This post was last updated on April 23rd, 2020 at 07:24 pm
Quotes"If I ask you to identify the global hub for #crypto, you may say Silicon Valley, but the concentration of companies is nowhere near the Bay Area. The most valuable crypto companies are in Asia." ~@JoyceInNYC, CEO @Globalcoinrsrch Click To Tweet "Founders want to get into Asia. They see how active these markets are versus what's in the US, which isn't going poorly… @coinbase is a billion-dollar company. There are just very few Coinbases." ~@JoyceInNYC, CEO @Globalcoinrsrch Click To Tweet "I see India, Singapore, the trading market & the lending market being driving forces in Asia and pushing the industry along. Asia has one of the most robust hubs for #crypto & #blockchain." ~@JoyceInNYC, CEO @Globalcoinrsrch Click To Tweet
Welcome to this conversation with Joyce Yang, founder & CEO of Global Coin Research, a content and advisory platform focused on the Asian cryptocurrency space. Drawing on deep, first-hand knowledge, Joyce will highlight the most important crypto-related developments taking place in Asia to help us predict how the local market might rebound from Coronavirus.
The conversation is split into 3 chapters:
- Chapter 1: The Asian cryptocurrency ecosystem
- Chapter 2: Recent developments in the region
- Chapter 3: Crypto’s future in Asia
Topics Discussed In This Episode
- Common misconceptions about the Asian cryptocurrency market
- Asia’s history of crypto scams & speculation
- Asia’s importance as a geographical hub for blockchain companies
- The state of DeFi in Asia
- How Chinese Bitcoin miners spurred a dedicated crypto lending market
- Singapore’s Payment Services Act
- Why Asian crypto firms often switch jurisdictions
- Why India is crypto’s “sleeping giant”
- How tough new regs have pushed some crypto companies towards Asia
- The explosive growth of Asian derivatives trading
- How miners survived China’s crypto crackdown
- Why everyone in cryptocurrency should learn Chinese
Links Relevant To This Episode
- Nomics’ Fully Customizable Daily Crypto Newsletter
- Clay Collins
- Joyce Yang
- Global Coin Research
- Bitcoin (BTC)
- Maker (MKR)
- Babel Finance
- Tether (USDT)
- Ethereum (ETH)
- Ripple (XRP)
- Bitcoin Cash (BCH)
- NEM (XEM)
- TRON (TRX)
- Sam Bankman-Fried
Clay: Welcome to Flippening, the first and original podcast for full-time, professional, and institutional crypto investors. I’m your host, Clay Collins. Each week, we discuss the cryptocurrency economy, new investment strategies for maximizing returns, and stories from the frontlines of financial disruption. Go to flippening.com to join our newsletter for cryptocurrency investors and find out just why this podcast is called Flippening.
Clay Collins is the CEO of Nomics. All opinions expressed by Clay and podcast guests are solely their own opinion and do not reflect the opinion of Nomics or any other company. [00:00:30] This podcast is for informational and entertainment purposes only and should not be relied upon as the basis for investment decisions.
Clay: Welcome to this conversation with Joyce Yang, founder and CEO of Global Coin Research, a content and advisory platform focused on the Asian blockchain and cryptocurrency space.
In this episode, Joyce draws on deep, first-hand knowledge to highlight [00:01:00] the most important crypto-related developments taking place in Asia. This will also help us predict how the region and their crypto communities might bounce back from Coronavirus.
The question of how Asia’s crypto communities is going to be impacted by the Coronavirus is an interesting one that we haven’t heard directly asked before. Crypto podcasts have covered [00:01:30] Coronavirus. Obviously, they covered crypto assets, but as far as we know, this is one of the first times that crypto and Coronavirus have been addressed together.
Our conversation is split into three chapters. Chapter One is an overview of the Asian cryptocurrency ecosystem. In Chapter Two, we discuss the latest developments in the region. In Chapter Three, we consider crypto’s future in Asia.
The transcript and show notes for this episode are available at flippening.com/joyce.
We’ll get to the episode in just a second, but before we get started, I’d like to pause for a moment to tell you that this episode is brought to you by the good folks at CryptoTrader.tax.
Here are four things you should know about them. One, CryptoTrader.Tax automates the entire crypto tax reporting process and has partnered with the TurboTax team to bring cryptocurrency tax reporting to the mainstream. Two, [00:02:00] CryptoTrader.Tax offers a complete Tax Loss Harvesting module to help investors figure out their greatest tax savings opportunities to reduce their taxable income. Three, CryptoTrader.Tax supports all FIAT currencies, meaning users from all over the world can use the platform to calculate their gains and losses in their home FIAT currency. Four, CryptoTrader.Tax offers a suite for Tax Professionals to help manage their cryptocurrency clients.
While I’m not a CPA and I’m not qualified to provide tax [00:02:30] advice, I should note that I personally advise my family to never just hand over their exchange history to a CPA. Instead, I encourage them to let CryptoTrader.Tax analyze their trade histories, find the tax calculation method that’s best optimized to save them money, and then submit summary documents to their accountant. This also saves you from having to pay your accountant to do the tedious work of generating form 8949 and other [00:03:00] similar forms.
