As investors and businesses look for clear regulations and welcoming environments, Asia is set to emerge as the ultimate victor in the United States’ battle against cryptocurrency. Amid regulatory uncertainty at home, crypto giants like Ripple, Circle, Coinbase, and Gemini are looking to expand in Asia.
However, this doesn’t mean the landscape is unregulated in the region with new regulations having been recently introduced in Singapore, Thailand, and South Korea, all of which recognise the importance of consumer protection and the need for clear regulatory guidelines as the way forward.
We explore the rise of crypto startups and DAOs in Southeast Asia
To find out more, we speak to David Lee, Liminal’s VP of Sales and Development. The Singapore-headquartered company is a leading digital wallet infrastructure and custody provider.
David gives his opinion about the current state of the industry in the region, as well as deeper insight into what the future could hold for the industry. Here’s what he had to share.
Can you give us a snapshot of what the global crypto industry looks like right now?
As of now, the global crypto industry is witnessing remarkable growth and transformation. In 2022, the market size of the digital asset industry stood at USD 4.67 billion, and it is projected to further increase to USD 5.15 billion in 2023. This trend is expected to continue, with an estimated compound annual growth rate (CAGR) of 12.5% from 2023 to 2030, pushing the market value to a substantial USD 11.71 billion by 2030. These figures demonstrate that the digital asset industry is still in its early stages of development, but it is progressing rapidly.
However, the industry has not been without challenges. Recent incidents involving FTX, Luna, and the Binance controversy have raised concerns, but certain Asian countries like Hong Kong, Singapore, and Japan have taken proactive measures. They have implemented robust regulatory frameworks and licensing regimes aimed at protecting investors and fostering a stable investment environment. These efforts are designed to rebuild investor confidence and address gaps within the industry.
Despite the inherent market volatility, opportunities for growth are present. Web3 companies are strategically concentrating on strengthening their core products and services to withstand market downturns. Additionally, they are actively developing solutions that comply with local regulations, positioning themselves for a competitive advantage in the future.
For the digital asset industry to progress positively, it requires a balanced regulatory approach that encourages technological innovations. Achieving this equilibrium will enable the industry to thrive and make significant contributions to the broader global economy. As the market evolves, continued attention to regulatory measures and technological advancements will be key to ensuring the industry’s sustainable growth.
Do you think that crypto consumers (exchanges and more) are able to gain back consumer trust post-FTX and Luna?
Post-FTX and Luna incidents, the digital asset industry has taken significant steps to regain consumer trust, and several developments have been instrumental in this process.
One notable factor is the introduction of European regulations that have instilled confidence among consumers. The European Union (EU) approved the MiCA law, which encompasses a comprehensive set of rules for crypto-asset markets. This marks a significant milestone as it is the bloc’s first regulatory framework for the crypto industry. On a global level, the G20’s Financial Stability Board launched basic rules for crypto firms, providing a solid foundation for countries to build upon if they choose to implement further regulations. The watchdog’s revision of recommendations for stablecoins in response to the TerraUSD/Luna coins’ demise also reflects the commitment to addressing potential risks and challenges in the industry. In fact, a recent survey by the Financial Conduct Authority (FCA) found that 40% of UK investors are more likely to invest in cryptocurrencies now that the FCA has published guidance on the risks associated with them.
Furthermore, individual crypto exchanges have taken proactive measures to rebuild trust. Many of them have implemented Proof of Reserve (PoR) systems, allowing users to independently verify that the exchange holds the amount of assets it claims to have. This transparency fosters confidence among consumers and showcases the exchange’s commitment to maintaining sufficient reserves.
Overall, these efforts demonstrate that the crypto industry is actively working to gain back consumer trust. The establishment of clear regulatory frameworks and the adoption of transparency measures by exchanges are positive steps towards rebuilding confidence in the industry. As these initiatives continue to evolve and gain wider acceptance, consumers can be more assured about the safety and reliability of crypto assets and exchanges. However, ongoing vigilance and adherence to regulatory standards will be essential to sustaining this trust in the long term.
With the new regulations in Asia, how does that actually support crypto growth in Southeast Asia?
