The emergence of Web3 in Asia
A commentary in collaboration with Banking Circle.
It can be hard to separate the hype from reality when it comes to Web3. After all, on the one hand, it is being heralded as “the future of the internet” and on the other, its actual definition remains fluid.
Is it curtains for Silvergate?
We reckon Silvergate wishes it had never served as FTX’s bank. The collapse of the once mighty crypto exchange has had massive ripple effects across the entire decentralized digital currency ecosystem. In the last three months of 2022, investors pulled out US$8 billion in deposits from the bank given its heavy exposure to FTX and it posted a loss of US$1 billion in the fourth quarter of the year. Silvergate’s stock is trading at around US$5.40 a share, down 95% from a year ago.
Laos moves forward with CBDC pilot
Most Asian countries are mulling the creation of a central bank digital currency (CBDC), but only China and Cambodia have launched one. We think that CBDCs make the most sense for countries with pressing financial inclusion needs, and with that in mind, the launch of Laos’s first CBDC pilot led by the same Japanese blockchain company that developed Cambodia’s Project Bakong can be viewed as a positive development.
Why the UAE is sanguine about both crypto and a CBDC
The United Arab Emirates (UAE) has emerged as a leading fintech hub of the Middle East, with one of the region’s most dynamic startup ecosystems. From a regulatory standpoint, it is also taking a leading role, with big plans for both cryptocurrency and a central bank digital currency (CBDC). While many countries have adopted one or the other, the UAE is one of the few that seems open to both.
Why Northeast Asia is ambivalent about CBDCs
China’s launch of the digital yuan has prompted a scramble in Northeast Asia among central banks to assess the merits of CBDCs. Japan, South Korea and Taiwan are all at different stages of CBDC testing that they likely never would have begun if it were not for Beijing’s determination to develop a digital fiat currency. That begs an important question: Does the rest of Northeast Asia need CBDCs? After all, the respective initiatives of Japan, South Korea and Taiwan are inherently reactive, in contrast to Beijing’s proactive approach.
North Korea stole more crypto than ever in 2022
What crypto bear market? North Korea stole a record amount of digital assets in 2022 despite the industry facing unprecedented difficulties. Perhaps the Hermit Kingdom knows something others do not and is betting all that purloined crypto will appreciate handsomely in the years to come. Or maybe it’s just easier for the country’s formidable cybercriminals to pilfer digital assets than other types of money given that the crypto industry continues to operate in the shadows. Whatever the reason, Pyongyang made off with a quite haul last year.
Could China reconsider its crypto ban?
The whispers about China potentially reconsidering its ban on cryptocurrency are growing. In fact, some credible (not crypto bros) people are starting to openly moot the possibility, albeit in the most cautious way possible. If asked a year or even six months ago, we would have said that it was highly unlikely given the concerns the central government has about the use of decentralized digital currencies to evade capital controls and how they may foment systemic financial risk. Now we would say that there is a real debate occurring, but that the ban will not be reversed unless the Chinese authorities see compelling economic benefits.
Cambodia’s quasi-CBDC is making headway
We have published a few commentaries over the past year noting how central bank digital currency (CBDC) adoption in Southeast Asia is pretty slow. Cambodia is an exception, but its digital fiat currency is not exactly a CBDC in the traditional sense – an important distinction to make. Bakong is probably best described as a blockchain-powered retail payments system managed by the Cambodian central bank that allows interoperability among the different players in the country’s payments landscape.
China is developing a Web3 ecosystem of its own
The Chinese government views cryptocurrency as a serious systemic financial risk and has taken strong measures to minimize its usage in the world’s second largest economy. Though China retains a thriving underground crypto ecosystem, Beijing’s different bans on digital assets ensure that the average Chinese citizen will not be exposed to them.That said, Beijing has not expressed any opposition to blockchain/DLT technology; on the contrary, the Chinese government believes that it can use blockchain for a wide variety of applications, from trade finance to improving supply chain safety.
Taiwan faces a growing crypto headache
Taiwan’s government has historically had an amicable relationship with the cryptocurrency industry because it functions for the most part outside of the Taiwanese banking system and has not caused them many problems. Further, Taiwan’s conservative retail investors have generally been less eager than most of their counterparts in East Asia to jump into crypto investing, which has made digital assets a niche market on the island. However, the latest crypto bear market, and especially the collapse of FTX, have highlighted why the hands-off approach may need to be adjusted.
Indonesia continues its measured embrace of crypto
Crypto bear market be darned: Indonesia plans to set up a cryptocurrency exchange later this year ahead of a shift of regulatory powers over digital assets to the Financial Services Authority from the Commodity Futures Trading Regulatory Agency, known as Bappebti. The move is part of a broader financial reform push.
India launched its long-awaited CBDC pilot in early November – wholesale – and early December – retail – with much fanfare. Nine banks are participating in the wholesale pilot and four in the retail pilot, which is focusing on the cities of Mumbai, New Delhi, Bengaluru and Bhubaneswar.
