2019 Outlook for Digital Assets in Asia
Everyone in the blockchain space is watching the U.S. closely for regulatory clarity, technological breakthroughs and mainstream adoption. If we turn to Asia however, we notice that various parts of the region have been powering ahead with significant developments which could put them in the running to be a leader in the digital asset class. Given the open-source nature of blockchain, it is really anyone’s guess who will cross the finishing line first. While it may be premature to speculate, investors should have at least a broad understanding of how the region’s relationship with the digital asset class may shape up over the next twelve months. With a simple overview of each country’s current development in the digital assets space, I will in this narrative piece also highlight future developments, with an outlook for 2019. To stay ahead, one needs to be nimble, look global and think long-term.
With most of its population employed in subsistence farming, it comes as no surprise that Cambodia’s first touch with blockchain technology was with the implementation of a supply chain blockchain solution to aid fair pricing for farmers. Other use-cases for the country will be centred around technologies that can help aid transparency, banking channels, micropayments and efficient cross-border transactions.
However, things are not all that rosy at the national level. The government and the National Bank of Cambodia have engaged in exploring blockchain and central bank digital currency from 2017, but there have since been minimal developments . Further, the country now requires its citizens to obtain a license in order to purchase, sell or trade tokens — without which these acts would be illegal, thereby restricting the use of crypto.
Outlook: For the rest of 2019, we could continue to see non-profit organizations and smaller fintech emerge with innovative solutions, but this will likely be limited in widespread adoption given the lack of government support and product education.
China has a “love-hate” relationship with blockchain. It may be confusing to many why the Chinese have generally been hostile towards cryptocurrencies, to the extent of banning all crypto-related commercial activities and ICOs, when they have been very supportive of distributed ledger technologies. However, the current national strategy can be easily summarized as “Blockchain, not Bitcoin”. 2019 will be the year of “stability” with the government turning more growth-oriented with its “six-stability” policy, which focuses on areas in employment, financial markets, foreign trade, domestic investment and foreign investment, and development targets. The main takeaway will be its desire to ensure the longevity and authority of the Chinese Communist Party. Any form of domestic cryptocurrency activity will be seen as a divergence from its core objective in ensuring control.
While I hold the view that there could be some technological breakthroughs (and usage/adoption — look at WeChat, AliPay) made by the Chinese in the short term, especially amongst enterprises (with hundreds of patents filed and billions of capital invested by the tech and government sectors), I am concerned that there could be limitations in unleashing the full potential of the distributed ledger technology. Already, we have started to witness talent and companies flocking towards neighbouring countries to establish presence (think Binance). Despite all that all, we could potentially witness more details over the next twelve months in the development of a central bank digital currency issued by China. If the second largest economy in the world launches a sovereign digital currency, this will surely inject legitimacy to crypto as an asset class.
Outlook: I am confident that 2019 will continue to see healthy domestic investments, foreign acquisitions and innovation by the Chinese in this sector that will probably yield some positive results. The Chinese could may be able to adopt and retrofit an emerging technology for its own, although but it is still unclear if that this Jekyll and Hyde strategy will pay off for an open-source technology in the longer term.
It was once thought that the Fragrant Harbour would be the holy grail of digital assets regulations. In the past month however, we have seen the departures of prominent blockchain companies such as Cardano and Xapo. With mainland China’s generally anti-crypto stance banning all crypto-related commercial activities and ICOs, it is unsurprising that the Hong Kong regulators have followed suit. The regulators haves also effectively barred exchanges from dealing with retail investors. With an expected stricter stance from the regulators, the city will likely find it challenging to establish leadership in this sector.
Outlook: Given the more crypto-friendly policies set by neighbouring countries such as Singapore, Philippines, and Thailand, I expect more start-ups, capital and talent to leave for these jurisdictions. While it may continue its rhetoric of becoming a global crypto trading hub, I struggle to see clarity in that ambition. Overall, Hong Kong will likely lag to an extent this year because of its reputation as Asia’s leading financial hub. Decentralised finance will be a growing focus (and force) in the years to come, and would only add more conflicting pressures to its over reliance on traditional finance.
