(Bloomberg Opinion) -- Asia is quickly becoming the new center of gravity for cryptocurrency markets.
Bloomberg's Most Read
As US regulators sued three major cryptocurrency exchanges this year, billions of dollars in trading volumes have migrated to Asia. That shift could be about to accelerate as market makers and exchanges move resources into a region where various jurisdictions have introduced regulatory frameworks and compete for dealers in digital assets.
Investors and markets flock to Singapore, Japan and South Korea, and most recently Hong Kong, which this month introduced a new regulatory regime for cryptocurrencies. Bitcoin trading activity in predominantly Asian hours has increased this year even as it plunged in US and European hours, data compiled by CryptoQuant shows. The token accounts for almost half of the total market value of cryptocurrencies.
The resilience in Asian crypto volumes is supported by institutional investors who perceive the regulatory environment there as less risky, according to several market participants interviewed by Bloomberg.
โWith so much regulatory uncertainty in the US, Asia has become an increasingly important hub for digital asset activity,โ said Jonny Caldwell, who focuses on alternative investments, including cryptocurrencies, as co-head of managing of assets in Trovio Group. โWe are seeing a major shift towards Asia-based exchanges and venues in recent months.โ
What makes the change even more remarkable is that it has come even as cryptocurrency trading remains banned in China, while India imposes draconian taxes that have undermined activity there. The two countries together account for more than half of Asia's population, so they present a great opportunity should their policies loosen.
โThe new user base in Asia is huge,โ said Chuan Jin โCJโ Fong, head of sales for Asia-Pacific and Europe, Middle East and Africa at crypto-market builder GSR Markets. Fong said he expects trade to continue to shift from the US, and to a lesser extent Europe, to Asia.
The shift to Asia was underway even before the US Securities and Exchange Commission, under Chairman Gary Gensler, launched a far-reaching crackdown earlier this year. Bitcoin and Ether reserves, an indicator of where traders are moving their assets, plunged on US-based exchanges following the FTX crash in November.
That trend continued this year when the SEC filed lawsuits against Gemini, Binance, Coinbase and Justin Sun, the entrepreneur who runs Huobi Global. The agency also indicated that it considers at least 19 digital tokens as securities, which means they should fall under its purview. The SEC's proposed designation triggered a sharp selloff of those coins.
Read More: Why Crypto Cringes When SEC Calls Coins Securities: QuickTake
While Europe has made leaps and bounds in regulating cryptocurrencies, the EU-wide Crypto Asset Markets regime will not come into effect until it starts in 2024. The UK, which is formulating its own rules for crypto assets, said this month that would ban "referring." bonuses from a friend that are popular in the industry as part of stricter regulations on the trading of digital assets.
Binance's global market has been flat since April, even as its share of trading euro pairs plummeted, according to researcher Kaiko. On June 16, the company said it would leave the Dutch market after failing to register there. On the same day, the French authorities said they were investigating Binance.
Binance.US, a separate entity serving US traders, has seen its market share all but evaporate following lawsuits by the SEC and the Commodity Futures Trading Commission.
It is difficult to estimate the market share for Asia because the various crypto centers use different fiat trading pairs. But โBinance has had a historically strong user base in Asia,โ said Clara Medalie, director of research at Kaiko.
The changing tides have sparked a headlong rush by exchanges and other market participants to expand in Asia, even as they shrink in the US. Since November, Binance has entered Japan and South Korea through acquisitions. Their Thailand joint venture, Gulf Binance, received local licenses last month and will begin operations in the fourth quarter.
Gemini, which has sought to dismiss a lawsuit filed by the SEC in January, said Monday that Singapore will be its hub for the Asia-Pacific region and announced plans to increase the number of employees in the city-state to more than 100 in the next 12 months.
FalconX, a major San Mateo-based digital asset broker, plans to expand in Asia and applied for a license in Singapore, said Matt Long, the firm's general manager for APAC.
โWe see a lot of appetite for over-the-counter cryptocurrency derivatives from family offices, owner-traders and hedge funds in Singapore and Hong Kong,โ Long said. "Derivatives will be a main driver for digital asset trading and we expect Asia to lead the growth."
Bloomberg Businessweek Most Read
ยฉ2023 Bloomberg L.P.
