Asia has Lessons for America’s Blockchain Sector

Bitcoin is enjoying a surge in value this year due to COVID-19 fears and increase accessibility. The digital currency’s appeal has been boosted by-products like Bitcoin ATMs (BTM) that have been installed across the globe. Yet across the US, blockchain start-ups are struggling under the weight of unclear regulations and are eyeing Asia as an alternative. 

Shifting markets

While stock markets rallied following the news of Pfizer and BioNTech’s vaccine effectiveness and the US election result, markets are still uneasy as Europe and the US continue to be dragged down by spiking infection rates – any vaccine would also be several months away from the final delivery.  

The stay-at-home companies that defined the COVID era are beginning to lose steam as stock market investors shift from tech into more long-term growth options like banks. Meanwhile, the precedent for high returns established after the March rebound has pushed many investors into cryptocurrency markets – they are trading at record volumes. Traders who saw 200%-500% returns in Tesla, Zoom, and Netflix are now turning to Bitcoin and DeFi (decentralized finance) markets to find similar returns.  

It’s easy to see why Bitcoin is a strong contender. Its bull run that began in March has yet to subside and many analysts are expecting it to go beyond its record high of 2017.

It could even challenge gold as a ‘safe-haven’ investment. Just this week, investment bank JP Morgan described Bitcoin’s potential long-term upside as “considerable as it competes more intensely with gold as an ‘alternative’ currency” and that it was becoming an “important component of investors’ universe”.

While Bitcoin has had its fair share of downturns, its growth trajectory is predicted to continue as demand remains unabated.

Underscoring this demand are BTMs that serve the hundreds of millions around the world without sufficient access to a bank account. So popular are these machines now that over 12,000 of them have been installed worldwide as consumers seek more convenient gateways to access cryptocurrency markets. These machines, as convenient as using a traditional ATM, undercut the exorbitant charges and restrictions that plague the traditional banking sector – and allow users to share in Bitcoin’s upside.

In the US, for example, African Americans and Latinos are said to be paying higher fees in the traditional banking system than white Americans. According to research produced by Bankrate, average bank fees were around $5 a month (which includes overdrafts, ATM charges and penalties), yet people of color were paying anywhere between $12 and Hispanics $16 a month on average.

Digital currencies can do much to transform the banking sector for those who have trouble accessing it because of the benefits of their decentralized structure – i.e. minimal fees, security, and equality by design. Advocates of crypto finance keen on promoting the benefits for the underbanked. Ben Weiss, COO of CoinFlip, the world’s largest Bitcoin ATM operator, says his company aims to empower those who have no access to centralized banking systems.

Despite the benefits and potential to democratize finance, US regulators are slow to introduce clear regulation that could allow the crypto industry to flourish.

This reluctance is due, in part, to the negative reputation cryptocurrencies garnered after they were used by criminals on the Silk Road marketplace, the Darknet, and other platforms that allowed the financing of terrorists, drugs, and money laundering.  

With its hesitancy over creating a crypto-friendly environment, America runs the risk of being left behind. Some Asian countries have noticed the benefits and have, in turn, established clear regulations that have allowed the industry to flourish.

Singapore, for example, appears to have struck a regulatory balance that will keep illicit entities in check while allowing legitimate operators to conduct their business. In January, it introduced the Payment Services Act 2019 (PSA) covering all crypto businesses under AML (anti-money laundering) and CTF (counterterrorist) rules.

Even before it introduced regulation it always kept a keen eye on blockchain business and crypto activity.

The country is now considered to be in a good position to lead crypto growth globally as its regulatory stance, along with its reputation as a financial hub, is set to attract more start-ups and exchanges.

Other Asian countries have made great strides too. South Korea is considered to have one of the most comprehensive cryptocurrency laws in the world. In March, it passed a bill to regulate cryptocurrency and exchanges. Two years ago – to prevent money laundering and other criminal activities – the country introduced the ‘Real Name System’, which banned the use of anonymous bank accounts.

In Japan, exchanges and operators must get a regulatory license. Japan currently has 23 FSA (Financial Services Agency) approved exchanges and its rules have prompted an exodus of unlicensed exchanges.

Recently, Hong Kong’s Securities and Futures Commission (SFC) announced the regulations of crypto trading platforms operating in the region. Some of the world’s largest exchanges operate in Hong Kong.

While Asia is steaming ahead some US blockchain firms, such as CoinFlip, are keen on seeing similar progress on US soil and are advocating for a more business-friendly environment.  

Just recently, Weiss and the Blockchain Advocacy Coalition gave their backing to legislation in California that would set up the state as a cryptocurrency hub. Weiss has also played a role in progressive legislation in New Jersey.

So, what can the US do? To take back some control and compete with Asia, the US must establish clear regulations that do not restrict innovation. Regulations must also provide clarity so businesses can operate stateside with confidence.

As America ponders its options, its innovators and job seekers end up losing out. Weiss states “regulations in the US are required not just to protect consumers, but to spur innovation as several institutional and retail investors realize the risk of not having some Bitcoin in their balance sheets.”

America has typically been the jurisdiction of choice for setting up large multinational tech companies. But this is about to change – the next major ‘Apple’ or ‘Amazon’ will establish its roots in Asia instead.

If the US continues to delay the creation of a crypto-friendly environment it stands to lose out on major talent and investment potential – if it hasn’t done so already.