Babel Finance: Current status and Prospects of Crypto Asset Management in Asia

原文标题：《 Babel Finance: 亚洲加密资产管理现状与展望 》

原文作者：  Peter Guo，贝宝俱乐部

This article is based on the author's independent research and analysis and judgment. It is for reference only and does not constitute any investment advice. Babel Finance assumes no responsibility for the reader's use of this article or for any consequences arising therefrom.    

The Asian crypto financial market has been developing amid the conflict between strong government regulation and private self-growth. In China & have spent 2021 began to crack down on crypto mining and trading, "CHOYNA" gradually disappeared in the crypto community, last year accounted for 43% of the global crypto trading volume in Asia, this year has fallen to 35%, at the same time, the rise of the investment boom in European and American crypto institutions, began to dominate the crypto market. Despite this, crypto market participants in Asia are still innovating, and new trends and orders are emerging in the Asian market. In this context, we have a special interest in Asia. 2021  To sort out the overall development of crypto asset investment in the past year, focus on the development differences of various countries, the focus of interest of Asian investors, and analyze the challenges facing the Crypto asset industry in Asia, hoping to provide meaningful reference for investors to invest in the New Year.

The key points

- A basic pattern of strong regulation in East and South Asia, soft regulation in Southeast Asia, mining in Central Asia and lagging regulation in West Asia is taking shape in Asia.

- Singapore and Hong Kong are emerging as Asia's cryptographic hubs thanks to their location.

- Barriers to the development of crypto asset management in Asia, mainly due to vague regulatory fluctuations and lack of infrastructure, are gradually being removed, despite wide variations across countries.

- Asian investor interest in cryptocurrency continues to rise, institutional users prefer to allocate mainstream coins or related tracking assets, and ordinary users are bifurcated, with Southeast Asia likely to lead the GameFi market.

- According to many reports, The potential of crypto asset management in Asia is huge and the growth rate will remain the first in the world.    

directory

- Market Overview

- Asset management: Venture capital and hedge funds dominate

- Investor group: increased institutional acceptance, retail influx; GameFi

- Compliance: Singapore and Hong Kong are currently leading in Asia

I. Market overview

In 2017, Asian investors were the main drivers of bitcoin's price rise. But in & have spent Asian investors have fared slightly worse in the 2020-2021 bull market, trailing their COUNTERPARTS in Europe and the US by a large margin in terms of the number and size of participants and average estimated returns. But in the regulatory framework areas are clear and well. The emergence of NFTs and GameFi comes at a time when the new crypto financial pattern in Asia is being rebuilt. The Asian market, which accounts for 60% of the world's population, has initially formed a basic pattern of strong supervision in East and South Asia, soft supervision in Southeast Asia, lagging in West Asia and mining in Central Asia.

1. Regional pattern

East Asia, South Asia: In 2021, East Asian countries, represented by China and South Korea, continue to crack down on the cryptocurrency industry, while Indian regulation has repeatedly fluctuated. Chinese miners, who once accounted for more than 60% of bitcoin's global computing power, are heading out to sea, and East Asia will be the most heavily regulated region for crypto for a long time to come. Except, of course, Hong Kong and Japan, which we'll discuss in more detail later.

Despite this, East Asia still firmly holds the largest share of the Crypto financial market in Asia, while South and Southeast Asia have great potential for scale growth.

Southeast Asia: There are many regional differences in Southeast Asia, but cryptocurrency penetration is growing fastest, with the Philippines consistently leading the way in computing power and Singapore's crypto finance sector growing rapidly. The GameFi boom of 2021 has also driven crypto investment enthusiasm in the region.

Central Asia: The central Asian countries represented by Kazakhstan, which have abundant and cheap natural gas resources, have taken over some of China's computing power, which is second only to the United States in Central Asia and the Russian Far East.

West Asia: West Asia, with the exception of Iran's presence in the mining sector, has seen a near-standstill in the crypto industry, with no bright spots worth paying much attention to at present.

2. Industry pattern

Asian crypto companies/projects are in a priority position in mining machinery, exchange and other areas with significant short-term profits, but there is a significant gap in infrastructure (such as public chain), asset management and other aspects compared with Europe and the United States. An obvious proof case is that DeFi, NFT and public chain competition are all dominated by American enterprises, while GameFi in the hot Paly to Earn mode is the first to prevail in Southeast Asian countries in 2021.

Key Player in Asian crypto Finance & NBSP; Figure 1 Source: Babel Finance collates self-disclosure information

In terms of investment and management of crypto assets, different cultures and regulatory differences limit the expansion of borderless crypto technologies and products, which imposes many constraints on crypto asset management in the aspects of registration, issuance and investment. However, the penetration rate of cryptocurrencies in Asia is still rising rapidly and is the highest in the region. The crypto asset industry has potential breakthrough space, which we will discuss in detail below.

Global Cryptocurrency Adoption Index distribution & NBSP;   Figure & have spent 2 Source: Chainalaysis

Second, asset management: venture capital and hedge funds dominate

1. Asian crypto funds are growing fastest, gathering in Hong Kong and Singapore

According to & have spent Global crypto assets under management will grow at a compound annual growth rate (CAGR) of 21.5% from 2021 to 2026, with North America still taking the largest market share but Asia-Pacific growing fastest, according to a report by MarketsandMarkets.

Research And Markets is more optimistic, noting that the global blockchain technology market is expected to grow at a cagR of 82.4% between 2021 And 2028, reaching an estimated $394.6 billion by 2028. The report also mentions that the increasing adoption of blockchain technology in emerging economies such as China and India will create growth opportunities for market participants in the Asia-Pacific region during the forecast period.

