16 ASIAN LEGAL BUSINESS – JUNE 2023 WWW.LEGALBUSINESSONLINE.COM CRYPTO Despite a series of high-profile collapses of crypto exchanges, multiple Asian jurisdictions are now working to clear away regulatory uncertainties for market participants and tap into a growing asset class. Some jurisdictions have taken aggressive steps and opened channels for retail investors, while others have been more cautious. The developments come with risks, however, both for traders and regulators. And the risks are multiple. The recent collapse of FTX Trading was a reminder of the multiple risks for the crypto market. It was hardly the first exchange to go bust, nor will it be the last. Perhaps the first giant and highprofile crypto failure was that of Mt. Gox, a Tokyo-based cryptocurrency exchange considered, at its peak, the world’s largest Bitcoin exchange in terms of trading volume. Mt. Gox declared bankruptcy after being hacked and losing “hundreds of thousands of bitcoins” in 2014. After years of lawsuits and speculation, Mt. Gox started repayments to creditors in March 2023, a little relief for some of the earliest bitcoin believers. Moving forward, market participants expect crackdowns in the U.S. on banks that served crypto customers to lead more crypto companies to shift to Asia. The crackdowns are set to cut the cryptocurrency industry off from its banking services. To better regulate an emerging but growing industry, jurisdictions in the Asia Pacific have adopted growth and development mindsets towards virtual assets (VAs), with some being more mature in their regulatory regimes than others, says Karen Man, a partner in Baker McKenzie’s Financial Services group in Hong Kong. THE PROACTIVE ROUTE Japan has developed comprehensive regulations around crypto, from decentralised autonomous organisations (DAO) to non-fungible tokens (NFT), as promoting Web3 remains part of Japan’s national strategy. The market in Japan is set to be dynamic, with vibrant competition. Japan was among the first places to recognise the potential of a decentralised digital ecosystem and cryptocurrency mining, starting with Bitcoin. The Payment Services Act (PSA) recognised Bitcoin and other VAs as legitimate property in April 2017. Companies like Mt. Gox were established early and broke new ground globally. As of April 30, 2023, Japan was home to 30 crypto-asset exchange service providers, according to Japan’s Financial Services Agency (FSA). The PSA recognises crypto asset payments as methods that are not denominated in fiat currency and are used for paying unspecified persons. It mandates crypto asset exchange services to register with the FSA and comply with strict know-your-customer (KYC) and anti-money laundering (AML) regulations. This legislation aims to ensure that crypto exchanges in Japan operate transparently and securely, and protect investors. There are no restrictions on SEEKING A BALANCE The year 2022 was a catastrophic one for the global crypto industry, with the collapses of the FTX Group and the Terra Luna ecosystem, as well as the bankruptcies of crypto lenders Celsius Network and Blockfi, and crypto hedge fund Three Arrows Capital, among the factors that wiped out some $2 trillion from the market. However, Asian jurisdictions like Singapore, Hong Kong and Japan have been realistic in acknowledging that crypto isn’t going away any time soon. Instead, they seek to strengthen cryptocurrency regulations and maintain their balancing act in attempting to minimise speculative and compliance risks. BY ASIAN LEGAL BUSINESS Image: ktsdesign/Shutterstock.com
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