The jury is still out on Hong Kong as a crypto hub
Call it a comeback? That seems to be the message of the Hong Kong authorities as they work to restore the city’s reputation as Asia’s premier financial hub. While some things will never be the same in the erstwhile British crown colony, it does retain significant strengths as a financial bridge to the mainland, and the Greater Bay Area (GBA) in particular. But when it comes to serving as a hub for cryptocurrency, the jury is still out.
Indonesia’s CBDC plans become clearer
It was just a matter of time before Southeast Asia’s largest economy unveiled its roadmap for a central bank digital currency (CBDC) and indeed, Indonesia’s central bank recently published a white paper about its plans for a digital rupiah. Whether Indonesia actually needs a CBDC is a separate matter, and its motivations for launching a digital fiat currency are only now starting to become clear.
How will FTX’s implosion affect the crypto market in Asia Pacific?
The bigger they come, the harder they fall, especially in an industry like crypto that has rapidly become colossal yet still operates largely in the shadows. The abrupt implosion of crypto exchange FTX might be a Lehman moment, or it might be an Enron moment, or it might be something else entirely. It is hard to say at this point.
Can Hong Kong surpass Singapore as Asia’s top crypto hub?
Hong Kong as Asia’s top crypto hub? Really? That is our reaction to the speculation that the Chinese SAR could beat out Singapore for Asia’s crypto crown that has emerged since Hong Kong officials at Hong Kong Fintech Week announced a public consultation on how retail investors could have a suitable degree of access to digital assets under a new licensing regime. Rules currently limit crypto trades to institutional investors with a portfolio of at least HK$8mn ($1mn). Yet it is hard to see how Hong Kong can chart such a markedly different course on crypto than mainland China.
Southeast Asian countries have no reason to rush to launch CBDCs
Cambodia became one of the first countries in the world to launch a central bank digital currency (CBDC) in October 2020. As adoption of Cambodia’s blockchain-based retail CBDC Project Bakong proceeded expeditiously, other Southeast Asian countries with similar financial inclusion needs and openness to digitization of financial services were expected to follow suit.
Yet two years after Bakong’s launch, no other ASEAN country has launched a digital fiat currency. As the hype around CBDCs has cooled, Southeast Asian countries are worrying less about being first movers in this nascent field and more about if a CBDC offers them benefits that justify its costs.
Assessing North Korea’s financial cybercrime capabilities
The crypto bear market sure is not slowing down North Korea’s cyber criminals. Chainalysis data show that North Korean hackers stole US$840 million in decentralized virtual currencies from January to May, about US$200 million more than they pilfered in 2020 and 2021 combined. "By any standard, they [North Korea] are a crypto superpower,” former North Korea analyst at the FBI Nick Carlsen told CNET in a recent interview.
Here comes India’s CBDC
In early October, the Reserve Bank of India (RBI) published a 50-page concept note outlining its vision for a digital rupee. The document explains the RBI’s reasons for rolling out a central bank digital currency, such as boosting financial inclusion, accelerating financial digitization and enhancing financial stability, but does not offer a specific timeline for the launch of the Indian digital fiat currency.
Thailand’s SCB pivots away from crypto
Did Thailand’s Siam Commercial Bank (SCB) have a crystal ball handy when it nixed a plan to acquire the troubled Thai crypto exchange Bitkub? The deal, announced in the late-stage crypto bull market of November 2021, had been on thin ice for months. Then came the announcement on August 25: The 17.8-billion-baht (US$536,000) deal was off. In a statement, SCB cited Bitkub’s “various issues” it was sorting out with Thai regulators as the reason the deal was being scrapped. On August 30, it became clear that the issues were serious.
Assessing CBDC progress in Southeast Asia
When Cambodia swiftly launched its retail central bank digital currency (CBDC) Project Bakong, it seemed that other Southeast Asian countries might also make similar moves. Yet in the nearly two years since Bakong went live in October 2020, not a single nation in the region has launched a CBDC of its own. Even the pilot programs are proceeding slowly. It seems that the hype around digital fiat currencies is subsiding and governments are worrying less about whether their nations will be left behind in the next generation of finance and more about if a CBDC offers clear benefits that justify its costs.
Is Thailand souring on crypto?
Crypto believers will point to Thailand recently greenlighting four new digital assets companies to say that the kingdom remains a booster of decentralized virtual currencies. These include Krungthai XSpring, a crypto broker affiliated with one of the country’s leading banks, crypto exchange T-BOX Thailand, crypto adviser and fund manager Coindee and Leif Capital Asset Management, which also manages funds. We reckon Thailand is not going to crack down on crypto as China and India have, but the digital assets’ freewheeling days in the kingdom are quickly winding down. Tighter regulation is inevitable given retail investors’ recent losses in the digital assets market.
Digital transformation at SCB hits a snag
Digital transformation at incumbent banks is all well and good, but maybe making a huge bet on crypto as a traditional lender is still a bit risky. At least that is the sense we get from Thailand’s Siam Commercial Bank (SCB) and its digitally forward holding company SCB X. While many aspects of SCB’s pivot to fintech are proceeding smoothly, the planned acquisition of the crypto exchange Bitkub is not. The deal was supposed to be concluded by now, but it appears SCB is having second thoughts about it.