Regional Growth Comparison of global Digital Asset Management scale & NBSP;   Figure & have spent 3 Source: MarketsandMarkets

As we mentioned in the introduction, Asia has the world's largest emerging economy, the traditional habit of high savings rate and stable fintech development background, and has a very large space for the growth of cryptographic market. Singapore and Hong Kong have gradually become the Asian cryptographic center.

Meanwhile, we call PwC in 2019 and Crypto Fund & NBSP; When Research compared the data in 2021, it found that the global share of the number and size of Asian crypto funds did not fluctuate significantly, and remained concentrated in Singapore and Hong Kong. As shown in the chart below, there are 125 crypto funds in China (including Hong Kong) and Singapore as of Q3 2020, accounting for 15% of the total statistical sample.

Distribution of Crypto Funds by Country & NBSP;   Figure & have spent 4 Source: Crypto Fund Research

2. Crypto funds: mainly venture capital and hedge funds

In Asia, crypto Investment funds are mainly Venture Capital funds (VC) and Hedge funds, with a small amount of Investment Trust and Private Equity (PE) funds. There are even fewer offexchange Fowards/ swaps, bond funds, The emerging exchange traded funds (ETFs), exchange traded notes (ETN), exchange traded managed funds (ETMFs), exchange listed structured products (SP), exchange traded instruments (ETV), exchange traded commodities (ETC) are more rare.

In general, the number of native crypto funds in Asia is not large. It is common for traditional funds to participate in crypto venture capital, and institutions that are deeply invested in crypto tend to implement equity investment and Token investment in parallel.

1) Venture capital funds

In general, Asia has the largest number and scale of crypto venture capital funds, mainly due to clearer and improved provisions on equity investment protection under the current legal and regulatory framework, and the rapid development of fintech in East and Southeast Asia and unique geographical conditions.

Asian crypto equity investment institutions are mainly concentrated in East Asia and Southeast Asia, and more than half of them are set up in the form of funds. According to our incomplete statistics, as of & NBSP; In November 2021, there were about 542 institutions participating in crypto equity investment in Asia, which were successively distributed in China (223, including Hong Kong, Macao and Taiwan), Singapore (117), India (48), Japan (36) and Vietnam (36).

To minimise friction with regulators, such funds are often closed-end and co-invested, such as   Sino Global has used its own capital to invest in more than 20 crypto start-ups before starting a $200m public offering last year with the backing of FTX.

More well-known are Fidelity Asia Venture Capital (FAV), CONSENSUS Capital (S. Capital), Fenbushi Capital, Node Capital, Spartan Group, Alameda Research, etc.

Sequoia China investment & NBSP; 14 blockchain projects; Table 1 Source: Science and Technology Innovation Board Daily

风险投资基金对加密项目的投资一般以长期持有股权为主，少量接收有锁定期约束的 Token 。根据我们的观察，很多风险投资基金背后有其它大型机构的投资，并且这些风险投资基金很多时候联合一起投资项目，这样的投资背景和合作方式有助于风险投资基金获取强大的信息采集和辨识能力，并增加对所投项目的话语权，同时也能在社区治理、营销推广、早期流动性供应和业务发展等方面帮助加密项目。

2) Hedge funds

The structure of crypto hedge funds is very similar to that of traditional hedge funds. It mainly uses some leveraged trading strategies, such as quantitative trading, arbitrage, long and short, to create funds for high net worth individuals and institutional clients. Alpha or above-market returns.

Crypto hedge funds in Asia are operating cautiously, given the lack of support channels for capital entry and the uncertain regulatory environment in the region. The US has taken over spot pricing of cryptocurrencies following a series of Crackdowns in China, but Asian funds remain important in the derivatives market thanks to the prevalence of highly leveraged contracts offered by Chinese-backed exchanges.

Similarly, Asian crypto hedge funds are mainly concentrated in East Asia and Southeast Asia, which are inferior to North America and Europe in number and scale. We integrated it. According to Crypto Fund Research and Dove Metrics, Crypto hedge funds in Asia are mainly distributed in China, Singapore, Vietnam and other places. The Middle East also accounts for 2.5% of the global Crypto funds. This may be due to 3iQ's NASDAq-listed ETP product, QBTC.

Global Crypto Hedge Fund market Change figure 5 source: Dove Metrics

Registered issue:Due to the regulatory requirements of the fuzzy and sensitive regulatory environment, Asia's encrypted registration issue than equity funds of hedge funds is more conservative, most in the regulation of closed state, only small amounts only to qualified investors for funds, such as Huobi - Asset for Hong Kong's securities and futures commission (SFC) awarded the class 9 (Asset management) licence, It has issued four compliance funds, namely Bitcoin Tracker Fund, Ethereum Tracker Fund, Active Multi-Strategy Virtual Asset Fund and Multi-Asset Fund.

Some publicly offered Bitcoin funds filed in Asia. Table & have spent 2 source: Babel Finance collated from publicly available information

In addition to dedicated crypto-themed funds, non-crypto focused funds may also participate in cryptocurrency investment, but there are no public cases.

Subscription and Redemption:Registered crypto hedge funds generally require qualified investors to pass anti-money Laundering (AML) and Know your Customer (KYC) to subscribe, and each fund has different rules for redemptions.

Charges:According to & have spent According to the PwC 2021Q3 digital currency hedge fund report, the median crypto hedge fund charges are 2% management fee and 20% performance fee, which is consistent with the data in the 2019 report, but the average performance fee increases from 21.1% to 22.5%. This means fund managers are rewarded with higher returns from the bull market.

