The following is a guest post from BTSE CEO Henry Liu.
Every day there seems to be new headlines highlighting the faltering dominance of the US dollar as the world’s reserve currency. At the same time, US regulators make it clear that USD-pegged stablecoins are not welcome in the world’s largest economy. With the future of both the fiat and crypto side of the equation looking uncertain, crypto firms in particular are beginning to look abroad to hedge their bets, or even to flee scrutiny.
This is creating a once-in-a-lifetime opportunity for Asia to step closer to the gap. The region is leading the way in developing globally competitive cryptocurrency regulations, and that’s not to mention building globally competitive economies as well. As such, Asia offers a well-developed and highly diverse environment for crypto businesses to thrive. If they haven’t already, crypto companies should look to the East for their next growth opportunities.
Declining dominance of the USD in world trade
Official USD foreign exchange reserves have been declining for some time. As seen in the BIS Second Quarterly Review in 2022, the US dollar represented less than 60% of official foreign exchange reserves, its lowest share in the last 20 years.
The USD is also losing popularity as a currency for international payments, which has allowed other currencies to bridge the gap in global usage. For example, Russia announced that it will support Chinese yuan deals when trading with Asian, African and Latin American countries. Saudi Arabia it has openly expressed that it would be open to trading currencies other than the US dollar for the first time in 48 years, including the yuan, euros and rupees. Saudi Arabia has also openly discussed with India the possibility of starting trade in rupees and rials as part of efforts to boost economic ties between nations. And that’s not to mention the rumors of a new BRICS currency, possibly a central bank-denominated currency. And at the same time, Malaysia, Indonesia, Singapore and Thailand have established systems for transactions between each other’s nations in their local currencies instead of the US dollar.
The dollar remains the world’s reserve currency. And the US economy is, in some ways, the largest market in the world. However, it appears that payments innovation is gaining pace at the margins, paving the way for a more multi-polar payments ecosystem. And that makes crypto companies think about the alternatives on the table.
“Operation Chokepoint”
At the same time, the US has yet to determine its stance towards regulating cryptocurrencies. A lack of regulatory clarity has not only held back the widespread adoption of new technologies, but also innovation in digital payment options. That could prevent consumers and businesses from accessing more competitive payment services.
Cryptocurrency commentators are calling the latest round of regulatory scrutiny “Operation Choke Point 2.0,” reminiscent of an earlier campaign against fraud and money laundering at US banks. The recent SEC stablecoin purges have proven to be potentially fatal for cryptocurrency companies.
For example, the lawsuit against Paxos and Binance USD effectively halted the issuance of the coin altogether. And that’s not to mention the CFTC’s separate dispute with Binance over alleged violations of trading and derivatives laws. Kraken was accused of failing to register his staking program as a crypto asset service, leading to the shutdown of the program. In addition, the SEC is now suing Tron founder and Huobi backer Justin Sun with allegations of sale and airdrop of unregistered securities, fraud, and market manipulation.
Regulatory pressures on banks with exposure to the crypto business are also increasing. Some have described the recent collapses of several crypto-friendly banks and startups as a “controlled demolition” abetted by regulators, though I take that theory with a grain of salt.
Given the global nature of the crypto industry, it’s no surprise that these incidents are prompting Web3 projects and companies to consider moving elsewhere. Brad Garlinghouse, CEO of Ripple, which has its own legal battle with the SEC, has saying the crypto industry has already begun to move out of the US. Meanwhile, Coinbase, another SEC target, has identified the EU as their own escape route from alleged US hostilities.
With the widespread adoption of Web3 and a thriving investment scene to match, I am making the case for Asia as a major emerging competitor. In fact, it’s already attracting crypto businesses looking for a friendlier base to call home.
Asia’s Increasingly Competitive Crypto Hubs
Asia offers clearer regulatory frameworks, precedents for successful government and public-private partnerships, as well as the capital to support such an influx of Web3 projects.
While 98% of stablecoins are currently denominated in US dollars, I predict that will change as Asian countries offer more regulatory clarity on this point. For example, the Hong Kong Monetary Authority is introducing a compulsory licensing regime for stablecoin issuers. Meanwhile, Japan has promised to start accepting stablecoins in the near future. Three national banks have already Announced their plans to issue compatible stablecoins under the framework. And the Monetary Authority of Singapore has also proposed rules for stablecoins, in October 2022.
In addition to clear regulations, or at least the promise of upcoming frameworks, there are additional steps that Asian governments are taking to support Web3 development. For example, Japan’s national strategy has a Web3 componentand the South Korean government is even invest $200 million into their metaverse ecosystem. Hong Kong has also openly committed to establishing itself as a regional and even global crypto. centerleading many crypto companies including mine to investigate purchase virtual asset licenses in the city.
Asia’s Opportunity to Shape the Future of Crypto Finance
Ultimately, these examples show how an opportunity opens up for Asia to shape the future standard for stablecoins, as well as cryptocurrencies in general. Although there may be strict compliance requirements in the region, regulatory clarity is the best way to improve customer protection and prevent wrongdoing. Overall, an approach to regulation that encapsulates a willingness to collaborate, listen and work to protect customers without stifling innovation is key. Asia seems to be striking that balance. And that message is already beginning to spread.
Disclaimer: BTSE is an investor in CryptoSlate.
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