Creating an account and importing your historical data is completely free! You only pay when you want to download your tax report for the year. Just tell them that Clay from the Flippening Podcast sent you to get a discount on your tax reports. So, go to CryptoTrader.tax and sign up today.
This episode is also brought to you by the good folks at Nexo.io
Here’s a word from them. Nexo is the only lender offering instant crypto credit lines, which let you use digital assets as collateral to get cash in 45 fiat currencies and stablecoins.
You might remember Nexo from Episode 64 where we spoke with their co-founder, [00:03:30] Antoni Trenchev. If you haven’t heard it, I highly recommend checking out Episode 64 of this podcast to hear from Nexo’s co-founder, Antoni, as it’s one of our most popular episodes to date.
Nexo has a BIG announcement related to credit lines: their annual interest rates for credit lines are now starting at just 5.9%, which may very well be the lowest borrowing rate in the whole industry.
Nexo is also a strategic partner of exchanges, [00:04:00] OTC desks, and crypto funds through its portfolio of structured financial products. Institutional counterparties can earn up to 8% annually on their idle stablecoins, enter into asset swap agreements, or directly borrow crypto.
Individuals can also park their cash and stablecoins at Nexo’s Interest-Earning account to get an annual return of 8%. What’s more interesting is paid out daily and you can add or withdraw funds at literally any time.
If you are looking to borrow, lend, or swap digital assets, Nexo is your go-to partner. If you’re an institution, reach out to them at [00:04:30] firstname.lastname@example.org.
Finally, this episode is brought to you by the Nomics API and CSV Data Export Service.
If you need an enterprise-grade crypto market data API for your fund, smart contract, or app, or if you need historical CSV dumps of trading data or crypto market cap data from top exchanges or even obscure ones, then consider trying out the Nomics API or our historical data export service.
Our cryptocurrency API enables [00:05:00] programmatic access to clean, normalized, and gapless primary source trade data across a number of cryptocurrency exchanges. Instead of having to integrate with multiple exchange APIs of varying quality, you can get everything through one screaming fast fire hose. If you’d like to order historical cryptocurrency market data as CSV exports from top exchanges, email us at email@example.com.
Okay, back to our regularly scheduled program. Here’s my conversation with Joyce Yang, founder and CEO of Global Coin Research. Enjoy.
[00:05:30] Clay: Let’s start with chapter one, the Asian crypto scene. Joyce, how did it develop, and how will it fare post-Coronavirus?
Joyce: In some ways, it may seem like Asia already has come out of the coronavirus. As of the latest official stats of this morning, [00:06:00] China just announced a report of zero new cases, which is a drop from around 120 new cases on average in the last week. Does that mean Asia is already ahead? Probably, not so much. In this context, in the crypto landscape, for those of your audience who are probably already familiar with cryptocurrency, recognizing that crypto is a global asset and not really a regional play.
At this [00:06:30] point, given where we are in this global crisis, where will we see the crypto ecosystems grow and flourish, and where will we see the Bitcoin cryptocurrency getting adoption? By adoption, I mean getting owned, traded, or recognized as an official asset class, potentially.
Clay: Given how China has executed on the coronavirus problem, I feel like there is a clear sense that they’re now at parity with the United States in terms of global dominance, influence over the supply chain. There’s just an incredible amount of dependence right now on China, and also around their ability to execute around shutting this thing down. It’s [00:07:00] highlighting some of the benefits of centralization, which is at odds with Bitcoin.
Joyce: For sure, I totally agree and there’s a lot of geopolitical politics being played. With the upcoming election, I think, what we’re seeing here with the presidents, between China and the US, are really throwing daggers at each other.
Before I get deep in the weeds, I think it’s important to recognize the current perceptions of what people think of when I first mention Asia crypto. There are some oversimplified perceptions of what many folks think when they [00:07:30] think of Asia and cryptocurrency. It may be because they’ve never gone to Asia or have been exposed to only Western media. Here’s a general feeling that I get from talking to the stereotypical retail investor or individual who’s interested in crypto but may not know so much.
First, immediately, when people think about Asia crypto, retail speculation comes to mind, right? [00:08:00] It’s true that crypto retail speculation was—back in the day, in the US as well as in Asia, but particularly in Asian countries, like China and Korea during 2016 and 2017—catching up aggressively. Many grandmas, grandpas, retirees, and elderly folks were shopping tokens, [00:08:30] hopping on, hopping off tour buses to see these projects, having roadshows and marketing presentations in these hotels, and then gossip about what’s the next best coin to speculate on. This was a very common phenomenon in Asia.
Happening in parallel around that same time was a series of scams and […]coins that rose around in Asia and really became a trend for the rest of the world. We saw the ICO boom, and scammers conducting large ICOs, and building fake communities, throwing parties and events everywhere they went. Thankfully, [00:09:00] now, over the course of a few volatile market cycles, we were able to purge out many of these projects.