IT giant Tech Mahindra has partnered with the government of Telangana to launch the Blockchain District. Similar to a few countries in the region, India pursues a ‘Blockchain, not Crypto” strategy. Not all is smooth sailing for the development of the digital assets class in India though. Since July last year, the country has restricted banks from servicing cryptocurrency-related operations. Further, while it remains legal to own cryptocurrency in India, the National Association of Software and Services Companies has opined that such ownership could be illegal. There have also been talks that digital tokens may still be banned after all. With such an unclear stance, it will not be easy for entrepreneurs, investors and companies to build and invest in this space.
Outlook: In 2019, we will probably see much implementation and development of blockchain projects by the public sector, while mainstream adoption will probably be challenging given the lack of clarity from the government and support from institutions.
Indonesia is starting to warm up to blockchain, with the initiation of a blockchain hub that is supported by the government. The country has also considered issuing its own digital rupiah. In fact, the central bank is hoping that Indonesia becomes the first country in the world to launch a national digital currency. Five major banks - Bank Negara Indonesia, Bank Rakyat Indonesia, Bank Mandiri, Bank Danamon and Bank Permata — are looking at implementing blockchain in their systems.
Outlook: Looking ahead, the country may have the willpower, but may will likely struggle in the next twelve months with its lack of a sufficient ecosystem. This includes talent, blockchain-focused tech companies and public support. With a population that is generally unfamiliar with digital assets, it is also unlikely that we will witness much retail adoption this year. Having said that, Indonesia, being the world’s fourth largest country, still relatively poor and underbanked, the use-cases and benefits in implementing blockchain may be poised for better adoption in the longer term.
A frontrunner in acceptance, regulation and even legalization of cryptocurrencies, Japan is the first and only country that has a proper legal system regulating the trading of cryptocurrencies. This comes as no surprise especially when the country became the first developed country in the world to officially recognize Bitcoin and other digital currencies as money in 2016. This national endorsement adds legitimization and naturally helped increase the general public perception of digital assets.
There are much implications when the second largest Japanese bank, Mizuho Financial Group, announced that it will launch a JPY stable coin by March this year. This program already has 60 domestic regional banks on board, where consumers are able to use the cryptocurrency at any of the participating banks. According to the Japanese regulator, almost 200 companies are seeking to enter Japan. Some of these will likely include Line, Yahoo!, Daiwa Securities, Drecom, Money Forward, Avex, Adways, Appbank, Forside Co, Fasteps and Samuraj & J Partners.
Outlook: The country also boasts one of the strongest communities and brightest minds in the developer space. It is likely that Japan will continue to play a pivotal role in the development of the digital assets class in 2019 as we will see some large-scale implementations in how the government spurs the usage and adoption of digital currencies. Having said that, these developments will be largely confined within Japan as most future developments are being focused domestically.
The country has largely taken a piecemeal approach to regulation of its cryptocurrency industry,but it seems that the authorities are seeking to control this sector as the regulators have now classified cryptocurrencies, tokens and crypto assets as securities, which means they are now under the jurisdiction of the Malaysian Securities Commission. Despite this seemingly heavy-handed approach, the government has expressed positive sentiment towards this asset class.
Outlook: With an unstructured approach by the government, and a relatively undeveloped ecosystem, the growth of the digital assets class in Malaysia will likely remain status-quo.
Like their counterparts in the region, the Philippines central bank is supportive of blockchain in the financial markets, but is cautious about cryptocurrencies. The country has already embarked on creating special crypto-economic zones (SCZ): more than 20 digital exchange licenses have been issued by the Cagayan Economic Zone Authority, offering economic benefits such as tax exemptions. A final ICO legislation was meant to be released by the end of 2018, but was delayed.
Outlook: It is probable that the authority will not ban ICOs but give themselves more oversight. Over the next 12 months, mainstream adoption will probably lag with growth being restricted to its protected SCZ. It remains to be seen whether the SCZ may be proven successful in the longer term as it reminded me of the 90s when large private enterprises built their own intranet in the early growth phase of the Internet.
