Crypto Wars Take Asia

Illustration by Sam Island

Illustration by Sam Island

Some nations have embraced the cryptocurrencies sweeping across the eastern continent. Others are doing everything they can to block them.

In Taipei, capital of the world’s high-tech hardware hub Taiwan, the CEO of a cryptocurrency exchange plans to run for mayor. Across the Taiwan Strait, in China, regulators keep closing exchanges to throttle trades in cryptocurrency – electronic money not backed by a central bank but widely used for commerce and investment.

These contrasting tales illustrate the surging interest in digital currency around Asia, as well as the varied approaches of policymakers trying to catch up. Asian trade in the likes of Bitcoin and Ethereum makes up more than half the world’s total, with most of that concentrated in Japan. But regulators and analysts in the region have criticized the trading culture as one of speculation, even gambling.

“Japan would be the most liberal, followed by Singapore and South Korea,” says Lance Morginn, CEO and co-founder of Canadian data analytics firm Blockchain Intelligence Group. Singapore’s government says it doesn’t regulate cryptocurrency, although existing Singaporean securities laws do apply to crypto transactions. Meanwhile, Japan recognizes the widely traded token Bitcoin as legal tender. “China is the most wary, although it has stated it will inevitably have to recognize cryptocurrencies, but [it needs] to be cautious,” Morginn adds.

Asian countries, regardless of their restrictiveness, are all expected somehow to nurture cryptocurrency, economists say. Many are already eyeing financial technology as a potential economic boon. The sector better known as fintech doubled worldwide over the course of the second quarter of 2017, to a value of $9.3 billion, led by the United States, according to auditing firm KPMG.

But for now regulators worry that use of the digital tokens will facilitate money laundering and theft and will fund terrorists of the type who threaten the southern Philippines and parts of Indonesia. Indonesia and Australia “have been taking the lead” in regulating exchanges to stop money laundering and financing of terrorism, says Remy Mahzam, an associate research fellow at the International Centre for Political Violence and Terrorism Research in Singapore. The government of Singapore, Mahzam notes, has proposed the formation of a “smart cities” network, spreading across ten Southeast Asian countries, that could stop the crimes. The island country has also developed its own anti–money-laundering measures.

Eventually countries must work together to stop cryptocurrency from funding terrorists, Mahzam says. “It would be a grave mistake to approach the problem of countering terrorist use of cryptocurrencies from a purely national or country perspective,” he explains.


Another pitfall: Cryptocurrencies have proved to be highly volatile assets, putting token holders at risk of sharp losses.

In March, for instance, Bitcoin prices plummeted, surprising many traders. The electronic currency had been trending higher after an even steeper decline at the start of the year. Ravi Menon, managing director at the Monetary Authority of Singapore, said at the time that the idea of crypto as money was maturing. His Southeast Asian financial hub had warned consumers the year before about the “risks” of digital tokens.

For its part, China wants to stem capital outflows because too much flight threatens the yuan’s stability. Outflows from the state-controlled economy totaled $408 billion last year, down 54 percent from 2016, when Beijing began taking measures to keep money onshore, according to French investment bank Natixis.

Since September 2017 regulators in Beijing have banned overseas, over-the-counter, and peer-to-peer cryptocurrency exchanges along with the crypto fundraising tool known as the initial coin offering, industry news website Cointelegraph reports.

“The Chinese government has always been strict about cryptocurrency,” says Felix Yang, an analyst at financial advisory firm Kapronasia in Shanghai. “The concern is obvious. Without government control cryptocurrency could become an instrument for drug dealing, capital outflow, terrorism, and other illegal activities.” China hopes eventually to develop the digital assets in a “manageable way,” he adds.

As China attempts to block crypto investment, its communist neighbor North Korea has been accumulating cryptocurrency. In May 2017 it started mining for Bitcoin, according to internet threat intelligence firm Recorded Future. Cryptocurrency is an “ideal form of money” for North Korea because it can trade anonymously across borders, while international trade sanctions make it hard for the government to grow its revenues, says Steven Kim, a visiting research fellow at the Jeju Peace Institute in South Korea. “If there is a way to exploit cryptocurrencies for financial gain, the DPRK will figure it out and move aggressively to do so,” Kim says.

In South Korea, meanwhile, the government has banned initial coin offerings to head off scams, reports The Korea Herald, a local news website. The country’s justice minister warned in January of a possible broader ban on digital currency trades, likening them to gambling. South Korea is currently the world’s third-biggest crypto market, after Japan and the United States; Cointelegraph reports that more than a third of salaried Koreans own cryptocurrency, with stashes averaging $5,000.

On the liberal end of the spectrum, Japan has let cryptocurrency trade expand despite what domestic news agency Kyodo News describes as a $534 million theft from domestic exchange Coincheck. Japan declared Bitcoin legal tender in April 2017, and by September cryptocurrency trade there was nearly half of the world’s total market share. The Japan Times website quoted the chief financial officer of Japan’s largest cryptocurrency exchange operator, bitFlyer, as saying the Japanese “like speculative investments.”

“On the surface it looks like Japan is the most liberal” among Asian countries, says Song Seng Wun, an economist with the private banking unit of CIMB in Singapore. Other governments, he adds, “are more wary of money-laundering risks associated with crypto, but there is no outright ban.”

Malaysia is a classic case of this. Its central bank requires cryptocurrency exchanges to register and warns citizens against risky deals, but otherwise lets trade proceed without interference, explains Yuwarajan Karpaiya, co-founder of the XBit Asia digital currency exchange in Kuala Lumpur. Malaysia could be more encouraging, he says, but cryptocurrency around Asia remains “in the green stage.”

Karpaiya points to the fear of fraud as a core obstacle. Some traders are afraid of peer-to-peer deals, or trades not backed up by the exchange itself as a mediator, he says. Nine in ten initial coin offerings are “scams” too, he notes. “We want the central government to understand the space much more.” If cryptocurrency booms, Karpaiya adds, “perhaps the banks will buy us out. They don’t want to lose out to the [crypto] space, and they are cash-rich.” XBit Asia currently trades from $12,570 to more than $25,000 per day, down from a year ago. “We are still profitable, but not like last year,” Karpaiya says.

Taiwan’s central government, keen to promote fintech on an island that’s already strong in IT hardware manufacturing, is studying ways to ease the threats of crime along with the worries of traditional banks that may lose ground to crypto services, Taiwanese legislator Jason Hsu says. Two Taiwan-based trading platforms and an estimated 25,000 local users already trade cryptocurrency. A Financial Regulatory Commission publicist says Taiwan now takes a “neutral” view on cryptocurrency.

Taiwan’s regulators may get a push from Cheng Yi-ting, a 35-year-old announced candidate for mayor in the 2.7 million-population capital Taipei. The CEO of OTCBTC is given low odds of winning the November race against better-known candidates, but her campaign talk is sending a message.

“I think Taiwan has an extremely good chance to become a crypto region because it’s surrounded by other crypto major nations,” says Cheng, whose year-old exchange has more than 300,000 registered users and daily trading volume of $30 million. “Taiwan’s economy is a bit disconnected with the rest of the world, so I hope I can build on my expertise to connect the city.”