So then, of course, the trend that appeared last year around Libra and China’s Central Bank digital currency, that drove the world to start wondering whether every government should have a Central Bank digital currency. We see countries, like Thailand, Singapore, and even the US, have begun exploring this concept. What I have previously touched on, the general perceptions of Asia crypto—such as retail speculation, scam [00:09:30] coins, centralized digital currency—may be the most recognizable crypto trends in Asia for general folks. None of which really frankly speak favorably of the crypto ecosystem and outlook of this region.
On the flip side, I ask you to do a simple exercise. If I ask you to identify the current global hub for crypto, you may say perhaps the [00:10:00] Bay Area and Silicon Valley, but then realize the concentration of crypto companies are nowhere near that 15 square mile radius. In my opinion, the most valuable crypto companies today are in China and the rest of Asia. Folks may also respond to that by arguing that it doesn’t really matter. Crypto’s global and the communities are distributed. It doesn’t really matter where the companies are, but I argue that it does.
Having a physical hub can help support a burgeoning [00:10:30] ecosystem of entrepreneurs with funding, advice, and essentially, bootstrap and accelerate the development of an ecosystem. This is similar to the effect of decades of venture capital and entrepreneurs all gathered together in the Bay Area to create the Silicon Valley that we know today.
If you look more closely, in fact, the most valuable and largest crypto companies today are in China and in the rest of Asia, and they operate in Asia for a reason. In Asia, now we have these global entrepreneurs residing and supporting the ecosystem there. For example, you have Bitmain and [00:11:00] Canaan Creative, one of the largest mining machine producers that cumulatively add billions of dollars, all with founders who are based in China.
Similarly, the largest exchanges, such as Binance, OKEx, Huobi, are situated in Asia. With CZ based out of Singapore, Huobi and OKEx founders living in China and Hong Kong, respectively, and many of their employees still operate in China. Additionally, you have one of the earliest and largest derivative exchanges, BitMEX, [00:11:30] operating out of Hong Kong, as are the headquarters for some of the up-and-comer derivative exchanges, such as FTX and CoinFLEX. These companies are far larger than the US counterparts, Coinbase and Gemini. They also get to enjoy advantages such as cheap labor and a larger pool of talent.
In the DeFi world, there has been significant adoption and interest coming from Asia [00:12:00] as well. If you come across the DeFi industry at all, you would know that understanding DeFi requires a pretty decent understanding of tech and finance. We find that there are a number of promising participants and interests coming from Asia and China.
For example, Maker DAO has 30% of website traffic volume coming from China. In fact, the team actually has said that China is the second-largest market. Meanwhile, Compound has over 27% website traffic coming from [00:12:30] China and Taiwan, and dYdX has 25% volume coming from China.
From those two points of where I mentioned innovation as well as entrepreneurial hubs being formed gradually over time in Asia, these are some of the developments and fundamental key parts that I think are crucial for thinking about the long term and where and how these regions develop.
Clay: Let’s transition to chapter two, where we address the most important crypto-related [00:13:00] ecosystem, infrastructure, and regulatory developments that have been happening in Asia.
Joyce: First, I think it’s important to call out this thriving and growing centralized crypto lending ecosystem that we’re seeing coming out of Asia. Since 2019 we have seen miners’ demand in combination with the volatile markets setting off this trend of the thriving lending market. To give you an example of how much the industry [00:13:30] demand has grown, there’s this crypto lending startup, BabelFinance, coming out of China. The company started out with lending assets amounting to around 52 million USDT in the first quarter of 2019. At the end of the year, their total loan assets have gone up by six times, and then they grew again by 33% in the beginning of this year.
If you think about how it’s relevant for miners, this applies to 60% of the customers of these lending companies who are miners. [00:14:00] It’s primarily because miners often don’t want to sell their crypto holdings when the market’s down, they want to hold onto their BTC hoping that it’ll go back up again when the market’s volatile, but they need fixed capital to buy machines and build out mining farms. Because of the profitability of the industry, as interest rates could go up from 8% to 20% just for borrowing USDT or BTC, we now see a number of large participants coming into the space. Those include your large [00:14:30] exchanges, like OKEx, Binance, Gate.io, as well as Babel and Matrix Port.
Matrix Port is a financial platform started out by the founding team, essentially of Bitmain, and Jihan Wu now is working there. Wallet and custody service providers, like Renminbit and Bixing, who are all [00:15:00] previously local players in China. These guys are working with Bitcoin providers, lenders from all over the world. This is something that I think is particularly interesting and more relevant in some ways to folks in Asia because we have a robust Bitcoin mining, Ethereum mining ecosystem, and folks who are interested in doing that there.
Clay: Yeah, this is really fascinating stuff. First off, I think most of the people [00:15:30] I know have not heard of BabelFinance. Yet, it seems like it’s a pretty large company doing a lot in assets under management and lending. I think the stereotype around China is that there’s this built up cumulative expertise around hardware, and that lends itself towards the mining business; but it seems like as an extension of that, when you have a whole lot of people earning revenue in Bitcoin, that also creates the demand for Bitcoin or at least crypto-native service layers on top.
