Digital assets have witnessed exponential growth in recent years. However, the regulatory landscape surrounding digital assets, particularly in the United States, has become increasingly stringent. This regulatory ambiguity has prompted many investors to move their focus toward Eastern markets, which are increasingly showing a more favorable regulatory environment.
Current US regulatory landscape
The United States has always been a key player in the development of digital assets globally, with many prominent platforms based in the country. However, with the growth of the industry, concerns regarding investor protection, market manipulation and money laundering have also risen. Consequently, regulatory agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have taken a more assertive approach toward digital asset regulations.
While regulations are an essential component for fostering a healthy and secure market, the U.S. regulatory environment has become increasingly complex and uncertain. For example, the SEC has classified many cryptocurrencies as securities, subjecting them to stringent registration and compliance requirements while at the same time, the CFTC has labeled similar assets as commodities. This has created significant challenges for both established platforms as well as emerging startups, stifling innovation and limiting access to digital asset investments for retail investors.
Rise of Asia’s crypto-supportive regulatory frameworks
In contrast to the United States, several jurisdictions in Asia have taken a more progressive stance toward digital assets, creating favorable regulatory frameworks that attract investors and promote innovation while building in consumer protections. Here are three examples:
- Hong Kong
Hong Kong is emerging as a major financial center and a gateway to Asian markets. The Securities and Futures Commission (SFC) has implemented various regulatory frameworks in licensing, customer due diligence (including anti-money laundering as well as travel rule compliance provisions), and technology risk management to enable the operation of licensed digital asset platforms. The government is creating a pro-business environment, supporting the development of the digital asset industry in the country. The regulatory conditions strike a balance between investor protection, fostering innovation and attracting businesses and investors from around the world.
Singapore has positioned itself as a global hub for digital assets and blockchain technology. The country’s proactive approach to regulation has created a supportive environment for businesses and investors. The Monetary Authority of Singapore (MAS) has implemented a comprehensive licensing regime for digital asset platforms, providing clarity and legal certainty. Singapore’s regulatory framework promotes innovation while safeguarding against fraud, illicit activities (in compliance with the travel rule and AML), and insurance requirements, making it an attractive destination for both local and international investors. Singapore also recently announced that it would require crypto service providers to segregate customer funds in a trust, to reduce the risk of misuse or loss.
In April 2017, the Japanese government passed the Payment Services Act (PSA), which defined Bitcoin and other virtual currencies as legal property. This made Japan one of the first countries in the world to recognize cryptocurrency as a legitimate form of investment. The Japanese Financial Services Agency (FSA) has established a robust regulatory framework that ensures the security of investors and the integrity of the market. Licensed cryptocurrency exchanges operate under strict supervision, promoting transparency and accountability.
The PSA also established a regulatory framework for cryptocurrency exchanges. Under the PSA, cryptocurrency exchanges are required to register with the Japanese FSA and comply with various requirements, including maintaining adequate customer identification procedures, segregating customer assets from the exchange’s own assets, implementing appropriate security measures to protect customer data, and providing clear and concise disclosures to customers.
The FSA has taken a proactive approach to regulating the cryptocurrency industry. In 2018, the FSA ordered the closure of several cryptocurrency exchanges found to be in violation of the PSA. Japan’s proactive approach has encouraged the growth of the digital asset industry and fostered investor confidence.
Shifting to Asian markets
The regulatory advantages offered by Asian markets are enticing investors to shift their focus and capital from the United States to the East. Here are some key factors driving this trend:
- Regulatory clarity and certainty
Asian jurisdictions such as Singapore, Japan and Hong Kong have established clear and comprehensive regulatory frameworks for digital asset platforms. This provides investors with the confidence and legal certainty they need to participate in the market. Regulatory clarity reduces the risk of unforeseen regulatory actions and fosters a stable investment environment.
- Enhanced investor protection
Asian regulatory frameworks prioritize investor protection while ensuring market integrity. By implementing robust licensing requirements, conducting thorough due diligence on platforms, and enforcing strict compliance standards, these jurisdictions aim to create a safe and secure ecosystem for investors. Strengthened investor protection measures, such as requiring the segregation of customer funds, increase trust and attract capital from both retail and institutional investors.
Asian countries are leading the way in embracing digital assets, offering a more supportive regulatory landscape compared to the United States. Investors can benefit from regulatory clarity, enhanced investor protection, and the opportunity to navigate the evolving digital asset landscape with confidence and security. As the digital asset industry continues to grow, the focus on Asian markets is likely to increase, driving innovation and attracting global investment.