The fee rules generally apply to Asian situations, such as Hong Kong's   BBshares and Singapore's Kryptos Alpha use the traditional 2/20 fee principle. Bgbf-1, the first compliant bitcoin fund in Southeast Asia, charges an annual management fee of 1.5 percent. Most decentralized microfunds waived subscription fees and directly agreed on a profit sharing ratio.

Investment object:In our survey, we found that the investment targets of local crypto hedge funds are no different from those in Europe and the United States. The main investment directions are:

Mainly cryptocurrency spot (passive management), with the highest adoption rate of BTC and ETH, and some BNB, LINK, LTC, DOT, AAVE, etc.

Cryptocurrency derivatives and their combinations, including options, swaps and contracts for difference arbitrage, hedging, high-frequency trading, etc., such as & NBSP; Babel Finance has introduced structured products of hedged "sharkfin" options contracts for miners;

Investment in Staking and Lending/Borrowing products, including proprietary mortgages, zero-interest loans, overnight loans, cash leverage, or capital matching products. The Fintonia Secured Yield Fund, published by Singapore's Fintonia Group, for example, invests by lending stablesoins to lenders, who are Secured by bitcoin.

There are also a small number of funds investing in cloud computing power, securitised products and other directions.

Invest in cloud computing power or mining machine support for miners. Cloud computing power, soon to   Mining computing power based on POW mechanism is securitized and packaged, and divided into future products that use mined cryptocurrency as income distribution;

For cryptocurrency-related public company stocks or coupon income bonds. For example, in & have spent In August 2017, Fisco, a Japanese financial information company, issued the country's first bitcoin-backed bond.

Investment Strategy:On investment strategy, is different from the compliance funds hold for the long term plan of North America, Asia's lack of encryption funds in a strict limit positions such as filing, financial auditing, tax payment specific environment, so how to take a broader short-term trading assets, including buying, market, arbitrage and hedge strategy and its combination, thus formed the net type, fixed type two kinds of products.

The four most common strategies for crypto hedge funds   Figure & have spent 6 Source: PwC

Iii. Investor group: Institutional acceptance increases, and retail investors flock to GameFi

1. Investors' interest doubled and entered in succession

Cryptocurrencies in & NBSP; The year 2020 has seen a surge of interest from Asian investors. It is clear that, despite the current compliance hurdles, Asian investors are still actively engaged in crypto.

In fact, cryptocurrency adoption in Asia is not that lagging. According to & have spent According to bitcointalk.org, Chinese currency holders account for 1.5 percent, followed by Japan, Thailand and Indonesia, which account for about 1 percent, second only to english-speaking countries.

According to the survey data from Fidelity, Chainalysis, financial comparison website Finder and other institutions, the collection rate of cryptocurrencies in Asia, especially asean countries, is higher than that in Europe and the United States, and the acceptance rate of cryptocurrencies among ordinary users in Vietnam, India, the Philippines, Indonesia, Hong Kong, Malaysia and other places is at the top. The main driver is not the flight to safety from social unrest as in Latin America and Africa, nor the fight against inflation or tax relief as in Europe and America, but more the convenience of crypto trading and FOMO sentiment in pursuit of bull market profits.

In the early & have spent Cryptoassets in Asia -- Consumer Attitudes, Behaviours and Experiences, a 2019 OECD report, surveyed three Southeast Asian countries -- Malaysia, the Philippines and Vietnam. More than 68% of respondents invested in crypto assets, accounting for more than 5% of the total.

Percentage of assets invested in cryptocurrencies by people in sample countries.   Figure & have spent 7 Source: OECD

Some of the more stark numbers point to an accelerating pace of crypto allocation by Asian investors.

According to the Indonesian Stock Exchange. According to Bappebti, there are currently 4.45 million cryptocurrency investors in the country. An estimate by Indonesia's Trade Ministry is even more optimistic, putting the country at 6.6 million cryptocurrency investors as of June 2021.

According to IGA Works' Virtual Currency App Market Analysis report released in April 2021, the number of users downloading virtual currency apps in South Korea has reached 3 million, and 60% of them are newly emerging crypto investors, who are investing in Bitcoin and "top 10 shanzhai coins by market capitalization." The amount is under $100.

According to & have spent According to jpBitcoin data from 11 local crypto exchanges in Japan, nearly 6,000 BTC were traded in 24 hours, of which 13.67% were traded in yen. Thanks to the entry of Mrs. Watanabe, who is good at financial management, and a strong anime culture, NFT is growing rapidly in Japan. An online survey by BitBank shows that 26% of Japanese crypto investors own NFT.

GameFi was the first to explode in Southeast Asia in 2021, and the number of encrypted users surged. Most famously, Axie Infinity, the number one Ethereum game developed by a Vietnamese team, has become a national craze in the Philippines, Indonesia and Vietnam.

The asean Fintech Report 2021, released by UNITED Overseas Bank, pricewaterhousecoopers Singapore and The Singapore Fintech Association (SFA) Crypto Company, shows that in the first nine months of 2021, the cryptocurrency sector in the region overtook alternative lending (such as peer-to-peer lending platforms) as the top three for the first time in six years.

It is also worth noting that there are significant regional variations among Asian investors. In developed Asian countries/regions, investors tend to be high net worth individuals or institutions, while in developing countries/regions, ordinary users account for a larger proportion. It seems easy to understand that Singapore and Hong Kong, the most prosperous cryptography market in Asia, are typical representatives. Their hinterland is narrow, population base is small, and they have entered a deep aging society, so cryptography investors are mainly overseas and local institutions set up here, rather than local residents.