Is that your [00:16:00] understanding about why these additional services have also grown up? Why is software in this space so strong when traditionally that’s been one of the fortes of Silicon Valley? What do you think’s going on there?
Joyce: Mining has always been very consistent, and depending on the price of the cryptocurrency, you can always know whether you’re going to be profitable. The miners that you see in this ecosystem typically are folks who are just [00:16:30] not necessarily interested in crypto, but they understand economics and math. They want to be able to make a return on what they have. It’s one of the most stable industries in some way because you have a playbook of setting up a farm, you just need to find the most regulatorily friendly and low electricity location to set up your farms.
I think as [00:17:00] more miners got into the industry, there was definitely a need for these savvier financial services to serve them. As many miners weather through so many different markets, they see the prices of Bitcoin and Ethereum going up and down, and probably, regretting many times not selling their previous tokens. This is the way that has spurred this demand for [00:17:30] this kind lending market.
The next thing I wanted to highlight was the Singapore regulations and the Monetary Authority of Singapore. Singapore has been known to be very impressively fast and transparent in sharing their views on new asset classes and financial innovations. This is what I think every crypto company wishes US regulators to be like, but Singapore’s a small country. I think they do have certain advantages with a generally higher education population, and the Monetary Authority of Singapore is an example of folks who are very savvy and in tune with the global financial innovations.
[00:18:00] One important regulation that just came into effect is called the Payment Services Act. This act has been talked about in the last year, and finally became effective on January 28th, 2020, so very recently. It is the first comprehensive license allowing companies to handle activities ranging from digital payments to the trading of tokens.
I think what is particularly interesting is that if [00:18:30] you look at the applicants, the largest players are from North America. You have the Coinbase of the world, Gemini, BitGo, and European players like Bitstamp, and players from the rest of Asia like OKCoin as well as Binance, and even large players like Alibaba and Tencent-Google, all trying to get their hand into this license because it’s so unique. Especially for crypto companies, [00:19:00] it’s very favorable.
One example of what I feel like shows off Singapore’s open attitude is these ads that you see in the subway in Singapore displaying buying crypto with Binance. This is how Binance really decided to settle their… They partner with a local player there to be brought into the market, and their go-to-market pace is just so fast. This happened maybe in the course of six months, [00:19:30] when you see probably many other exchanges and regulators are still trying to get their heads around crypto and what to do with these cryptocurrencies and blockchain initiatives.
Clay: For everyone listening who isn’t looking at the slides right now, Joyce has a slide up that shows little advertisements on the bus handles from Binance encouraging people to go to binance.sg. The ad is the easiest way to buy digital payment tokens. There’s also another digital ad at a bus stop that says, “The easiest way to buy crypto in Singapore,” and it’s another Binance ad with a QR code.
[00:20:00] This is something that I rarely see in the United States, are advertisements for crypto companies. In the US, you don’t imagine that the core demographic for someone exchanging tokens on Binance would be someone riding the bus. It really speaks to how mainstream these types of services and crypto in general is [00:20:30] in these areas, so that’s really fascinating.
Joyce: It’s always very eye-opening when I go to Asia, because what you see on the street just tells you about how open folks are to the new technologies. These ads in particular are definitely telling of how folks are open and interested in cryptocurrency, or at least [00:21:00] folks like Binance are allowed to go into the country and actually advertise and speak about their platform.
Clay: I was speaking with one of the executives at Bitso the other day, and they are, I believe, the largest exchange in Latin America. They were speaking to the popularity of XRP in Latin America, but particularly in Mexico. That certainly isn’t the case in the United States, it’s not like XRP is the beloved cryptocurrency. If anything, there’s a bit of animosity towards it. Are there any crypto assets that are surprisingly popular in China or Singapore or Asia in general that stand out around the discrepancy with [00:21:30] sentiment around that coin in the United States versus in Asia?
Joyce: We previously released some data, stats, and anecdotes of each country’s favorite coin in Asia. In fact, XRP is one of the most traded and liked coins in Japan.
Joyce: Yeah, it’s [00:22:00] super fascinating how these different tokens identify a niche demand in the country and are able to grow that. Of course, Bitcoin Cash is very big in Japan as well, so is NEM, which is a local coin started-
Clay: Really, still?
Joyce: Not as much anymore, because I think I recall NEM actually having gone bankrupt or not being able [00:22:30] to have money in their foundations anymore as of last year, but there are definitely loyalties towards certain tokens. I think TRON is actually more popular outside of China than in China because many folks know about Justin Sun and his previous track records. There is more transparent information about Justin and his background than in the States because he used to start businesses in China. I think it really depends on the country and also, on the regulators’ attitude towards them.