Baby steps for Japan’s CBDC
Surprise, surprise: Japan is in no hurry to issue a digital yen. In a June report that declared proof of concept in the first-phase study, the Bank of Japan (BOJ) repeated its stance that it has “no plans to issue” a CBDC, though the Japanese central bank believes it is “important to be prepared thoroughly to respond appropriately to any future changes in the environment.” Talk about a general statement. The BOJ’s stance has to be viewed within the wider context of CBDC development in Asia, especially the underwhelming performance – at least in relation to the hype surrounding it – of China’s digital renminbi.
2022 is turning out to be the worst crypto bear market yet. Bitcoin’s price is hovering around US$20,000 while most traders of the paramount cryptocurrency traders are underwater and continuing to sell at a loss. The dismal crypto market conditions – and how they highlight decentralized digital currencies’ inherent volatility – are forcing regulators in many Asian countries to consider tightening relevant regulations. However, there are exceptions, and the Philippines is a notable one. Cryptocurrencies remain very popular in the country; trading is still brisk and regulators have yet to signal a tougher stance.
Singapore has been viewed as the most likely crypto hub in Asia after China’s crackdown on decentralized virtual currencies effectively ended Hong Kong’s prospects for taking on such a role. The city-state has never been that gung-ho about the idea though. Its regulators recognize crypto offers certain opportunities to Singapore, but they also are aware of its inherent volatility. The current crypto bear market and related collapses that are occurring are likely to spur Singapore to take an even more cautious approach to decentralized digital currencies.
K bank’s crypto dependency is a double-edged sword
South Korea’s K bank, the country’s first online lender, has staged an impressive comeback in the past two years, overcoming long-running capitalization problems and growing both its deposit base and loan books at a brisk rate. K bank's loans have grown 1.56 trillion won (US$1.28 billion) per year on average since its launch in 2017 while customers’ average annual savings have reached 2.31 trillion won. A tie-up with leading South Korean crypto exchange Upbit has been a key reason for K bank’s recent fast growth. However, that reliance on Upbit could now become a liability for the digibank.
Perennially sanctioned North Korea has become adept at stealing cryptocurrency to finance its illicit weapon programs. Unlike fiat currency, decentralized digital assets exist outside of the formal financial system, making them easier prey for Pyongyang’s tenacious and skilled hackers. Yet the recent crypto bear market that has seen US$2 trillion in market valuation lost may complicate North Korea’s crypto-funded criminal endeavors.
Australians lost AU$113 million (US$81.5 million) to crypto investment scams in the first five months of 2022, according to new data from ScamWatch cited by consumer watchdog the Australian Competition and Consumer Commission (ACCC). The ACCC noted that most of the reported losses, which occurred in the January 1 to May 1 period, were investment scams, and they rose by 314% (including non-crypto scams) compared to the same period last year. This situation underscores the need for Australia to implement comprehensive regulation for digital assets, as crypto use among Aussies continues to rise steadily.
India's crypto market is hurting
It has not been the best few months for India’s cryptocurrency market. New tax legislation is putting a damper on trading and investment, which are also taking a beating amid a broader crypto bear market. At the same time, fintech funding in India may finally dry up – a least for a while – as investors tighten their belts.
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When will India launch the digital rupee?
In February, Indian finance minister Nirmala Sitharaman said that the Reserve Bank of India (RBI) would launch a central bank digital currency in the 2022-23 fiscal year. In her budget speech, she said that introducing a digital rupee would give a big boost to the digital economy and lead to a more efficient and cheaper currency management system. Yet since then, there has been no obvious progress on India’s CBDC project, and even some measured pushback against the idea.
South Korea’s new president Yoon Suk-yeol entered office planning to make his country friendlier to cryptocurrency. During his campaign, Yoon said, “To realize the unlimited potential of the virtual asset market, we must overhaul regulations that are far from reality and unreasonable.” Though Yoon likely remains keen to carry out his campaign promises about crypto, it will be no easy task. He faces conservative, crypto-skeptical financial regulators, a parliament controlled by South Korea’s main political opposition, the Democratic Party of Korea, and now the fallout over the abrupt collapse of the TerraUSD stablecoin.
Crypto is making inroads in the Philippines
The Philippines is taking a different approach to crypto than many other Asian countries, most notably in a tentative acceptance of the use of decentralized digital currencies for payments. Thailand, Vietnam and Indonesia have all banned crypto for payments outright, while Singapore has licensed just a handful of companies to use digital assets for payments.
North Korea is stealing massive amounts of crypto
North Korea’s resilience is often surprising to outside observers. After all, Pyongyang is the only communist East Asian country to not formally launch economic reforms. It is impoverished and isolated. Further, U.S.-led sanctions imposed from the mid-2000s have made it harder for North Korea to conduct international trade. However, North Korea has developed a formidable cybercrime capability in order to evade the sanctions, and it is increasingly targeting digital assets whose decentralized nature make them vulnerable to determined hackers.