Crypto firms should look East for growth opportunities as USD dominance wavers
The following is a guest post from BTSE CEO Henry Liu.
Every day it seems there are new headlines highlighting the wavering dominance of the U.S. dollar as the world’s reserve currency. At the same time, U.S. regulators are making it clear that USD-pegged stablecoins aren’t welcome in the world’s largest economy. With the future of both the fiat and crypto side of the equation looking uncertain, crypto companies especially are starting to look overseas to hedge their bets, or even to flee scrutiny themselves.
This is creating a once-in-a-lifetime opportunity for Asia to step into the gap. The region is leading the way in developing globally competitive cryptocurrency regulations, and that’s not to mention building globally competitive economies too. As such, Asia offers a well-developed and highly diverse environment for crypto companies to thrive. If they haven’t already, crypto firms should look East for their next growth opportunities.
USD’s Lessening Dominance In World Trade
USD official foreign exchange reserves have been shrinking for some time. As seen in the BIS Second Quarterly Review in 2022, the USD accounted for less than 60% of official foreign exchange reserves, its lowest share in the past 20 years.
The USD is also losing popularity as a currency for international payments, which has allowed other currencies to narrow the gap in global usage. For example, Russia announced it will support settlements in Chinese yuan when trading with Asian, African and Latin American countries. Saudi Arabia has overtly expressed that it would be open to trading in currencies beside the U.S. 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 rupee-riyal trade as part of efforts to boost economic ties between the nations. And that’s not to mention rumors of a new BRICS currency, which would possibly be a central bank denominated currency. And at the same time Malaysia, Indonesia, Singapore and Thailand have set up systems for transactions between each other’s nations in their local currencies rather than the US dollar.
The greenback is still the world’s reserve currency. And the US economy is the world’s largest market by some way. Yet it seems there is payments innovation gaining pace on the fringes, which is paving the way for a more multipolar payments ecosystem. And that’s got crypto firms thinking about the alternatives on the table.
“Operation Choke Point”
At the same time, the U.S. hasn’t yet figured out its stance toward crypto regulation. The lack of regulatory clarity has not only slowed mainstream adoption of new technologies, but also innovation in digital payment options. That’s potentially cutting off consumers and businesses from more competitive payments services.
Crypto commentators are dubbing the latest round of regulatory scrutiny as “Operation Choke Point 2.0,” reminiscent of an earlier crackdown on fraud and money laundering in U.S. banks. The SEC’s recent stablecoin purges have proven potentially fatal for crypto 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 beef with Binance itself for alleged trading and derivatives laws violations. Kraken was charged with failing to register its crypto asset staking-as-a-service program, resulting in the program shutting down. Furthermore, the SEC is now suing Tron founder and Huobi-backer, Justin Sun, with allegations of selling and airdropping unregistered securities, fraud and market manipulation.
There’s also increasing regulatory pressures on banks with exposure to crypto business. The recent collapses of several crypto- and startup-friendly banks has been described by some as a “controlled demolition” instigated by regulators, though I take that theory with a pinch of salt.
Given the global nature of the freewheeling crypto industry, it’s no surprise that these incidents are prompting Web3 projects and companies to consider relocating elsewhere. Brad Garlinghouse, CEO of Ripple – which has its own legal battle with the SEC – has said the crypto industry has already begun to move outside of the U.S.. Meanwhile Coinbase, another SEC target, has identified the EU as its own escape route from perceived U.S. hostilities.
With widespread Web3 adoption and a thriving investment scene to match, I’m arguing for Asia as a major emerging contender. In fact, it’s already attracting crypto firms 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 U.S. dollars, I predict that will change as Asian countries offer more regulatory clarity on this point. For example, Hong Kong’s Monetary Authority is introducing a mandatory licensing regime for stablecoin issuers. Meanwhile Japan has vowed to start accepting stablecoins in the near future. Three domestic banks have already announced their plans to issue compliant stablecoins under the framework. And the Monetary Authority of Singapore as well has proposed rules for stablecoins, back in October 2022.
Besides clear regulations, or at least the promise of upcoming frameworks, there are additional steps governments in Asia are taking to support Web3 development. For example Japan’s national strategy has a Web3 component, and South Korea’s government is even investing $200M in its metaverse ecosystem. Hong Kong has also vocally committed to establishing itself as a regional, even global crypto hub, driving many crypto firms, including mine, to look into acquiring virtual asset licenses in the city.
Asia’s Chance to Shape the Future of Crypto Finance
Ultimately, these examples show how an opportunity is opening up for Asia to shape the future standard for stablecoins, as well as crypto in general. Even though there may be strict compliance requirements in the region, regulatory clarity is the best way to improve customer protection and prevent wrongdoing. In general, 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 getting that balance right. And that message is already starting to spread.
Disclaimer: BTSE is an investor in CryptoSlate.