For example, in Japan, the regulators have to [00:23:00] prove every token that’s listed on the exchange. There are only a handful of tokens really that’d be able to trade there, so companies, like VCash, are proactively talking to regulators about getting listed onto these exchanges; because once you get listed, you are able to acquire liquidity and get people to own your tokens. That is the first step to getting adoption and building your presence there. [00:23:30]
Clay: Hey! I wanted to pause for a second to let you know that this episode of the Flippening podcast is brought to you by our longtime and trusted partner, Nexo.io.
As someone who personally uses Nexo, I wanted to point out a few things that I especially like about their crypto-backed loans.
First, when the price of your collateral grows, so does your credit line. Let’s say you borrow against your Bitcoin when each is worth $5,000, but [00:24:00] over the course of your loan, the price grows to $10,000. This means that the size of your credit line just doubled as well. I personally haven’t seen anyone else doing this.
A second thing I really like about Nexo is that you only pay interest on the amount that you borrow. I’ve seen Nexo competitors require you to take out loans and borrow force you to borrow the entire amount. With Nexo, you get a credit line and can borrow only the funds you need, [00:24:30] and pay them back whenever you want with interest assessed daily. Again, this just isn’t something I’ve seen other providers do.
The final aspect of Nexo I’d like to highlight is that they give you the ability to borrow against a basket of crypto assets. For example, if you post BTC, ETH, and BNB as collateral to your Nexo account, the Nexo oracle calculates the real-time market value of those assets and adjusts your credit line accordingly. Again, to my knowledge, other providers in this space only allow you to borrow against one asset per loan.
This episode is also brought to you by CryptoTrader.tax, which makes the excruciating task of reporting your cryptocurrency gains and losses a breeze.
Indeed, sorting through transaction records from your exchanges and reporting each [00:25:00] trade in US Dollar terms is not how most crypto investors want to spend a weekend. CryptoTrader.Tax is a software platform that automates the entire cryptocurrency tax reporting process. It’s basically like TurboTax for cryptocurrency investors. All you have to do is connect your exchanges and import your trade history into the platform. CryptoTrader.Tax will do all of the number-crunching and spit out your auto-filled tax reports with the click of a button. Simply give these generated tax forms to your accountant or even import [00:25:30] them into your preferred tax filing software like TurboTax or TaxAct.
You can join more than 10,000 cryptocurrency investors who are automating their crypto tax reporting with CryptoTrader.Tax today. Creating an account and importing your historical data is completely free! You only pay when you want to download your tax report for the year.
Just tell them that Clay from the Flippening Podcast sent you to get a discount on your tax reports.
Finally, this episode [00:26:00] is brought to you by the startup that produces it, Nomics.com
Nomics is a crypto market cap website and aggregator going head to head with CoinMarketCap. We stand as a transparent alternative to many of the sketchy market cap websites out there. We won’t name names, but I think you know who we’re referring to.
Anyway, if you haven’t been to Nomics.com in a while, I encourage you to visit our website. We offer transparent volume statistics for nearly every cryptocurrency and crypto exchange in the space. I believe we have the only credible crypto exchange index in the space as of the time of this recording.
If you’re sick of scammy [00:26:30] ads, bad design, and manipulated data provided by companies whose founders hide from public view, then check us out at Nomics.com.
Okay, back to Joyce.
Joyce: I think it’s always interesting to see the differences between how folks in the US think about it versus how the rest of the countries and the world are thinking about different tokens. Like you said, Latin America has different preferences for different tokens; perhaps because the teams are actually out there preaching those tokens and having a local representative to actually represent the tokens in a bearable, and people don’t [00:27:00] know any better.
Clay: I think in the United States there is this template for creating a startup. You maybe get an account at Silicon Valley Bank, you start a Delaware C-corp, but once you start going down that path, your hands are tied when it comes to regulatory flexibility. Something that I have seen from entrepreneurs that come out of Asia, [00:27:30] it seems like from day one, there’s a willingness to be multi-jurisdictional, to hop on planes, to start thinking about regulatory arbitrage. It’s not taken for granted that you’re going to do things in this very standard way with Silicon Valley Bank and a C-corp and raising money on Sand Hill Road. It [00:28:00] seems like the mindset is much more expansive and open to different possibilities. It seems like that has played to the advantage of entrepreneurs, particularly entrepreneurs out of China who seem like it’s quite vital for their businesses that they have plans B, C, D, E, and F, because-
Clay: … they could get raided, they could get shut down, there could be monetary controls. There seems to be just a different mindset from day one that seems to be advantageous.
Joyce: In some ways, I think the US government has made all of us too comfortable in the US, [00:28:30] but now when it comes to crypto, everyone’s just waiting it out in some ways. While you see in Asia, people are used to having this paranoia, especially in crypto, applying to crypto companies. Thankfully, there are jurisdictions, like Singapore, that have welcomed a lot of folks from China. For example, when there’s been a purchase of cryptocurrency companies and exchanges from China. They just move to Singapore, and they register a company in Singapore, and their business [00:29:00] goes on as usual.
Clay: I interviewed CZ and he talked about the number of times that they changed locations or moved servers over the course of a year. Just the fact that logistically they were able to pull that off speaks to their operational skill. It’s amazing.
