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In battle to be Asia’s crypto hub, which city will emerge victorious?

In battle to be Asia crypto hub, which city will emerge victorious

In this issue

  1. Asia’s Web3 crown: Ready, set, fight
  2. US debt ceiling: Win or loss for crypto?
  3. Metaverse in China: Red carpet

From the editor’s desk

Dear Reader,

Two years. 

That’s what I predicted to a roomful of industry and regulatory leaders in Dubai recently, inside the Museum of the Future, at a MENA-APAC meeting of delegations led by Hong Kong-based Finoverse. Two years during which the world outside America has time to build while political intransigence keeps the U.S. crypto industry handcuffed by a lack of regulatory clarity. But the system created by America’s Founding Fathers and enshrined in the U.S. Constitution stipulates that the people can decide. Democracy may be frustrating, but it remains a system that has birthed so many human and capital opportunities. Time may solve today’s problem in two years when Americans head to the polls and potentially see a regime change. 

But it’s also what makes the crypto industry nervous. Innovation should not be politicized. Crypto should not be a political football thrown about between the Republicans and Democrats to shine when the policy sun shines, only to retreat into the shadows if it’s politically expedient. One should, and must, demand more. 

There is a lot of work being done as I write — there is proposed legislation supported by both sides of the aisle — because there is a recognition that a lot of education (and frankly, professional therapy) may be needed in the embarrassing chapter post-SBF and the FTX implosion that has left many on Capitol Hill scrambling to restore political reputations and footing. 

Not all is lost. There are influential voices inside U.S. agencies and Washington’s beltway that have penetrated crypto’s intellectual moat. One should be impressed that they’re navigating a very bureaucratic system, which is limiting in more ways than you know, and yet seeking knowledge and opening paths of communication with the industry. But what makes them powerful? They are listening, learning and evolving their thinking to serve the needs of the country beyond the years they’re serving in office, on how this technology should be integrated into the future digital economy. 

They, too, have two years. Two years to observe, learn and watch how the rest of the world is defining the Web3-enabled future — and biding their time when we can all fully engage. 

Until the next time,

Angie Lau,
Founder and Editor-in-Chief

1. Heat is on

Hong Kong’s path to being a global Web3 hub is not without challengers, with Singapore, Japan and South Korea also jockeying for the center of this new digital asset economy. Image: Canva

With wind in their sails, multiple Asian economies are racing to become the leader of the emerging Web 3.0 industry as an unfavorable regulatory environment in the U.S. drives its crypto firms to seek better opportunities elsewhere.

Forkast.Insights | What does it mean?

Hong Kong is stepping up efforts to become a global hub for digital assets. On top of its recent CBDC pilot, the city has, over the past 12 months, increasingly signaled it is eager to do business through a raft of incentives aimed at the crypto industry. But Hong Kong still faces challenges. 

While Singapore and South Korea have been more consistent with their approach to regulating the industry, Hong Kong has to make up for lost ground and a battered reputation after China banned cryptocurrencies on the mainland in 2021, and there were fears that Hong Kong’s government could follow Beijing’s lead.

As the demand for fintech and Web3 grows, Hong Kong authorities will need to find a way to reassure founders and investors that the territory is an attractive place to do business again — and also as a good place for talent to work and live, especially in the aftermath of the government’s curtailment of speech and press freedoms and imposition of draconian Covid-19 control measures that resulted in a brain drain of professionals and companies leaving Hong Kong.

Hong Kong is also grappling with a shortage of engineering talent. The quickest and most superficially obvious way for the territory to plug its skills gap would be to tap mainland China, which currently has an abundance of unemployed young people. The city’s leaders are exploring options to hire more mainland talent, but it remains to be seen whether China’s surplus workers are sufficiently skilled for the needs of Hong Kong’s crypto and fintech companies. 

Under China’s all-out crypto ban in 2021, Chinese nationals working for crypto trading companies in other countries were warned that they could be subject to investigations under Chinese law. It remains unclear how that would apply to mainland citizens who working in crypto in Hong Kong.

To bring more digital asset companies and talent back to Hong Kong, authorities must not only establish clear regulations around crypto trading but also offer assurances about the legality of cross-border employment in the sector. The territory’s leaders should also consider why Hong Kong is experiencing an exodus of its own young and figure out a way — beyond the dropping of pandemic-era travel restrictions — to make Hong Kong an attractive place to live and work again.

2. Cliff’s edge

Will market worries of a potential U.S. defaul push investors to seek safe haven in cryptocurrencies? Image: Canva

U.S. President Joe Biden said on Sunday he would not accept a debt deal that favors “wealthy crypto traders,” as the U.S. government’s protracted debt ceiling negotiations extended into the digital assets sector.

Forkast.Insights | What does it mean?

Crypto’s largest national marketplace has spent most of 2023 turning its back on the industry through a combination of court cases and continued regulatory uncertainty. But trading volumes remain robust. 

According to the latest report by the market tracking platform CoinGecko, spot trading volume across the top 10 crypto exchanges was US$2.8 trillion for 2023 Q1, up more than 18% from Q4 2022. 

The inclusion of legislation around wash trading in crypto may hit trading volumes — especially on exchanges where it is commonplace — but more importantly, it will bring increased clarity for companies looking to remain in the American market. The lack of regulation is having a greater impact on the U.S. market than rules designed to close tax loopholes. The bigger problem is how long it will take the U.S. leaders and policymakers to create the framework necessary for crypto businesses to thrive. 

In March 2022, President Biden signed an executive order that outlined the executive branch’s approach to policymaking around digital assets. In September, the White House released a framework for the “responsible development of digital assets.” And earlier this month, Biden released a proposal to tax U.S. crypto mining firms 30% of the cost of electricity they use while mining. 

These are all positive steps, but it’s not enough. Currently, there are more than 50 digital assets-related bills that have been introduced in Congress, reflecting the growing realization — even among American lawmakers — that it is no longer tenable to sit back when it comes to regulating this increasingly important industry. 

3. Sweeten the deal

Metaverse firms in Hangzhou’s Shangcheng district are eligible for benefits such as research funding and subsidized rent. Image: Canva

As China’s Zhejiang Province eyes constructing a 200-billion-yuan (US$28 billion) metaverse industry by the end of 2025, one of the province’s districts is rolling out policies to attract local metaverse companies and sweetening the deal with financial support.

Forkast.Insights | What does it mean?

Hangzhou, home to the headquarters of Chinese internet giant Alibaba, has nurtured a large pool of talent in the country’s internet and technology industries, making it an important base for tech companies and entrepreneurs. 

Hangzhou joining a number of major cities and provinces to support metaverse development puts China in a stronger position to drive the growth of what many consider will be central to the next generation of the Web.

China’s metaverse ambitions reveal that the nation is seeking to grow as well as set standards for a young industry that other governments have mostly ignored. However, it is also a recurring theme in China that the government nurtures a nascent industry to grow and thrive only to come back later with an iron fist to tame any market chaos or political threats when industry players become too powerful. For example, in late 2020 China began what many refer to as a big tech crackdown, introducing new regulations covering such areas as antitrust and data protection.

It remains to be seen how China will treat the metaverse sector in the future. These days, the government’s policy sun is shining on its metaverse sector. But if the metaverse grows and evolves in ways that the government cannot control, how would the authorities react? Would there be interventions that resemble the sweeping tech crackdown that only started to ease earlier this year? China has rolled out its welcome mat for metaverse companies, but if recent history is a guide, companies should also brace themselves for potential future policy shifts.

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