Amid increasing U.S. regulatory scrutiny, crypto firms are eyeing Asia’s favorable policies and growing market as a promising relocation destination.
As with any industry, crypto businesses tend to flock to an environment with the best resources, the most scope for growth, a thriving market of consumers, and a favorable regulatory landscape. With the recent actions of U.S. regulators, however, continuing to expand operations in the country at the risk of being hit with an enforcement action is far from an appealing prospect. Many firms would prefer to move overseas than stick around and find out.
But where are they moving to if they are, in fact, moving? Signs appear to point to Asia, a region of diverse countries characterized by rising income and high-value venture investments, that has made it emerge as a hub for crypto businesses. We explore how Asia’s demographics and crypto adoption rates have made it an attractive destination for web3 firms. Whether existing regulatory policies within some of these countries are actually as friendly as reports make them out to be? And, finally, how serious are firms based in the West on a move to the East?
Blockchain and crypto investments in Asia
Perhaps nothing speaks to this fact more than investors who put their money where their mouth is. Research from Blockdata shows that, despite a decline in the overall number of blockchain and crypto-focused investments in Asia, some firms raised more than $100 million from high-profile venture capitalists.
Headquartered in Singapore, digital asset investment firm Amber Group raised $300 million in the last quarter of 2022. Ten other firms based in the city-state also saw fresh capital raises during this period, with mobile crypto bank MinePlex raising $100 million and private market exchange ADDX raising a $20 million Pre-Series B round.
Hong Kong-based XanPool raised $27 million in Series A funding for its decentralized payments network, and digital payments firm Reap raised $40 million to set up regional Web3 infrastructure hubs. Meanwhile, investors at the helm of ProDigital Future Fund are leading an effort to raise $100 million with the sole intention of funding firms in the blockchain space.
Despite an overall slowdown in crypto venture funding following the collapse of the Terra ecosystem and FTX’s insolvency in 2022, investment in Asia saw a less steep decline than firms based in the U.S. The reason for this could have something to do with the high rates of adoption among both retail and institutional investors in these regions. For instance, Luxembourg-based Forex Suggest ranked Hong Kong the most “crypto-ready” country, based on the number of blockchain startups per 100,000 people and its decision to exempt cryptocurrencies from capital gains.
In terms of grassroots adoption of crypto across the globe, countries based in Asia took eight of the top 20 spots in Chainalysis’ 2022 Crypto Adoption Index. Vietnam, the Philippines, and India saw some of the highest retail volume transacted on both decentralized finance (DeFi) platforms and centralized exchanges.
The past year has seen the dramatic collapse of several big names in the crypto industry. In most cases, the source of trouble for firms on the brink of declaring bankruptcy stemmed from another firm that found itself insolvent a few months prior. The aftermath of FTX’s collapse, however, is arguably the most significant in this regard, with a number of firms finding themselves in uncharted territory after the exchange halted withdrawals.
Crypto-friendly bank Silvergate was forced to wind down operations in March, despite its then CEO Alan Lane assuring users a few months prior that FTX represented less than 10% of its $11.9 billion in deposits from digital asset customers. Still, the bank became the subject of scrutiny, falling into the crosshairs of prosecutors with the U.S. Department of Justice’s fraud unit, who began actively investigating the bank’s ties to FTX.
Not long after, following the failure of Silicon Valley Bank, regulators moved to shut down Signature Bank – a move that some viewed as a deliberate attack on the crypto industry. After Silvergate, Signature was one of the last financial institutions still serving the digital asset industry, facilitating crypto-to-fiat transactions through its Signet network.
Around the same time, the U.S. Securities and Exchange Commission (SEC) brought a cascade of enforcement actions against digital asset firms, ordering crypto exchange Kraken to shut down its staking service and pay a $30 million fine and shutting down the U.S. operations of crypto exchanges like Bittrex on allegations of its operating an unregistered securities exchange.
With crypto exchanges Coinbase and Binance now battling those same allegations, many have questioned whether the SEC’s “regulation by enforcement” approach could be stifling innovation altogether. The U.S. Treasury Department’s proposal to tax both centralized and decentralized platforms in the same capacity as brokers drove this point home further, with some industry watchers opining that developers should give up serving the U.S. market entirely.
“It’s not really worth the hassle/compromises. Most of the market is overseas anyways. Innovate there, find PMF, then come back with more leverage,” wrote decentralized exchange dYdX founder Antonio Juliano on X.
But while it appears that regulators in the U.S. have changed their attitude for the worse, countries in Asia have maintained a favorable stance towards digital asset firms. In June, the Monetary Authority of Singapore (MAS) published a proposed framework for digital assets, with firms like Standard Chartered even developing an initial token offering platform to issue asset-backed security tokens listed on the country’s stock exchange.
“While MAS strongly discourages and seeks to restrict speculation in cryptocurrencies, we see much potential for value creation and efficiency gains in the digital asset ecosystem,”said Leong Sing Chiong, Deputy Managing Director of Markets and Development at MAS.
Meanwhile, Hong Kong has introduced a new license regime for firms to offer retail traders the opportunity to buy and sell cryptocurrencies. So far, HashKey has obtained the Type 1 license to start a virtual asset exchange under the country’s laws and a Type 7 license to provide automated trading services, but at least 80 crypto firms have expressed interest in setting up shop in the region. The new measures are all part of a plan for Hong Kong to position itself as a hub for digital asset innovation.
Elsewhere, the European Union’s Markets in Crypto Assets law (MiCA) was published in the Official Journal of the European Union (OJEU) in June, marking another step towards creating a legislative framework for crypto companies, wallet providers, and stablecoin issuers.
Although two landmark bills are currently being deliberated in the U.S. House of Representatives, it is fair to say that the path toward clear crypto legislation is still much further along in Asia and Europe. With a lack of payment rails following the closure of Silvergate and Signature, many believe that Asia is the most commercially viable market for digital asset firms to grow their operations.
Roadmap for transition to Asia
While the case for a move to Asia looks to be on the cards, the real question is how many firms are actually laying the groundwork for a transition. Earlier this year, major U.S.-based crypto exchange Gemini announced plans to expand its Asia Pacific presence, pledging to increase its headcount to over 100 in Singapore and set up an engineering base in India.
“We believe that APAC will be a great driver of the next wave of growth for crypto and Gemini,” said the exchange in a statement at the time.
More recently, on-chain institutional credit marketplace Maple Finance closed a $5 million strategic investment led by BlockTower Capital and Tioga Capital to fuel its expansion in the Asia market.
“In Asia, you have regulatory clarity, or rather, regulatory support, both coming out of Hong Kong and Singapore in terms of new legislation that’s come through, and you already have a very heavy trading focus over there,”said Maple Finance co-founder and CEO Sidney Powell to TechCrunch.
In his view, it isn’t just favorable legislation that is driving this opportunity but the bullish trading activity coming out of this time zone.
Among those eyeing a broader expansion in the east this year is stablecoin issuer Circle, which recently acquired a license to offer digital payment token services in Singapore, and Avalanche blockchain developer Ava Labs, which made several new hires in Japan and South Korea.
Still, despite what would seem like the makings of an exodus of blockchain-based firms from the U.S., not everyone is convinced by the prospect of moving shop. Crypto exchange Coinbase, for instance, remains convinced that the U.S. market should be at the center of its focus.
In an interview with the Financial Times, Coinbase CEO Brian Armstrong said that leaving America “is not even in the realm of possibility right now,” making it clear that the firm’s increase in headcount in Asia was part of its plans to expand internationally, rather than move its base altogether.
“There is no break glass plan. We’re staying in the United States,” he said.