Joyce: You definitely have to be nimble. Geographically, it’s a lot easier also, given that Asian countries are close with each other. It’s not like flying from New York to SF, which [00:29:30] takes six hours and by that time, I could already go from one country to another with extremely different attitudes towards cryptocurrency. I think that, in some ways, helps. If you ever go to the cryptocurrency conferences in Asia, you see that many of them gathered folks from all over the different countries. It’s not just settled into Japan conferences only having Japanese people, or Taiwanese conferences having just Taiwanese people. It generally does attract a pretty global group, which I think is very fascinating [00:30:00] as well.
Joyce: For my third point, one of the main things I think that folks should start paying attention to is India. India’s really the sleeping giant in cryptocurrency. There’s been a flurry of exchanges and crypto activities in India until two years ago when the Central Bank of India decided to stop offering banking services to crypto businesses. So literally exchanges just shut down overnight. There hasn’t been as much activity until this last month when the Supreme Court of India has ruled against a decision [00:30:30] imposed by the Central Bank.
In doing so, that created a lot more excitement and brought back this strong appetite for cryptocurrency and derivatives trading in the nation, because if you think about India, the population is generally pretty educated. They’re very similar to some of the nearby countries in Asia, where [00:31:00] there is a pretty decently large speculative and retail population who are interested in potentially investing in something that will change their lives when combining generally decently-educated but hard to move up socioeconomic status environments.
Now things are being turned around at a rapid pace there. [00:31:30] You have OKEx, Binance, and Kraken already accelerating and moving to the country. Binance made an acquisition locally with an exchange last year, and now they have set up a $50-million fund to reinvest into the blockchain startups there. In DeFi, we have companies like InstaDApp, that’s a team coming out of India. I think Ethereum has ETHGlobal events taking place in India. It’s definitely a very interesting country that we have not really been paying attention to, [00:32:00] that’s going to be super… Potentially, if the Supreme Court sticks to its decision, that could be really interesting and play a bigger role in this ecosystem in the next year.
The other one I think people may not be paying attention to or the trend may be in the back of their mind, but really the spotlight in trading this year has been derivatives and leverage trading, that’s happened mostly in Asia. If you look at regulations, it’s been stifling the development of [00:32:30] retail derivative and futures platforms in the US. European regulations actually have been cracking down in the last year as well, such as the new rule around crypto regulations that is pushing European trading firms towards Asia. The new laws like 5AMLD are creating new rules around AML for firms, and [00:33:00] that’s creating more challenges for them to grow in Europe.
Clay: Hey this is Clay cutting in to explain a bit more about 5AMLD, the EU’s Fifth Anti-Money Laundering Directive. The law, implemented back in January, requires that European crypto exchanges and custodial service providers follow strict KYC or know-your-customer and AML or anti-money laundering procedures.
In the long run, the regulation makes it easier for traditional financial [00:33:30] institutions to enter the cryptocurrency space. The only certainty is that European crypto firms will face higher compliance costs, if they remain in the EU. As Joyce mentioned, some are already leaving or thinking about leaving.
All right, back to the show.
Joyce: You’ve seen examples, like the derivatives exchange Deribit selling 10% of their equity to firms and trading firms in Asia, like QCP and Three Arrows Capital who are all based in Singapore actually, to have and form these deep Asian ties to [00:34:00] help them break into this market that they’re not familiar with.
The market for derivatives and leveraged trading honestly has grown also in size. For example, OKEx has mentioned before that when they launched their perpetual swap contracts in late 2018, its derivatives market was about the same size as the spot market, but now, it’s two to three times bigger, so that’s [00:34:30] taken place in the last two years. Even FTX, that’s been an up-and-comer in the derivatives market. The founder has mentioned before, just in the last month, saying that there’s sort of one side of the divide between the East and West that right now has all the volume. He’s referring to the East, because of all the restrictions to getting access to these platforms in the Western Hemisphere and Europe.
It’s always easy to [00:35:00] think about the speculators and the retail market, but if you think about who’s actually on these platforms trading derivatives, it’s definitely a lot more prosumer traders than your average retail folks. It’s very surprising to many folks that these traders are also in Asia.
Clay: Why do you think that Asia has beaten everyone else to the punch when it comes to derivatives products, options contracts, and innovation? For so long, BitMEX was really the only game in town. There was obvious demand and they had such a huge lead on everyone [00:35:30] else for so long. It even took Binance a while to come in with their own derivatives markets and perpetual swap contracts. What do you think was happening there? What was it about Asia that enabled that innovation in the region that didn’t exist elsewhere?
Joyce: There was a great interview that Sam Bankman-Fried from FTX, who’s the CEO of FTX, has done when asked about the differences between the exchanges in the East and West. He, obviously, being [00:36:00] so much more of an expert on that subject than myself, he says that a lot of times it’s the product actually catering to a crypto-native platform, crypto-native audience, versus in the US, you have many platforms that are clunky and hard to access and use. I think what that comes down to is really the amount of resources and [00:36:30] talent that are being put into building these platforms and having that freedom to be creative when you don’t have as many restrictions and limitations on what you can’t do.