2. Institutional users: mainly high net worth individuals and family offices

Compliance investment channels in Asia have been scarce compared with those in the US and Europe, resulting in institutional investors remaining dominated by high net worth individuals and family offices and concentrated on more manageable equity investments. But that is changing, and many traditional private equity funds, public companies and even sovereign wealth funds in Asia are starting to move into crypto.

1) High net worth individuals

High net worth individuals, who can be identified as qualified investors or professional investors, the threshold defined in Hong Kong is   8 million Hong Kong dollars ($1.02 million), with Singapore slightly higher at 2 million Singapore dollars ($1.46 million).

High net worth individuals are the most common type of investor in crypto hedge funds. Asia's high net worth users are dominated by early miners, along with many looking to beat inflation or see the future of cryptography. Hodlers.

According to & have spent According to the Korea Rich 2021 Report released by KB Financial Group Management Institute, 33.8% of South Korean rich respondents have invested in cryptocurrencies, with the proportion of "active investors" increasing by 5.2% month-on-month.

DBS disclosed on its first-quarter 2021 earnings call that DDEX serves 120 clients, hosting their assets worth S $80 million (US $60 million).

Singapore crypto Hedge fund & NBSP; Kryptos Alpha has said it raised all its money from high net worth individuals.

2) Family offices

In addition to directly investing in crypto assets, some high net worth individuals will set up their own family funds to invest in crypto assets, and the proportion of crypto assets in their portfolio is generally in   Less than 3%.

U.S. family offices have played a major role in allocating bitcoin, including the soros family office, Rockefeller Investment Co., And Winklevoss Capital, as they are known.

Unlike in the US, where family offices buy bitcoin directly, there is still a lack of family offices in Asia. We haven't seen direct purchases of crypto assets yet, but we can still see their presence in blockchain investment in some equity cases.

Animoca Brands, a Hong Kong-based developer of blockchain games and NFT, has invested in more than 100 blockchain projects over the past three years, according to incomplete statistics, including Sky Mavis (Axie Infinity), which burst in 2021. The investor behind the company is Blue Pool Capital, the family wealth management fund of Mr Ma and Mr Tsai.

3) Listed companies

In the most well-known case, Meitu, a Hong Kong-listed company, bought $100m worth of bitcoin in three separate transactions in 2021. Meitu's cryptocurrency allocation provides a model for other public companies, and its approach to buying bitcoin on its balance sheet has proven useful in compliance with accounting and legal standards disclosed by public companies.

In fact, Asian companies may have bought crypto assets in different forms, but such data is not available, as CZ Zhao, the founder of Binance, said in a tweet: "I know many Asian companies own #Bitcoin  Already. They are just not very public about it.

4) Commercial banks

Although Asian commercial banks do not include crypto assets in their bank reserves, they have started to invest in crypto, even directly participating in the custody of crypto assets, stablesoin exchange business.

Siam Commercial Bank, one of Thailand's largest banks, bought a 51% stake in crypto exchange Bitkub in November 2021 for more than $500 million.

Korea's Kookmin Commercial Bank (KB), Japan's Nomura Securities, Singapore's DBS Bank (DBS) and Sygnum's Singapore headquarters have all opened crypto asset custody services.

5) Sovereign wealth funds

Sovereign wealth funds are funded by national fiscal surplus, foreign exchange reserves and export surplus of natural resources, and are generally managed by specialized government investment institutions. This requires SWFS to be very conservative in their investment style and invest mainly for the long term.

No other government investment fund in the world has invested directly in Bitcoin, except In El Salvador. Norway's government pension fund, as it is known, has done so. MicroStrategy has an indirect stake in bitcoin, but sovereign funds or government-owned entities in Asia have also moved into crypto.

Cyberport is the largest financial technology center and innovative digital community in Hong Kong. It has invested in cryptographic escrow provider Hex Trust and cryptographic payment provider Bitspark.

The world & have spent Mubadala Investment Capital of ABU Dhabi, a top 13 sovereign wealth fund, invested in Crypto exchange MidChains in 2019.

South Korea's sovereign wealth fund is also involved in crypto investing. South Korea's National Pension Service (NPS) invested $2.44 million in Four companies operating cryptocurrency exchanges in South Korea in January 2020.

虽然上述亚洲主权财富基金全部采用了股权投资方式参与加密业务，但参与 Token 投资的事情也即将发生。据报道，资产规模达 400 亿美元的韩国养老基金韩国教师信用合作社（KTCU）计划在 2022 年开始投资比特币 ETF。

3. Retail: The rise of southeast Asian game associations

In addition to Singapore and Hong Kong, penetration and usage of new crypto markets in Southeast Asia are much higher than those in other regions. According to a research report by Finder, Messari, Chainalysis, DappRadar, Statista et al., users in Emerging Asian economies such as Malaysia, Philippines, Vietnam and Indonesia have a higher penetration rate in the metasverse. The high level of engagement and enthusiasm of Gen Z has no doubt boosted Paly to Earn's metasurverse narrative, making Asia's influence significantly higher.

The largest crypto payment platform in the Philippines. Coins.ph, which had 5 million users at the beginning of 2019, has reached 10 million users by 2021;

Indonesia's largest exchange. Indodx had nearly 2 million members and $200 million in monthly transactions in June 2020, and 4.7 million members by November 2021;

The largest exchange in Thailand. Bitkub has revealed that it is adding more than 4,000 accounts a day after the price of bitcoin topped $40,000. By the beginning of July 2021, the number of effective customers reached 1 million;

Cryptocurrency exchanges; A Gemini survey of Singapore crypto users, published in conjunction with Seedly, found that 66% of respondents have invested in cryptocurrencies, with 80% of crypto holders still younger than 35, and half of them in the 25-34 age bracket.

