The race is on for Asia’s Web3 hub

In a special two-part series, Forkast.News explores the potential of Hong Kong and other emerging crypto hubs in Asia.

Hong Kong, ranked third out of 190 economies for ease of doing business, has been leading the story of the blockchain-based evolution of the Internet, or Web3, in Asia since late last year, when the city announced a series of initiatives. to attract digital asset businesses, including cryptocurrency platforms.

While those plans include strict regulations to prevent the multibillion-dollar collapse of the Terra-Luna crypto project and FTX exchange last year, companies ranging from non-fungible token developers to trading platforms and metaverse builders seem to like what they see as Hong Kong’s strategy.

Crypto trading platforms such as OKX and Bitget have applied for licenses to operate in Hong Kong, while crypto data provider Kaiko and crypto exchange Huobi said they are moving their Asia headquarters to Hong Kong from Singapore.

“Hong Kong is likely to become not only the crypto hub of Asia, but the de facto crypto hub of the entire world,” said Vincent Chok, chief executive officer of Hong Kong-based consultancy First Digital Trust. Forecast answering questions by email. “The US is on the holding with its regulatory paralysis, and Dubai has ambitions to become a crypto hub, but in terms of innovation, Hong Kong still leads the way.”

Gracie Chen, CEO of Seychellois crypto exchange Bitget, agreed, saying in an interview: [due to] right time, right place and right people.”

But other cities and countries in Asia want a piece of the action, with Singapore, Japan, South Korea as well as Dubai all positioning themselves to be part of this new digital asset economy. And the stakes are high.

According to a market report by Statista, revenue in the digital assets market is expected to grow at a CAGR of 16.15% from 2023 to exceed US$102 billion by 2027, with nearly one billion users logged in. the company conducted global surveys of financial services industry leaders and found that nearly 80% of respondents indicated that digital assets will be important to their business. The survey surveyed 1,280 finance executives across 10 jurisdictions.

Legal attack

Hong Kong is developing new rules of the road for the digital asset industry at a time when US regulators have come under fire from the same industry for imposing fines and filing lawsuits against crypto exchanges.

The trading platforms’ argument is that the US fails to set clear regulations on how the industry should operate, yet punishes them.

The US regulator, the Securities and Exchange Commission (SEC), fined US crypto exchange Kraken in February and shut down the crypto exchange program. In April, the SEC charged Seattle-based crypto platform Bittrex with operating an unregistered exchange.

Coinbase, which is publicly listed and the largest cryptocurrency exchange in the US, sued the SEC in April seeking clearer cryptocurrency regulations. In March, the SEC issued a so-called Wells notice to Coinbase and said it was considering legal action against the exchange over its cryptocurrency share services and other products.

“The US regulatory framework for crypto exchanges is complex and evolving, with varying rules and requirements at the federal and state levels,” says Bitget Chen. “Some states like Wyoming, Colorado and Ohio have introduced crypto-friendly laws as they want to attract the industry. Others, like New York and Washington, D.C., have strict crypto requirements.”

Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao were sued by the US Commodity Futures Trading Commission (CFTC) in March for violating derivatives rules. Binance has said that doing business in the US is “very difficult”.

On May 15, Binance announced it would be pulling out of Canada, citing new guidelines regarding stablecoins and investor restrictions that made the Canadian market no longer stable.

“We’ve seen US regulatory agencies aggressively handle their dealings with crypto firms, going as far as outright suing them. This contrasts with Europe or the Middle East, where governments have been building a more enabling environment for some time,” said Denis Peleshok, head of Asia at London-based financial trading firm CPT Markets. Forecast in an emailed response.

“Initiatives taken by Hong Kong can help develop a stronger local crypto industry and help attract companies from other countries and China in particular,” Peleshok added.

Singapore Road

However, Singapore is also considered one of the most favorable environments in the world to incorporate digital asset businesses with a Singaporean twist.

While the city-state allows crypto-trading platforms to operate except when applying for licenses, the Monetary Authority of Singapore (MAS), the central bank, says becoming Asia’s leading technology financial center does not need to include cryptocurrencies.

Singapore 2 1:
Image: Envato Elements

“Public and media attention tends to focus on cryptocurrencies. But cryptocurrencies and crypto exchanges are only one part of the entire digital asset ecosystem,” MAS said. Forecast last month answering questions by email.

“Our goal is to develop an innovative and responsible digital asset ecosystem,” MAS said, adding that tokenization and distributed ledger technology based on blockchain are key areas of focus.

While these Asian cities and countries welcome crypto platforms, India is not one of them. The world’s most populous country imposes a flat tax of 30% on all crypto income, a 1% tax is initially deducted on all crypto trades above 10,000 Indian rupees ($120), and has imposed penalties that can include prison terms.

As a result, between February and October 2022, around USD 3.8 billion in digital assets could flee India, according to the Esya Centre, a think tank on technology policy in India.

“If other countries restrict and deport companies, and if Hong Kong can accept those companies conditionally, it will be a favorable factor for the development of Web3 in Hong Kong,” said David Lee, president and CEO of a Singapore-based Web3 development company. GreaterHeat said Forecast answering questions by email.

Part 2 of this two-part series examines developments in Hong Kong and Asia and will be published tomorrow.

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