I thought that was particularly interesting, because many folks may not know, CoinFLEX was based out of London and then they realized it’s actually not easier to set up a company in Hong Kong, so they decided to go to Hong Kong.
Clay: Same with Deribit and the Netherlands, [00:37:00] they were based out of there and then they… I don’t remember where they’re domiciled anymore-
Joyce: Panama, I think.
Clay: Oh yeah, Panama.
Joyce: Yeah, exactly. I think it’s definitely important to find a good base, and then you could focus on creating an audience and customer base. Many times, we now just have founders who want to come to us to ask for help to get into the market in Asia, because they see the potential of the size of these markets and how active they are. Business is thriving there, versus what we’re seeing [00:37:30] here in the US. It’s not going poorly, Coinbase is a billion-dollar company, it’s doing very well, but there are only a few Coinbases that you can have.
Joyce: The last one, I think, that may really set the tone for a lot of what’s happened in Asia is the ongoing crackdowns in China. [00:38:00] That went hand in hand with China’s growing interest in the crypto space, because in the last year, if you recall, there was an announcement made by President Xi Jinping in October 2019 that labeled blockchain as one of the main focuses in the country’s technology. The Central Bank specifically highlighted a digital currency/electronic payments initiative, and that’s really what got a lot of people interested in digital currencies. Some would argue that it’s a response to Libra, and I think that’s a fair assessment because they are [00:38:30] worried that the US will come ahead in this digital currency war.
As a result of this growing interest and emphasis on cryptocurrency and blockchain technologies, scammers in Asia also took advantage of the national hype to issue more scams. They would start off with promoting digital asset trading pairs of the token, referring to them as DCEP, which is the initials for the Digital Currency Electronic Payments initiative from the government. Others have also issued [00:39:00] ERC tokens called DCEP on Ethereum public chain, thinking that they could potentially scam the people who may not know much about what’s going on, but just want to make a quick buck from the national news.
Since then, on top of the growing interest from the retail folks, you also see large cities and governments issuing policies to crack down [00:39:30] more crypto influencers, crypto companies, and exchanges. I think at this point now, we can safely say that besides some of the top exchanges like Huobi and OKEx who have a friendly relationship with the regulators locally in China, many of the smaller exchanges have been purged out or have left the country. They’re domiciled [00:40:00] to Singapore and move their servers down to elsewhere. Even now, we see examples like the TRON founder, Justin Sun, having his social media accounts in China being blocked on a constant basis. He creates a new one, it gets shut down, and then he tries to keep doing it, and then he gets shut down.
I think it’s a pretty interesting and ongoing development in China. We obviously can’t neglect China given how big of a market it is, but it’s pretty interesting to see and set the tone for folks [00:40:30] to understand what’s going on with the government and citizens there.
Clay: It seems like China started to really exert its dominance in both mining and in financial services during a time when there was a lot of regulatory uncertainty, there were instances where miners would get shut down, exchanges would get shut down. It might be that regulations are pretty friendly now, but the innovation still happened during a period when it seemed like there was a lot of regulatory [00:41:00] uncertainty, and a lot of maybe personal risk that founders could incur creating financial services companies and mining companies in China during 2015, 2016, even into 2017. Why do you think there was so much innovation and activity coming from Asia or China in particular in the midst of so much [00:41:30] uncertainty?
Joyce: The way that many of the crackdowns have happened is the central government and the Central Bank regulators from Beijing sent down a message to the rest of the country, and local governors take it to themselves to evaluate how serious we should crack down, how much should we get involved into the space? Mining, for example, many of the activities in the physical location where the miners set up is in the middle of China, near Sichuan [00:42:00] region.
From what I’ve seen lately, there hasn’t been as much involvement in cracking down, because what they see miners do is set up machines and generate computer algorithms. While for the rest of the country, there are a lot more bigger issues to worry about, like people getting scammed directly. While I think mining feels like a more established and more serious business, it’s not scamming anyone.
That’s what the government really cares [00:42:30] about first and foremost because that’s what creates social unrest. That’s one of the top fears from the central government. On the opposite end, if you look at the examples in Coronavirus, when Beijing and the Central Party tells everyone to crack down, all the local jurisdictions go crazy in trying to protect their citizens and shut down everything and every business. It all ultimately [00:43:00] comes from the Central Party messaging, but they take it a lot more seriously because they know it will hurt their own jurisdictions and municipalities.
I think what I mentioned previously gives folks an idea of the fundamental trends that are happening in Asia in terms of innovation and creativity [00:43:30] as well as reception to cryptocurrency and the most recent phenomenon that’s been happening. I think notably India, Singapore, the trading market as well as the lending market, are the driving forces in Asia and pushing the industry along. That together over time has convinced me that Asia has one of the most robust hubs for crypto and blockchain.