If Asian crypto adoption rates are rising and local investors are following the lead of the US-driven crypto bull market, then. In the second half of 2021, the metasomes exploded, allowing digital game natives in Southeast Asia to overtake cars on curves with the help of Play to Earn GameFi.

In & have spent In July 2021, Axie Infinity, a fighting game developed by a Vietnamese team, became popular in Southeast Asia after it was launched. It looks like a common pet fighting game, but its creativity lies in the use of NFT to make each pokemon in the game unique, and these pokemon themselves need ETH to buy. Although similar Games have been made, the game's technology is more mature and the game system is more sophisticated, especially with the help of Yield Guild Games (YGG), which has begun to take shape as a meta-universe, DeFi instantly exploded the global gamer's enthusiasm for liquidity mining.

据数据显示，Axie Infinity 每天大约有 250 万的在线活跃玩家，这些玩家在 11 月份创造了超过 20 亿美元的交易量，占到整个 NFT 游戏市场总额的 80% 以上，其 Token AXS 也一路飙涨，近四个月涨幅超 1700%。

If we say Asia; The P2E online gaming boom is fueled by local emerging economies, high population density and the booming use of fintech, and gaming unions are directly driving the boom.

Game association is a guild organization composed of senior game players. It makes all kinds of rules so that players can interact with each other efficiently and have fun playing. Take the many game unions in Southeast Asia, such as &NBsp; YYG, Crypto Gaming United, Gaming Guild, etc. Most of their members come from low-income groups in the Philippines, India, Indonesia and other countries. Their huge staff size is naturally ready for explosion when encountering P2E mode chain games. It's like the retail group WSB on Reddit.

To public opinion monitoring website & NBSP; According to Meltwater's November 2021 data, seven of the top 10 countries driving P2E traffic trends are in Asia, and three of them are emerging southeast Asian economies (Indonesia, Philippines, Vietnam).

Top 10 countries for "play while you earn" social trends   Figure 8 source: DappRader, Meltwater

In general, the collision of millennials and Gen Z gamers in Southeast Asia with the digital capitalisation of NFT items in games has had a huge bottom splitting effect, which has directly driven the adoption and adoption of crypto assets in the region, and has meant a new narrative paradigm for crypto assets in Asia. It helps to balance some of the market institutions dominated by the United States.

4. Compliance supervision: Singapore and Hong Kong have become Asian centers

1. Regulatory framework needs to be improved and compliance channels are still scarce

Region a large population, complicated, ethnic, religious and cultural spheres of regional economic development difference is very big also, regulators awareness encryption assets is still in the preliminary stage, so different countries and agencies often associated with them in the financial, energy, etc according to its goals to evaluate the interaction of, have their different explanations for encryption in the industry, In addition, according to the changes in the actual situation, they will also adopt inconsistent plans. The reasons for this result not only include the ethnic, religious and cultural reasons mentioned above, but also are closely related to the national policy of political and economic development.

In East Asia, regulators in countries such as China, Japan and South Korea are notably risk-averse, focusing more on the speculative risks posed by the high volatility of cryptocurrencies than the potential prospects of the digital financial era.

Of course, such an overview is not complete. Although China has taken the toughest crackdown on cryptocurrencies, it has been encouraging support for coin-less industrial blockchain + converged applications, which is quite different from the DIRECTION of the US, which focuses on crypto finance and infrastructure.

Or take Japan, even though it has a long history. In 2017, bitcoin transactions were declared legal and sales tax free, but Japan's business environment is not very liberal, and regulations on ICOs and derivatives have made the industry less dynamic, unlike Singapore's outward-looking opening policy.

In Southeast Asia, Singapore has become the dominant player, with the Philippines, Indonesia and Malaysia all taking an open stance, while other Southeast Asian countries are mainly taking a wait-and-see attitude when it comes to digital currencies.

The fact that the crypto industry has unlimited growth opportunities in the context of vague or uncertain official policies means that the crypto emerging industry in the emerging economies of Southeast Asia can be managed with caution. The lack of government regulation may reduce the stranglehold on the industry, but in the absence of clarity from the government, the crypto market remains a marginal industry with uncertain legal risks.

Current state of cryptocurrency Regulation in Southeast Asia   Figure & have spent 9 Source: Babel Finance collated from publicly available information

Of course, Asian regulators' understanding of crypto assets is still incomplete, and they also face many practical obstacles in regulating the decentralized crypto market. Only Singapore and Hong Kong have initially explored relatively open and standardized paths, which will be discussed in detail below.

In general, Asian regulators are open to the development and application of blockchain technology, and open to the development and application of coin-related technologies. ICO varies from country to country/region, but the overall regulatory objectives are basically the same, namely to maintain financial order stability and moderate financial innovation, safeguard the legitimate rights and interests of participants, and ensure the integrity and continuity of market operation.

2. Regulatory obstacles: Compliance costs are high, and CBDC competes with crypto payment

Globally, the pace of crypto regulation in Europe and the United States is faster and the plan is clearer. Regulators in the United States are in the A joint statement was issued in November 2021, outlining regulatory pathways related to the crypto asset industry, and the European Central Bank released a new version of its Electronic Payments Regulatory Framework (PISA) that month.

