By Ramya Raghavan
The digital asset economy dominated by Bitcoin has seen a meteoric rise in value over 2017. Although exchanges in the United States are the first to offer the Bitcoin futures contract, the real stimulus to cryptocurrency trading, measured in volumes, originated in the East. The largest share of the digital asset demand stems from regions in Asia, despite various countries having caught the cryptocurrency fever. Countries like Japan, South Korea and Singapore have led the cryptocurrency economy.
Central banks are still reeling from the idea of digital currency and the implications of this new technology. While adoption of high-tech financial infrastructure can provide impetus to economic competitiveness, giving citizens enhanced freedom without regulations may endanger the integrity of the country’s own fiat money. Central banks and governments across the world have a wide range of stances, from apprehension and fear to large-scale acceptance.
An alternative currency
Contrary to the notes or coins which are tangible in your pocket, Bitcoin is a form of an alternative, digital, currency that primarily exists online. The most notable feature of Bitcoin is that it is not printed by the government or traditional banks. This results in an important implication for users of bitcoin—it cannot be used to settle debts or pay taxes, as it is not recognised as ‘legal tender’.
Bitcoin finds its origins in a complex process called ‘mining’ and is further monitored through a network of computers worldwide. With about 16.5 million Bitcoins now in circulation, there are about 1,800 new bitcoins a day. Like all other currencies, Bitcoin derives its value from the amount that people are willing to buy and sell it for.
Bitcoin usage in Asia
Bitcoin emerged after the global financial crisis. It has grown to become popular owing to millennials—who are distrusting of financial institutions—and also by criminals, money launderer,s and drug dealers. Previous bubbles, such as the late 1990s ‘Dotcom Boom’, has attracted large institutional investors, with retail investors entering at later stages. However, with Bitcoin, individuals are getting in early, and large financial institutions appear to be guarded.
With rising individual wealth in the Asian region, especially in China and Korea, individuals feel empowered to seek opportunities that are more lucrative than the traditional investment portfolio, comprising of stocks, bonds and real estate. The millennial generation has grown up with technology—smartphones and internet access—that has enabled them to be at ease with the concept of cryptocurrency.
The Asian rise in Bitcoin usage can be attributed to a perspective shift. Most households now view Bitcoin as a quick way to make money and safeguard savings against low-interest rates and political crises. For instance, in Japan, the low or zero-interest rate environment encourages individuals to invest in Bitcoin. Similarly, economic uncertainty in South Korea due to the North Korean crisis resulted in a surge in Bitcoin trade volume in the country. It also goes in line with the stereotype of Asians possessing a ‘saving’ mindset.
China’s Bitcoin fall
With Chinese investors making up at least 80 percent of Bitcoin ownership initially, regulators in China expressed concerns over the large outflow of funds. As a result, China banned online trading platforms from trading digital assets against the renminbi and also outlawed initial currency offerings (ICOs). After the action undertaken by the People’s Bank of China, over-the-counter Bitcoin markets have witnessed a significant increase in volumes. With China’s central bank clearly taking a stance against cryptocurrencies, most exchanges have relocated operations to Hong Kong.
Bitcoin regulation and Asia
By shutting down online exchanges where Bitcoins are traded and banning new virtual currency launches, China has reduced the volume of Bitcoin trade in its economy. However, the benefit of this action has been reaped by Hong Kong, a country popular for its Fintech innovations this year, as it emerged as one among the global leaders within the blockchain economy. For instance, PricewaterhouseCooper’s Hong Kong office accepts Bitcoin as a means of payment for its financial management services. Hong Kong authorities have been relatively welcoming towards Bitcoin and the digital asset economy, but have issued a warning concerning ICOs.
In South Korea, cryptocurrency action has been booming as exchanges have swapped large cryptocurrency volumes. The authorities have banned ICOs and publicly voiced their concerns about investor frenzy over cryptocurrency. Stricter identity requirements for participants have been instituted, but these measures are yet to reduce the Korean volume of Bitcoin trade. Currently, officials are in the midst of drafting regulatory legislation. Following China and South Korea’s suit, Vietnam banned Bitcoin and alternate digital currencies as a means of payment. Indonesia has gone a step further and banned all Bitcoin transaction.
Authorities in India are considering regulation. Although Bitcoin trading volumes have increased in India, the Reserve Bank of India (RBI) has demonstrated a cautious attitude towards cryptocurrency platforms, owing to fears of a spike in terrorism financing, money laundering, and tax evasion. It has issued its third public warning about the risks of trading in cryptocurrencies.
Singapore, which previously had a moderate tone on cryptocurrencies, has issued a warning, advising its citizens to exercise caution as they take on “significant risks” should they choose to invest in Bitcoin. Investors, however, have not stopped trying their luck. Japan has fully legalised cryptocurrencies and was the first Asian country to recognise Bitcoin. A Japanese firm recently announced that a portion of their employee salaries would be paid in Bitcoin.
Setbacks for the Bitcoin
With time, Bitcoin has lost one of the main features of a currency, as it is not being used as a means of exchange. Bitcoin’s future appears turbulent as there is growing evidence regarding its high energy use. An estimate reveals that more energy is consumed in the process of mining new Bitcoins and recording Bitcoin transactions than by Ireland. According to several regulators, Bitcoin’s run looks unsustainable—both environmentally and economically.
Despite backlash from some governments, Asian retail traders drive the demand for Bitcoins. With cryptocurrency exchanges freely open for trade in Japan, Singapore, Hong Kong and Thailand, there is no doubt that Bitcoin and digital assets, in general, are booming in Asia. More regulation is likely to follow in 2018 as the market expands.
Featured Image Source: Pixabay
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