invented Bitcoin, his vision was that Bitcoin’s growth could be unfettered by central bank and government oversight as well as the effects of inflation. Cryptocurrencies do not rely on central banks as they are traded digitally and can be transferred globally, allowing traders to avoid currency controls. [1] Nakamoto would be pleased, as Bitcoin trading in emerging markets has outpaced trading in developed countries. [1] According to Google Trends data, five out of the six countries where Bitcoin has the most interest are developing countries. [1] Cryptocurrencies present a unique challenge to governments and regulatory authorities, as they must decide whether or not to allow this new kind of currency that might compromise their full control over monetary policy. [2]
Bitcoin and other cryptocurrencies are seeing strong interest in Asian markets despite pushback from central banks and governments. The reason for this could be that cryptocurrency serves as a viable alternative to local currencies, which are often manipulated or less stable, or that Asian markets have seen their fair share of financial crises, making cryptocurrency alternatives more appealing. [1] Asian markets are showing a shift in investor risk-taking behaviors and trading environments, both of which are being shaped by a rising demand for cryptocurrency. China, Japan, and South Korea all demonstrate distinct but significant policy and investor responses to the rise of cryptocurrency.
In China, cryptocurrency trading has experienced a significant clampdown with a ban on all ICOs [initial coin offerings] and a ban on local exchanges. [2] Prior to this move in September, most Bitcoin tradings were in Chinese yuan. [2] Despite this, there is a growing community of cryptocurrency and blockchain enthusiasts in China that are optimistic about the technology’s future in the country. The ban on ICOs was primarily aimed at targeting the buildup of fraudulent ICOs in China, and thus many Chinese traders agree with such cryptocurrency regulations. Many Chinese entrepreneurs and startup founders hope that the ban will be temporary until Chinese regulators determine a regulatory model for cryptocurrencies by perhaps taking cues from financial regulators in the U.S. [2] For now, many domestic cryptocurrencies are on the rise. For example, Chinese cryptocurrency OneCoin, developed by a company called Xunlei, has been performing well on Nasdaq despite not being available for trade yet. [3] Xunlei wants OneCoin’s technology to be less focused on speculative money-making and more on shared computing, a goal that has appealed to state-backed financial experts and could lead to OneCoin’s legalization by the Chinese government. [3]
South Korea has seen incredible enthusiasm for cryptocurrencies, standing as the world’s third-largest market for Bitcoin and the largest market for Ether, Ethereum’s cryptocurrency. [4] However, South Korea’s government also has concerns over the speculative nature of cryptocurrency, moving to introduce a ban on ICOs as well. [4] Unlike China, South Korea did not make companies return ICO funds. [4] It also continues to let investors put money into foreign ICOs and digital-currency exchanges to operate within its borders. [4] Another factor that contributes to the government’s wariness is the potential security risk posed by unregulated and anonymous cryptocurrency trading. Concerns about cyber attacks from North Korea and a lack of a proper cybersecurity infrastructure for cryptocurrency will delay South Korea’s full acceptance of the new technology. Ultimately, South Korea plans on implementing a tax on capital gains from digital currency trading and may be one of the few countries to do so. [4]
Japan has been the most enthusiastic about adopting cryptocurrencies, pushing to make Bitcoin an official currency denomination in the country and allowing companies to provide salaries using Bitcoin. [5] Japanese retail investors are driving the surge in cryptocurrency trading not only in Japan but also in global markets. [6] It has yet to be seen how Japanese regulators will monitor the rise of cryptocurrencies, but Japan has been friendlier to its growth and Japanese startups have benefited from access to ICOs.
As for the future of cryptocurrencies in Asian markets, regulatory environments will shift to take advantage of the capital creating the potential of cryptocurrencies. In addition, cryptocurrencies pose a real opportunity to promote financial inclusion in Asia, as it’s easier for individuals to open an e-wallet account than a traditional bank account given the increased mobile and data penetration in Asian countries. [7] In the long-term, cryptocurrencies are very likely to revolutionize investment in Asian markets.
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[1] (2017 14 DEC) Why Bitcoin is Surging in the Countries Trying Hardest to Stop It. http://fortune.com/2017/12/14/bitcoin-markets-thrive
[2] Parker, E. (2017 11 DEC) Can China Contain Bitcoin? https://www.technologyreview.com/s/609320/can-china-contain-bitcoin
[3] Huang, Z. (2017 11 DEC) The hottest cryptocurrency in China is not bitcoin. https://qz.com/1152564/the-hottest-cryptocurrency-in-china-isnt-bitcoin-its-onecoin-make-that-lianke-by-xunlei-xnet
[4] Kim, Y. (2017 7 DEC) Behind South Korea’s Cryptocurrency Boom. https://www.technologyreview.com/s/609561/behind-south-koreas-cryptocurrency-boom/
[5] France-Presse, A. (2017 14 DEC) Japanese company to start paying employees in bitcoin. https://www.theguardian.com/technology/2017/dec/15/japanese-company-paying-employees-bitcoin
[6] Verhage, J. (2017 14 DEC) Deutsche Bank Says Japan’s Retail Investors Are Behind Bitcoin’s Surge. https://www.bloomberg.com/news/articles/2017-12-14/deutsche-bank-says-mrs-watanabe-behind-the-surge-in-bitcoin
[7] Kannan, R. (2017 15 DEC) Cryptocurrency a boon to digital transactions & financial inclusion. http://www.moneycontrol.com/news/trends/expert-columns-2/cryptocurrency-a-boon-to-digital-transactions-financial-inclusion-2462335.html
Edited by Marcus Huels (MSc International Health Policy)