Returning to the Perspective of Asia, relatively speaking, Asian countries/regions differ greatly in their policies towards the encryption industry, and there is no regulatory consensus like that in Europe and the United States. The main obstacles to compliance are as follows:

1) High compliance costs may keep crypto funds away from regulation

Asia the encryption of hedge funds are not available as traditional fund complete matching services, such as bank account opening, fund depositary, insurance support, a lot of link such as financial audit is not yet clear, also for professional investors, they will for channel compliance, security, management, stability of the private key to encrypt funds put forward a series of requirements.

In addition, how to record compliance is also a long and complicated work.

On the one hand, the interim compliance opinions required by supervision are relatively complex and vague, and a large amount of time and money need to be invested to meet the basic filing conditions. Only a handful of funds have been approved in the region, and none are open to minority investors, raising the bar for compliance filings and limiting the flexibility and size of investment funds.

For example, Thailand's first licensed exchange. BX voluntarily shut down due to high compliance costs. For another example, for the compliant crypto hedge funds registered in Hong Kong, customers are not only required to be professional investors (assets of more than HK $8 million), but also to insure 100% of online virtual assets (hot wallet) and 95% of offline virtual assets (cold wallet) in the platform.

On the other hand, crypto funds differ greatly from traditional operating rules in terms of executing trading strategies, protecting privacy information, and paying taxes. For example, fund managers may need to perform frequent arbitrage strategies, but do not actually transfer assets up the chain in a centralized exchange, and cannot meet the requirements of low latency strategies if placed in a managed wallet. All of this will make crypto funds actively away from or evade regulation, and even turn to. DeFi applications (e.g., derivatives trading protocols, etc.).

2) Asian countries want financial stability more than encryption outside the fiat currency system

Except for Japan, South Korea, Singapore and other countries, most Asian countries are developing countries. This background determines that Asian regulators tend to prefer the financial order on which economic development depends to be stable, and it is difficult to transfer the power of market intervention to other financial means other than the conventional monetary system.

As the world's largest emerging economies, governments in Asia have historically imposed varying degrees of foreign exchange controls and other measures to limit excessive capital outflows and frequent currency fluctuations, based on historical experience. Although encryption payment technology has low cost, high efficiency, strong privacy of many advantages, can fill the blank of the Banks reach of financial services, but stand in the perspective of the government, it's not a controlled disturbance of the existing financial system are likely to be the market order, undermine the international competitiveness of emerging economies and developed countries.

Of course, governments are not passive in responding to this challenge. We have seen that many Asian countries have started to issue their own central bank digital currency (CBDC) or stablecoin. For example, The Thai Tourism Authority launched TAT Coin to promote local international tourism.

3) The current regulatory system of crypto investment is not clear, and the regulatory atmosphere is restrained and conservative

In general, Asian regulators are not averse to equity funds investing in crypto projects, and the existing private equity fund management regulations are relatively mature and complete. However, the regulatory regulations and law enforcement activities for the direct implementation of cryptocurrency-related businesses are not clear, which is mainly reflected in:

Define attributes for cryptoassets and cryptocurrencies. The definition of the attributes of this new thing determines a series of subsequent regulatory rules, and even the clearly defined regulatory agencies are still unable to promote effective regulatory measures, and only put it into the existing judicial system for temporary treatment.

Table & have spent 3 source: Babel Finance collated from publicly available information

There are no specific regulations on the infrastructure required for cryptocurrency/virtual asset investments. Encryption hedge fund is different from traditional funds, because of the particularity of encryption/virtual currency assets, need new technology infrastructure and supporting processes and procedures, including raising limit, investors demand, custody account set up, fiat money exchange, KYC/AML/CFT is, revenue management, etc., there are only part of Hong Kong and Singapore have clear requirements and marketing support.

Regulatory coordination between regions. The investment applications of cryptocurrencies are borderless, which requires cooperation between countries to clarify trans-regional crypto finance issues. The Tokyo tax agency has revealed a case of tax evasion in which a photo studio in Tokyo helped Chinese clients exchange cryptocurrencies for yen, helping them transfer about three years. 27 billion yen to invest in real estate in Japan, which requires China and Japan to establish a communication mechanism to discuss how to effectively implement their respective laws and regulations to coordinate the handling.

Despite these practical obstacles, countries/regions, such as Hong Kong and Singapore, have begun to set a good example of open regulation, which we will discuss in detail in the next section.

3. Asian Encryption Center: Hong Kong, Singapore

1) Hong Kong

With its geographical, legal and technological advantages, Hong Kong has always been the financial center of Asia. According to public information, Hong Kong now has more than $NBSP; There are 600 fintech start-ups and companies, nearly 1,900 licensed asset management companies, 174 banks (including 12 virtual banks), and the cagR of assets under management has reached 16.06% in the past 10 years. In 2020, the scale of fund management companies in Hong Kong reached HK $21.08 trillion.

Traditionally, big fund managers in East Asia have set up in the Cayman. GP and funds, and then set up fund administrators in Hong Kong to manage the funds, but crypto investment in this area has faced more regulatory demands.

regulators

The Securities and Futures Commission (SFC) oversees the operation of Hong Kong's securities and futures markets, independent of the government's civil service structure, as well as cryptocurrency-related investment activities.

香港 SFC 于 2019 年发布了有关加密货币的初步监管框架，表示不对 BTC、ETH 等非证券型资产或 Token 进行监管，并提出监管沙盒计划，要求从业机构遵守现有的 KYC、AML/CTF 等规定。

In addition, the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau of Hong Kong will also coordinate supervision of encryption activities.

