How have crypto markets in Asia evolved in comparison to those in the US and Europe? And will these markets look more or less different in the future? Galen Stops takes a look.

Taking a glance at the biggest crypto exchanges by volume and a clear pattern emerges: according to data from, a website that tracks crypto trading volumes, at least seven of the top 10 ranked exchanges are based in the APAC region.

By contrast, some of the more better known US-based exchanges are found much further down the list. For example, at the time of writing, Kraken is ranked at number 33, Coinbase Pro is apparently the 35th largest by volume and the Winklevoss-owned Gemini exchange is down at 64.

One explanation for this is simply that more of the crypto trading volume in APAC is retail driven and takes place on exchanges, compared to the US and Europe where a comparatively higher proportion of trading takes place in the OTC markets.

“Asian risk markets generally see higher levels of retail participation vs global peers, and crypto is no different,” says Michael Ng, a senior trader at Kinetic and former director of e-FX trading at Natixis in Hong Kong.

He adds: “Given the vast amount of retail trading happens on crypto exchanges, it’s understandable that exchanges account for a larger portion of overall volumes in Asia compared to the rest of the world. As the space institutionalises and client demographics shift towards institutional players, we expect this proportion to shift but would still expect retail to be a dominant force in Asia.”

Ng says that the “institutionalising” of crypto trading is about establishing best practices, infrastructure, processes and products that in turn develop the formality and structure which enable traditional investors to allocate capital to this space. This has been a big focus in the US during 2018, and Jason Fang, a managing partner at Sora Ventures, a crypto-backed venture capital firm dedicated to blockchain and digital currency investments, claims that this is also the case in Asia.

“I definitely think we’re already on the path to this market becoming more institutionalised and that the next boom will be highly dependent on institutions like large banks and financial services firms,” he says.

In particular, Fang highlights the attempts to launch a bitcoin ETF in the US as a significant milestone in the development of the institutional crypto trading market, pointing out that when the first gold ETF was launched, it led to a massive increase in the trading of that asset.

A member of the BitMEX research team agrees that firms in Asia are interested in the potential product launches taking place in the US and Europe because they realise that they’re likely to have an impact on the price action in the crypto space.

“The crypto community overall probably cares about similar issues. People care about a bitcoin ETF because there’s a view that if there’s an ETF then the price of bitcoin will go up, meaning that all the day traders will get in,” they say.

More Imagination Needed

However, Jack Liu, head of Asia trading at Circle, is not so convinced that an ETF is necessarily the next big step forward in the development of crypto trading in Asia. The reason for this is that he sees a very different mentality emerging around crypto trading in the region compared to more developed capital markets in the West.

Liu explains that, because financial markets in the US and Europe are already so well developed and capitalised, a lot of the banks and major financial institutions there tend to only think about cryptoassets within the framework of their existing businesses. He says that even the entrepreneurs in these markets look at the technology underlying cryptoassets as effectively an upgrade to the existing financial technology and infrastructure, whereas in Asia the focus is very much on how to use this technology to build an entirely different financial ecosystem.

“In the West the narrative is that crypto is a new asset class, and one that isn’t correlated to other asset classes, and so they want to put it on a screen next to FX and bonds and other products and make an ETF for people to buy, just like a new gold. But in Asia no one is thinking of crypto as an asset class and no one is waiting for an ETF, they’re trying to reimagine the financial ecosystem based on decentralised blockchain and ICO technology,” says Liu.

He continues: “Yes, the gold ETF helped gold because gold cannot actually be used, it can’t be divided or easily transported. By contrast, bitcoin can purposely be divided and transported, so why would you want an instrument that sits on an ETF that only trades Monday to Friday between 9-4pm? So this definition of crypto as an asset class is really not what this technology was imagined for, and maybe that description worked in 2017 to help drive home what these products are, but going forward I think we need to have more imagination.” Another area of divergence between the US and the Asian crypto markets, according to the BitMEX researcher, is amongst the exchanges themselves and the client base that they’re targeting.

“I think there is a bifurcation in the crypto exchange industry,” they say, noting that there is one group of platforms that are predominantly Asia-focused, such as BitMEX, Bitfinex, Binance, OKEx and Huobi and another that is US-focused with more of a Silicon Valley culture, such as Coinbase Pro, Gemini and Bittrex.

“Whereas the Silicon Valley group is more focused on growth, the Asian ones are more financial focused – a lot of the people at these exchanges are from investment banks originally and for them the target is to build reliable platforms that institutions can use. That’s the bifurcation,” says the researcher.

They add: “Our perspective and how we think about this space at BitMEX is perhaps different compared to American companies. Coinbase and these other exchanges in the US are thinking that firms like Fidelity, Vanguard, etc, will eventually allocate part of their portfolio to bitcoin or ethereum and that as exchanges they will be able to provide them with custody solutions and a venue to make long-term investments. By contrast, we’re looking to attract hedge funds that maybe manage in the region of one or two billion, either existing funds that want to start trading crypto or crypto-specific spins offs from some of the largest hedge funds in the world. Those are the types of institutions that we’re targeting.”

Another difference on the exchange side in Asia is that crypto firms are increasingly looking at potential IPOs, particularly in Hong Kong. In particular, there are mining companies that sources say are interested in listing on the Hong Kong Stock Exchange (HKEX), which –as the BitMEX researcher observes – would certainly be an interesting development because it would mean that more public information about these firms would become available and they would have to publish quarterly results.