It’s important to note that in China and regions around China, that they still [00:44:00] house 50% of the hash power in Bitcoin and Ethereum, more than 50%, and continue to host the largest number of retail traders and prosumer traders. There are also a lot of interesting talents for teams to hire because generally, in many of these countries, they’re a pretty educated population and young folks who wish to move up in their socioeconomic status. Crypto is one of the promising ways to do so.
When you have these traders, miners, developers [00:44:30] and even long-term capital going into a space, I think that really creates a solid cycle for ongoing activity and a feedback loop for folks to continue to build an industry. I think ultimately when we’re trying to address the initial question of “Will Asia come out ahead from the coronavirus?” I hope that it helped [00:45:00] our listeners to piece together the puzzle more and feel more equipped to make that judgment. I won’t really push folks to think that Asia will come out to be ahead, but I think that it’s equally equipped if not more equipped to do so as much as the US and North America when it comes to maintaining and having a flourishing [00:45:30] crypto ecosystem.
Clay: With that, let’s move on to chapter three, crypto’s future in Asia.
When you step back and peer into the future, what do you foresee happening in 2020, 2021, 2022, just over a three-year time horizon? Do you think that the US or the rest of the world is going to have a counterpunch to Asia’s dominance, or do you perceive the divide getting wider over time?
Joyce: I definitely see the divide getting wider. I think the hub that I mentioned before that’s [00:46:00] evolving in Asia and this feedback cycle of miners, traders, developers, and investors, given the geographic vicinity, it just makes that part of the world a lot more quick to develop, and also work to foster a different type of development. We already see here in the US, many of the great companies and projects coming out of the US are very developer-oriented, [00:46:30] very technology-oriented. That’s been the ethos of Silicon Valley companies and what really US innovation has been built on, I think that’s great.
In the Eastern Hemisphere, you see a lot of companies are being more business savvy and perhaps maybe short-term focused, as of their retailer traders as well [00:47:00] as the audience overall. I think there will be divergence in development of what cryptocurrency and blockchain would mean to each country. With Libra now getting the mandate from the US government to include the USD and Euro as the only currencies in their basket, it will become somewhat more of [00:47:30] a geopolitical war involved between China, US, and perhaps some other smaller countries who are prescient in developing their own digital currencies.
It’s a very fascinating field, but I don’t discount anything that’s happening in the US, and I think highly of projects that we work with. There are a lot more gray areas to navigate through when you’re in Asia, and this is why we try to provide more transparency and information for folks to identify the good developers and the communities that are pushing the industry along, but it just feels [00:48:00] like things are evolving differently.
Clay: It’ll be interesting to see how all this plays out. Last question, if you could altruistically wave a magic wand and make something instantaneously beneficial happen for the crypto space, what would it be?
Joyce: That’s interesting.
Clay: I can share some other answers like CZ said he wishes more states would adopt national crypto assets, or create their own blockchains, or just have state-issued digital assets. Other people have [00:48:30] spoken to the need for regulatory guidance and clarity. There has been a range of answers to this, what do you think?
Joyce: What I find to be especially useful—and you see some folks feeling the sentiment also too—is if everyone in the crypto space could speak Chinese, [00:49:00] it will make our lives easier in terms of what Global Coin Research is trying to do. At the same time, it’s actually I think just having a global dialogue. Vitalik, for example, is my favorite example, because he actually speaks Chinese very well. He got his first investment in Ethereum through a Chinese investor in China when he was first trying to fundraise. Some folks have that innate advantage and I think it will be beneficial to many.
For example, traders who are looking for information, the type of access, and the speed in which you can get information in Asia is [00:49:30] a lot faster. Many of them are in Chinese media, for example, Global Coin Research works with. It’s certainly helpful for them if you’re trying to make money, or if you’re trying to figure out your competitors or your global strategy for the next year. I think it’s a selfish wish, but also at the same time, it’s something that will be beneficial to the community as well.
[00:50:00] Well, that concludes my conversation with Joyce Yang from Global Coin Research. I hope you enjoyed it.
Before you go, I want to invite you to subscribe to our fully customizable daily crypto newsletter. It’s the first of its kind in the industry. You choose the delivery time and cryptocurrencies that you want to keep track of. We ship tailored pricing data and market news to you seven days a week. It’s a choose-your-own-adventure approach to getting a [00:50:30] newsletter, and no one else is doing it. It’s a great way to cut through the noise and drill down to the crypto market info that matters most to you.
To subscribe, go to news.nomics.com. Again, that’s news.nomics.com.
Alright, that’s all for this week. Stay tuned for next week’s episode. Until then, take care.
That’s it for this week. To sign-up for our free crypto investing newsletter, listen to other episodes, or get the show notes from this episode, please visit flippening.com. I also invite you to check out the startup that funds this podcast, Nomics, at nomics.com. [00:51:00] Finally, if you got value from the show, the biggest thing you can do to help us out is to leave a five-star review with some comments and feedback on iTunes, Stitcher, or wherever you listen to podcasts. Thanks for listening and see you next week.