Regulatory policy

在加密货币的定义上，香港 SFC 将之划分为证券型 Token 、功能型 Token 和虚拟商品（例如比特币），并以「自愿发牌制度」将证券型加密货币业务纳入监管沙盒，其对证券型 Token 的解释是：代表股权（有权收取股息和有权在公司清盘时参与剩余资产的分配）；代表债权证（发行人可于指定日期或赎回时向 Token 持有人偿还投资本金和向他们支付利息）；可用于获取「集体投资计划」收益。

While leaving some regulatory room for the industry's rapid development, Hong Kong's Treasury secretary said it could decide whether any digital form of value should be defined as a virtual asset generally or in specific circumstances.

The most recent regulatory development is that the Hong Kong Treasury Board in & NBSP; In May 2021, the public consultation was completed to establish a mandatory licensing system for Virtual Asset Service Providers (VASPs) and formally bring it into the regulatory system. According to the consultation document, activities covered by the regulation include the trading, transfer, custody and management of virtual assets, as well as the provision of financial services for the issuance of virtual assets. According to the special Organization, virtual assets are "assets whose value is expressed in digital form, which can be bought, sold or transferred digitally, or used for payment or investment purposes".

Specific to the regulation of crypto asset management, Hong Kong & NBSP; The SFC issued rules for investments in virtual assets such as cryptocurrencies in 2018, providing a path from filing communication, sandbox inclusion, and vetting reporting to becoming a licensed institution. As it stands, Non-crypto Focused funds in Hong Kong can invest 10% of their portfolio in cryptocurrencies without additional licensing conditions, and funds and brokers that invest more than 10% of their virtual assets are required to register with Hong Kong's SFC, And it can only be sold to professional investors.

Compliance license

Hong Kong operates a financial licensing system, with the SFC prescribing 12 regulated activities, among which cryptocurrency-related trading platforms, funds and asset management platforms are subject to category 1, category 4, Category 7 and Category 9 licenses respectively. HashKey Capital, Blockwell Global, Huobi Asset and others involved in cryptocurrency Asset management have all received Category 9 licenses.

Table & have spent 4 Source: SFC, Babel Finance

To be clear, the licences are limited to local professional investors, meaning they cannot offer services to minority investors and will give up some flexibility.

Securities and Futures Ordinance (Laws of Hong Kong NBSP; Chapter 571) defines "professional investor", which can be summarized as follows:

A. Any individual (" individual Professional investor ") holding a portfolio of not less than HK $8 million (or any foreign currency equivalent) (either separately or jointly with his spouse or children);

B. Any trust company entrusted with total assets of not less than HK $40 million (or any foreign currency equivalent);

C. Have (a) a portfolio of not less than HK $8 million (or any foreign currency equivalent); Or (b) any company with total assets of not less than HK $40 million (or any foreign currency equivalent);

D. The sole business is any company that holds investment projects and is wholly owned by any one or more individual professional investors or persons described in items 2 or 3 above.

Note :(a) portfolio refers to securities, cash and virtual assets, but does not include real estate.

Of course, some crypto institutions that have not obtained the above licenses or operate other financial businesses will apply for trust business licenses (TCSP) to obtain partial compliance advantages in advance.

Table & have spent 5 Source: Babel Finance collated from publicly available information

2) Singapore

Singapore is a global leader in crypto finance with a more open attitude to crypto assets and a clearer regulatory framework than Hong Kong.

According to data, Singapore & NBSP; In 2020, the total number of registered and licensed fund managers reached 787, and the size of assets under management increased throughout the year. 17 per cent to S $4.7 trillion, with alternative asset management up 15 per cent, with more than 80 per cent of funds coming from outside Singapore. Singapore, along with the Philippines, is home to many of GameFi's "investment arm" game unions.

设立在新加坡的加密风险投资机构已超 120 家，加密对冲基金超 40 家，占新加坡金融科技公司数量的 19%，这里汇聚了火币（Huobi）、三箭资本（Three Arrows Capital）、星展银行（DBS）、Babel Finance、KuCoin、QCP Capital 等大批加密原生或友好型的头部机构。未来可以预见的是，新加坡将继续保持全球加密技术中心的领先地位，并在交易、上市、 Token 化和托管等监管方面，为其它亚洲国家/地区提供良好的借鉴和示范作用。

regulators

The Monetary Authority of Singapore (MAS) exercises the functions of the country's central bank (in addition to issuing currency) and the SFC to directly regulate and direct cryptocurrencies.

In addition, the Accounting and Corporate Control Board of Singapore (ACRA) is responsible for the registration of companies and non-profits in Singapore, and many non-profit blockchain funds in Asia, such as litecoin Foundation, have registered their legal status with the ACRA. Singapore's Economic Development Board (EDB), which is responsible for providing subsidies and other non-financial assistance to various companies and investors, launched a policy to support blockchain start-ups in 2018 and 2019.

Regulatory policy

Unlike Hong Kong, Singapore's cryptography regulations are more open and inclusive, and do not require client asset segregation, customer suitability assessment, wallet insurance, single legal entity, professional investor requirements, and compliance with & NBSP; With an open registration policy for ICOs, Singapore's crypto industry is growing faster overall.

新加坡 MAS 目前对虚拟 Token 定义为「虚拟产品」，对其分为三类：应用类 Token ，支付类 Token 以及证券类 Token 。

对支付类 Token ，按照新加坡《支付服务法》（PSA）的规定对交易所进行许可和监管，证券类 Token 及资产支持通证（asset-backed token）（如房地产和债券）则适用于《证券期货法》（SFA），对应用类 Token 基本不予监管。

在征税方面，新加坡税务局（IRAS）于 2020 年 4 月发布修订版《加密货币所得课税指南》，规定根据 Token 的功能和用途不同，实施不同的税收办法。

At present, Singapore. MAS 'regulatory focus is on the licensing of digital payment currency service providers, and there are no detailed rules on crypto asset investments.