One challenge that some Asian exchanges have had to grapple with though is the changing regulatory environment with regards to crypto trading in China. In September last year, the Chinese authorities banned ICOs and bitcoin exchanges operating on the mainland. This, however, does not seem to have stopped Chinese citizens from trading cryptoassets.

What happened after the ban was announced was that a number of the exchanges moved offshore, only offering crypto-to-crypto trading rather than fiat so that none of the activity can be constituted as a “Chinese” trade. Indeed, one source in the region says that they don’t think that the percentage of trading by Chinese people compared to the US, Japan or Korea since the ban has changed at all, it has just moved offshore.

ICOs and Regulation

Still, the spectre of further crackdowns looms large for a number of firms.

“Over the past couple of months there’s been a lot of negativity in China regarding crypto and I think that will continue until the end of the year,” says one Shanghaibased source.

They add that the best indicator of when the Chinese government might be gearing up for some serious action against crypto firms is when people from the industry suddenly leave the country and start showing up in places like Tokyo or San Francisco.

“That’s often the biggest signal on WeChat, you can see that these people are trying to dodge that bullet so to speak,” the source says.

While China might have banned ICOs last year, the rest of the world was gripped by a mania around these cryptoassets, and however popular ICOs were in the US, it was APAC that was very much the epicentre of the hype.

That being said, it seems that the plummet in the value of the major cryptocurrencies this year has also seen some of the excitement regarding ICOs scale back.

“The recent pullback in overall crypto assets has caused investors to be more selective towards ICO involvement, which is ultimately a net positive. Security token offerings (STOs) are now front and centre; the pitch of conversation about security tokens has grown exponentially in the past months, and interest in associated platforms like Sharespost has followed similarly. Given their security-like nature, regulators will likely take a more proactive approach towards establishing a regulatory framework for these vs utility tokens,” says Ng.

Thus far, however, many regulators in Asia appear to have taken a more “hands off” approach with regards to the regulation of crypto assets in comparison to their US counterparts.

Liu says that although the regulatory environment in the US is very open to crypto business in some regards and they have built a legal path towards doing business there, it is an expensive process to go through and the fact that regulators there characterise cryptoassets within a very narrow box means that the companies doing business there tend to be fairly homogenous.

“In Asia, the regulatory environment is more of a grey zone, there’s less startup capital required to set up a company, which is why there’s hundreds of exchanges in Asia. And if you look at the mining companies, part of the reason why some of them are in places like Mongolia is because the electricity is cheap there. So what we’re seeing is an ecosystem where crypto firms are not restrained by the Silicon Valley model whereby they need to get funding from VCs, they can get funding instead from ICOs and as a result the projects tend to be based where there are more engineers and cheaper costs,” he adds.

Mere Speculation?

One question that still overhangs the development of cryptoassets is what their underlying value will prove to be. While in the US and Europe they are mainly traded as speculative assets, in some less developed markets they do function more as a means of transferring value for individuals that for various reasons lack access to traditional banking systems. So what about in Asia?

“This is a divisive topic, but, whether you believe that this technology can be used by criminals or by companies to reduce IT costs, the fact is the dominant use case of these systems right now is financial use cases and day trading. That is far more prevalent than any other use cases, which are insignificant in my view compared to this huge volume of speculation and trading that is occurring right now,” says the BitMEX researcher.

Ng agrees with this assessment that crypto trading in Asia has thus far been driven by speculation, but suggests that this is beginning to change.

“Though much of the Asia-domiciled retail activity in crypto trading has been short-term speculative in nature, we see growing interest from ‘stickier’ long term money who see crypto as a potential addition/tool for their overall asset allocation,” he says.

Ng also observes: “While Asia hasn’t seen the same political and economic turmoil that exists in parts of Latam or EMEA that causes people to lose faith in the local fiat monetary system and turn to crypto, countries with restrictive currency regimes and capital controls do account for higher participation in crypto trading.”

For Fang, much of the longer-term value in the crypto space will derive from the potential applications of the underlying blockchain technology, and not necessarily from the cryptocurrencies that are the most popular now. Although he says that bitcoin is unlikely to lose its dominant place in this market within the next five years, he says that he is unsure about whether this cryptocurrency will still be around in five to 20 years’ time.

“Any new technology can initially seem problematic to work with because there’s often inefficiencies associated with it,” says Fang. “But we’re seeing more developers flocking towards blockchain more than any other industry in the world right now, so we’re assuming that there’s going to be huge improvements in the technology over the next two to three years, improvements in terms of scalability, in terms of security, in terms of user interface, etc. And when people see these improvements, we I think they’ll start to re-evaluate the real value of blockchain.”

Ultimately, it might be too early to say with any degree of certainty whether crypto markets in the West and East are likely to diverge or converge in terms of their evolution, given that there are various factors pulling in either direction.

For example, many of the institutional players that are active in these markets have already established a global presence so that they can provide 24/5.5 or 24/7 coverage of them. While these firms obviously have to adapt their approach to each market, the very fact that globally active players are emerging will naturally provide a nudge towards standardisation across various regions. By contrast, if regulators in Asia end up taking significantly disparate views and approaches towards crypto trading compared to their counterparts in the US and Europe, this could potentially send these markets moving in very different directions.

What is clear though, is that distinct characteristics are coming to the fore in both the Eastern and the Western crypto markets, and these are unlikely to disappear any time soon.

Galen Stops

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