The new regulatory efforts in Asia, particularly in Hong Kong, Singapore, Japan, and Indonesia, have played a crucial role in supporting crypto growth in Southeast Asia. These countries have taken significant steps to provide a stable and secure environment for digital asset businesses and investors.
Hong Kong has enacted various regulatory frameworks in licensing, customer due diligence, and technology risk management protocols to allow for the operation of licensed digital assets. The government encourages a pro-business environment, recognizing the need to balance investor protection, fostering innovation and attracting businesses and global investors.
Singapore has positioned itself as a global hub for digital assets and blockchain technology, the Monetary Authority of Singapore (MAS) administered a licensing regime for digital asset platforms, providing clarity and legal certainty, and promoting safeguards against fraud and illegal activities. Singapore recently announced that it would need crypto service providers to separate customer funds into a trust, in a bid to at risk manage misuse and loss.
Japan’s government passed the Payment Services Act (PSA) in 2017, that classified Bitcoin and other virtual currencies as legal assets, making Japan one of the first countries to recognize cryptocurrency as a legal investment. The FSA has a strict regulatory framework that ensures the security of investors, whereas licensed cryptocurrency exchanges operate under strict management, promoting transparency and accountability. These initiatives are geared towards stronger consumer protection, data security and more. The clear regulation frameworks boost consumer confidence and further encourage adoption.
Indonesia is also taking steps to safeguard individuals and businesses in the cryptocurrency ecosystem. The Financial Services Authority (OJK) has issued regulations mandating cryptocurrency exchanges to store customer funds with licensed custodians meeting stringent security requirements. By implementing these regulations, Indonesia aims to protect customer funds from theft and fraud, fostering a safer and more reliable crypto environment.
Overall, these new regulatory initiatives in Asia create a conducive environment for crypto growth in Southeast Asia. By providing legal clarity, risk management measures, and consumer protection, these countries attract investments, encourage innovation, and build confidence among users and investors in the digital asset space. As the implementation of these regulations progresses, the crypto industry in the region is likely to continue flourishing.
Extensive regulation does limit the appeal of crypto for a mass audience, how do you think Southeast Asian consumers will react?
Highlighting the importance of balanced regulation, local governments and regulators should take a consultative approach towards regulation, ideally from lawmakers and industry experts, through private and public collaboration. Global governments should work towards a unified approach, fostering innovation while closing loopholes.
However, the current challenges for regulators trying to find a balance between technology advancements and safeguarding investors include:
- Classification of the decentralized nature of crypto within an existing framework is a complex task to unify digital currencies and traditional financial definitions.
- Enforcement of illegal activities with crypto’s anonymous nature
- Cross-country legal harmonization to ensure investor protection standards
As these regulatory challenges are addressed over time, Southeast Asian consumers should feel more confident in the digital asset industry, leading to increased participation in the market. Nonetheless, it’s important to acknowledge that finding the right balance between regulation and innovation is a process that may take time to achieve. Striking the right equilibrium will be crucial in ensuring that the industry can grow sustainably while safeguarding the interests of consumers and investors alike.
What’s next for Liminal?
We are focusing on APAC and MENA regions as the market is currently evolving with huge potential. The regulatory requirements are very clear and straightforward in many of these regions. Further, we have developed a decent reputation in these markets as we have been in the industry for quite some time. We understand this market better because of our proximity to the region, and we can serve it much better than existing solutions focused on Western regulations.
After becoming a regulated identity and achieving Trust or Company Service Provider (TCSP) license from the Hong Kong Companies Registry, we are working on getting licenses in several regions, including Singapore, and UAE. Being a licensed entity establishes us as a trusted, compliant, responsible custody player in the region. We are in discussions with several businesses in the region that need compliant and efficient wallet infrastructure.
We have a dedicated research and product team that focuses on continuous innovation and product development. Further, inputs from our existing customers play a big role in shaping our product roadmap. In the future, our focus is to come up with products and features that bring in efficiencies for our customers and at the same time make their wallet operations more robust, compliant and secure. We are also working on whitelabel solutions to improve our market penetration.