The Lion City was the first in Asia to introduce a “regulatory sandbox” in 2016 to allow fintech companies to experiment with and showcasetheir innovative products and service offerings, and the Monetary Authority of Singapore (MAS) has always taken a proactive role with the innovation around blockchain technology. In 2018, Singapore was ranked second in terms of the total number of Initial Coin Offerings (ICOs). Last month, the MAS issued guidelines around ICOs to protect retail from fraud and to ensure Anti-Money Laundering policies are in order. This gradual updating of its guidance exhibits the regulator’s supportive stance with the sector as it prefers to adopt a “wait-and-see” approach as trends and developments in the digital asset class unfold over time. If not for a limited developer and research talent pool, the country would likely be my choice for the Silicon Valley for blockchain.
Outlook: Looking ahead, the capital markets within the digital assets class will likely thrive with a potential drag in the overall growth of the blockchain ecosystem arising from a shortage of developers, talent and fresh innovation.
While it started out banning ICOs and taxing digital exchanges substantially, the South Korean government has softened its attitude towards the blockchain sector. Most recently, it was announced that the government had set aside 1 trillion won (USD $880 million) this year to spend on blockchain development. This change in tune has likely come about because the powers that be have realised the potential of this alternative asset class, what with the country accounting for 30% of global trading volumes of cryptocurrencies.
South Korea’s most popular messaging app, Kakao, is now integrating cryptocurrencies into their platform with their own token and blockchain technology. Often touted as the ‘Asian Amazon’, Qoo10 is working with the country’s largest exchange, Bithumb, to launch a global crypto payment service. Other large state and private enterprises hopping onto the bandwagon include SKT, the country’s largest telecommunications firm, Hyundai, the third largest vehicle manufacturer in the world, LG Corporation, one of the leading electronics brand globally, Shinhan Bank, second largest domestic bank, Nexon, a $11.5 billion gaming mammoth, and Yeogi Eottae , the largest hotel booking platform in the country.
Outlook: With concerted efforts made by both the private and public sectors, the tech-savvy crypto-friendly population will probably be leading the region in terms of adoption and innovation in 2019. This development will have the potential for cryptocurrency adoption to spread throughout Asia as most of these large enterprises have global presence.
Widely known as the “Crypto Congressman”, Taiwan Legislator and Congressman, Jason Hsu, has big ambitions in turning Taipei into the world’s next blockchain island. While the government has not drafted any official legislation around cryptocurrencies, the Taiwan Crypto Blockchain Self-Regulatory Organization was established to help set industry standards and practices. Together with the approval of the Financial Technology Innovations and Experiment Act, this marked the first breakthrough for Asia’s seventh largest economy to develop a robust and healthy ecosystem for the digital assets class. It is also evident that already, the ecosystem in Taiwan has been rapidly progressing over the past few years. With one of the world’s top technical colleges, the National Taiwan University, there is no lack of talent.
Outlook: In 2019, expect Congressman Hsu to help bridge the public and private sectors, and expect a growing number of private enterprises to be investing and deploying blockchain technologies. Overall, with a well-oiled ecosystem, I think Taiwan has most of the ingredients in progressing ahead in the next twelve months.
The Land of Smiles has set its sights to become a leading centre for blockchain in the region. This has been rather clear from the various government initiatives to support the growth of the distributed ledger technology, ranging from building a blockchain-supported election voting to a more efficient tax collection system. The regulator has also announced a framework for ICOs and cryptocurrency which includes the legalization of seven cryptocurrencies: Bitcoin, Ethereum, Bitcoin Cash, Ethereum Classic, Litecoin, Ripple and Stellar. In fact, just last month, the Thai stock exchange has announced that it will be planning to launch a crypto trading exchange in the near future.
Outlook: The Thai tech start-up sector is also experiencing strong growth driven by capital inflow from domestic and offshore venture capital funds. With strong efforts in both the public and private sectors, I think Thailand will continue to make traction in terms of adoption relative to the rest of Asia.
Given the diversity of industry, economic and technological development and growth within the continent , differences in adoption, development and innovation of blockchain and cryptocurrencies are inevitable. In my view, there will be three emerging trends for Asia in 2019: more special crypto-economic zones being set up, increased banking channels to support cryptocurrencies, and further development on central bank digital currencies, with each area’s growth depending on a combination of support from the government, private sector and its population.
Watch this space.