The institutional adoption of digital assets in Asia is heating up. South Korea, Hong Kong, Japan and Singapore are all looking for more opportunities in the space, thanks to more regulatory clarity in the region, people told TechCrunch+ during Korea Blockchain Week.
After multiple industry-changing events crippled the industry’s advancement last year, like the collapse of Terra/LUNA (who’s founder Do Kwon is from South Korea) and FTX filing for bankruptcy (the crypto exchange was once based out of Hong Kong), the positive shift is welcome, according to several industry players in the region.
Even with the crypto bear market continuing and prices coming down from all-time highs, there’s still sufficient global interest, said Jason Atkins, chief commercial officer of global algorithmic trading and market making firm Auros. “Crypto is addressing a lot of questions for existing financial institutions and banks,” he told TechCrunch+.
Institutional adoption is better in Asia compared to the U.S. and Europe because Asian companies are more willing to listen and educate themselves on the industry, said Justin Kim, head of Korea at Ava Labs. Other regions “cross their arms and want to wait and see,” he said.
And regulators are “giving green lights to more and more [crypto companies] in Asia,” said Charles d’Haussy, CEO of the dYdX Foundation. As that happens, institutions are moving quickly and “the appetite is growing very fast.”
Hong Kong has become “super friendly” toward crypto regulation, d’Haussy said. “Eventually, I think Hong Kong will win the race; the financial industry is bigger in Hong Kong than Singapore. The totals of traditional finance there and addressable markets is massive and connective to the floor of mainland China.”
Differing adoption in Asia
Asian countries “sit in separate bubbles” when it comes to institutional adoption, Atkins said. “Singapore was fast and first to move in terms of institutional international adoption,” before Three Arrows Capital, a Singapore-based crypto hedge fund, collapsed. “Korea and Japan also went quickly, but Singapore did it when the last bull market was in full swing.” Japan instituted crypto regulatory frameworks after Mt. Gox, one of the once-largest crypto exchanges based in Tokyo, shut down in 2014 after filing for bankruptcy.
South Korea has capital control currencies for foreign exchange, which is “less friendly toward market makers and liquidity providers,” making it a very regulated space for Korean citizens, Atkins said.
Demand in South Korea is big. “Large institutions and enterprises came to the realization that blockchain can be part of the solution [to help businesses],” Kim said.
Bitcoin spot ETF could bring in mass adoption
The top three items institutions are looking at is getting access to licensed custodians, deep pool liquidity and managing counterparty risk.
From a product standpoint, the focus from institutions is on a bitcoin spot ETF approval in the U.S. “That will drive a wave of adoption [and is] what people will be investing in and looking forward to” in the next 12 months, Eric Anziani, president and COO of Crypto.com, said.
D’Haussy said that “upcoming” bitcoin spot ETF and possibly an Ethereum spot ETF could bring more attention to the market as big institutions see trading opportunities and other avenues to get into the space long-term. “Allocators are very bullish right now, they’re not active investors, but with a bitcoin ETF and Ethereum ETF coming up, it’s just going to help these allocators and traders to come in and leverage inefficiencies.”
Though a regulated U.S. bitcoin spot ETF could open up the gates for adoption, Atkins said he doesn’t think it will necessarily lead to people participating in innovating in the crypto industry. Regardless, “a wave of institutional adoption is coming,” he said. “Hong Kong is taking advantage of it at the moment and pushing hard.”
In general, there’s increased demand from institutions, Anziani said. “It was a choppy market last year, but there’s more confidence this year.”
And that pressure is likely to build. Family offices are embracing digital assets in Asia, with younger generations taking an interest in allocating parts of their capital toward the market. “It takes a lot longer to influence institutions with boards, but it’s already there with family offices in Asia,” Atkins said.
Bouncing back
In early 2022, there was greater clarity and support from institutions, but incidents like Terra/LUNA and bankruptcy filings from a handful of centralized crypto firms like FTX, BlockFi, Voyager and Celsius, paused growth. But that might be turning around. “Regulators came in, and now it’s coming back.”
The infrastructure today in the digital asset market has become extremely strong, too. Last month, PayPal launched its stablecoin, PYUSD, for payments and transfers for U.S. customers.
In the U.S., however, many market players view the crypto regulatory environment as unfavorable. “The U.S. is being pushed down by regulators,” d’Haussy said. “It is still a massive market regardless of regulators, but the clampdown on the U.S. has given Europe and Asia an opportunity to become local champions as they have more clarity on regulations.”
Compared to the U.S., there’s more regulatory clarity in Asia. “The U.S. is still in flux, but hopefully down the road there’s clarity from lawmakers [because] clarity by enforcement isn’t something most industry players welcome,” Anziani said. “The feeling in the [Asian] region is that we’ve passed the lowest point of the bear market and people are finding ways to come back in. We’re not out [of the bear market], so the macro environment is still challenging but there’s more optimism.”
But the wave of bitcoin spot ETF applications have a lot of institutions looking at the crypto space. Many market players view ETFs as a big way to get mainstream access for traditional players who have been waiting on the sidelines.
“This is where you’re going to get new markets with new competition. If crypto is competing with TradFi it’s going to cap its potential, but if it’s going to create new markets, then it will bring in new innovation and the future,” d’Haussy said.