On the regulation of digital payment, Singapore & NBSP; In the Payment Services Act (PSA), which took effect in January 2020, MAS required all DPT (Digital Payment Token) service providers to be registered and licensed, and stipulated two parallel regulatory frameworks of "Designation System" and "licensing system". Among them, the license system is set up   There are money-changing, Standard Payment Institution and Major Payment Institution licences. Crypto agencies catering to Singapore customers should obtain one of the above licences or be included in the regulatory sandbox to display their business during the exemption period.

In addition, Singapore and Hong Kong also emphasize the protection of investors' rights and interests, regularly issue risk warnings and strictly control illegal activities such as money laundering, fraud, tax evasion and terrorist financing.

Compliance license

Singapore & have spent MAS licenses crypto payment. Currently, only Australian crypto exchange Independent Reserve, Singapore fintech company FOMOPay, DBS Bank Digital Exchange (DDEx), crypto payment service provider & NBSP; TripleA  Four organisations have received the licence. Officially, however, institutions that are exempt will still be allowed to operate.

On the management of crypto-related financial licences, Singapore & NBSP; MAS is divided into trust licenses and Capital Market Service Licenses (CMS). An institution engaged in asset Management activities in Singapore should hold a CMS Fund Management licence or register with the Mas as RFMC (Registered Fund Management Companies). Therefore, Singapore fund management companies can be divided into Licensed fund management companies (FMC, LFMC) and Registered Fund management companies (RFMC). While the latter do not have to obtain an official licence, they face many restrictions on how they can operate.

Table & have spent 6 Source: Singapore CMS, Haitong Securities Research Institute, Babel Finance

Conclusion: WAGMI

Crypto assets in   In 2020, it will officially "break the circle" and gradually step into the mainstream financial market. With the iterative innovation of the crypto financial market itself and the increasingly close interaction with the real world, crypto assets, an indispensable medium in the crypto world, has entered a phase of aggressive expansion globally.

Regionally, the United States is the main driver of the sector, but Asia is also gaining ground, with the most dynamic emerging economies, a large potential user population, and a surge of fintech power. It is foreseeable that the Asian crypto market will usher in exponential growth and will have a positive impact on the global crypto finance and application field.

In terms of industry, the Future of Asian crypto asset management industry will still be dominated by venture capital funds, supplemented by crypto funds. In view of the relatively perfect legal environment of equity venture capital in Asia, unrestricted equity investment funds will continue to inject capital and resource support to the emerging crypto industry; The big crypto funds will continue to chase a relatively narrow but valuable compliance status. However, in the long term, regulatory legislation and investment infrastructure are still lagging behind the progress of the influx of investors. On the other hand, crypto funds will not only be limited to pure over-the-counter bets to buy long, DeFi, GameFi, NFT may play an important role in the ecological construction of crypto asset management.

From a regulatory perspective, Singapore and Hong Kong, among others, have embraced, and regulators in parts of Asia have begun to soften their prohibition-bashing stance towards more deliberate and orderly guidelines aimed at protecting participants and discouraging potentially illegal behaviour. Given the many potential opportunities and risks in the emerging field of crypto assets, it may become a common consensus and regulatory norm in many Asian countries/regions to give the industry certain activity boundaries and fault-tolerant opportunities under the premise of maintaining financial stability and consumer rights.

Crypto digital assets are reshaping global financial markets at an unprecedented rate, fintech applications are being upgraded and compliance doors are opening.   Babel Finance is very fortunate to witness and promote the Asian crypto financial market to the sea of stars, and We are looking forward to communicating and cooperating with you, "We All Gonna Make It".

Some references:

http://www.fundsglobalasia.com/search/node?search_api_views_fulltext=crypto

https://www.chinastarmarket.cn/detail/805017

https://allcoinindex.com/2021/11/12/inflows-from-developing-countries-to-global-crypto-asset/

https://www.marketsandmarkets.com/Market-Reports/crypto-asset-management-market-201925303.html

https://www.mordorintelligence.com/industry-reports/digital-asset-management-dam-market

https://go.chainalysis.com/2021-geography-of-crypto.html

https://law.asia/crypto-regulation-singapore-thailand/

https://zhuanlan.zhihu.com/p/82721463

https://www.163.com/dy/article/GHS9SSVA0550B1DU.html

https://www.huobi-asset.com/

https://www.dovemetrics.com/research

https://dappradar.com/blog/blockchain-behavior-report-interest-in-the-metaverse-and-play-to-earn-booming-in-asia

https://www.finder.com/sg/finder-cryptocurrency-adoption-index

https://messari.io/asia-crypto-landscape

https://www.igaworksblog.com/post/300      ,     

https://dappradar.com/blog/blockchain-behavior-report-interest-in-the-metaverse-and-play-to-earn-booming-in-asia/

https://www.btcfans.com/article/68283

https://www.fidelitydigitalassets.com/articles/digital-asset-survey-2021

https://www.panewslab.com/zh/articledetails/1631065503863119.html

https://www.lgt.com/shared/.content/publikationen/Definition-of-a-professional-investor.pdf

http://www.21jingji.com/article/20210923/herald/3c660e5a117a3b69d3efa0e5d3472550.html

https://www.sgpbusiness.com/company/Three-Arrows-Capital-Pte-Ltd

https://www.htsec.com/jfimg/colimg/upload/20170718/77621500342178245.pdf

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