During the early days of cryptocurrency adoption, cryptocurrency lacked regulations. Gradually, different governments around the world acknowledged the need for cryptocurrency regulatory framework and bodies and rules were set up for these digital frameworks. However, no internationally uniform law regulates cryptocurrency.
Asia is the world’s largest cryptocurrency trading market; it is also one of the most diverse regulated environments. Cryptocurrency regulations in Asia have either paved the way for the adoption of crypto or restricted and even banned them as a response to fraud and money laundering.
In this publication, we will focus on five (5) major Asian economies—China, Japan, South Korea, India, and Singapore. We will give a breakdown of the cryptocurrency regulatory frameworks in these five major Asian economies and a comparison and analysis of the regulatory approaches among these five major Asian economies.
Overview of Cryptocurrency Regulatory Frameworks in Five (5) Major Asian Economies
Cryptocurrency has evolved and has been widely accepted in Asia. There are three Asian economies (India, China, and Vietnam—1st, 2nd, and 5th positions respectively) in the top five countries with the highest cryptocurrency adoption in the world. This massive adoption of cryptocurrencies has prompted most Asian governments to regulate cryptocurrency.
China
Financial institutions in China were banned from handling Bitcoin transactions in 2013. The People’s Bank of China also restricted initial coin offerings (ICOs) in 2017. In 2020, Chinese officials pointed out that crypto was identified as a “virtual commodity” if it’s not a legal tender. In 2021, China banned all cryptocurrencies and prohibited all domestic cryptocurrency mining. In May 2023, there were reports that China planned to accept license applications from specific crypto exchanges; however, this report was not concrete as cryptocurrency remains illegal in China. The consequences of the ban of crypto in China are unfavorable, yet it doesn’t seem the Chinese government is not interested in lifting this ban anytime soon.
Japan
In contrast to China’s unfriendly regulatory stance towards cryptocurrency, this major Asian economy has embraced cryptocurrency. Cryptocurrency is classified as legal property in Japan’s Payment Services Act (PSA), and cryptocurrency exchanges registered with the Financial Services Agency (FSA) are legal.
Japan has taken adequate measures to curb money laundering which is a major problem in the country. The FSA conducted a series of crypto exchange inspections to improve the AML processes and license applications of existing exchanges in August 2018 and also led a broad regulatory review in September 2018.
In Japan crypto assets are regulated by the PSA, and crypto asset exchange service providers (CAESPs) are required to register themselves. Note that NFTs and other tokens that are not considered part of the financial system are outside Japan’s AML/CFT regulation. In 2023, Japan led the G7 summit where the country enlightened others on central bank digital currencies and the significance of cross-border regulation. For investors looking to stay informed, checking the current BTC price can help them make informed decisions in this rapidly evolving landscape.
South Korea
Originally, South Korea managed cryptoasset risk through improvised, far-reaching embargoes, making it one of the most restrictive regulatory countries for cryptocurrency in Asia. Eventually, this changed as digital assets revolutionized the global economy.
In March 2021, the AML Act officially known as the Act on Reporting and Using Specified Financial Transaction Information was established this gave crypto trading providers six months to obtain an Information Security Management System (ISMS) certification, report to the Financial Intelligence Unit (FIU), and establish accounts bearing customer’s government recognized names through banking providers. Thirty-seven crypto asset exchange providers closed between March and September as they couldn’t meet the compliance deadline.
In May 2022, South Korea announced the Digital Assets Committee (DAC)— a new crypto asset regulator. The Digital Asset Basic Act took effect in 2023; this act oversees virtual assets service providers (VASPs) and monitors investor interests.
India
In 2017, the Reserve Bank of India (RBI) issued a circular that prohibited banks and other regulated institutions from delivering services to individuals or businesses dealing in crypto. This rendered crypto trading illegal. However, three years later in early 2020, the Supreme Court of India overturned the ban. Ever since the Indian government has considered working towards a crypto regulatory framework.
The country started amending some existing laws to ease the introduction of cryptocurrency regulation. India began piloting two central bank digital currencies (CBDCs), wholesale and retail. This stemmed from a February 2022 report by India’s Ministry of Finance, which recommended a Digital Currency Regulatory Authority (DCRA) to oversee crypto use in India.
Still in February 2022, the Union Budget 2022-2023 update on handling virtual assets proposed a 30 percent tax on earnings from digital assets transfers, it taxed recipients of gifted cryptocurrency, mandated crypto investors to report profits and losses as income, and if a virtual asset investment result in a loss they owner must not balance it against other income.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, attempts to build a favorable framework for the creation of digital currency, which will be issued by the Reserve Bank of India.
Singapore
Singapore started to prepare crypto industry focused legislation in 2019, before 2019 the country governed crypto activities as an attachment of its general AML and combating the financing of terrorism (CFT) oversight. In 2019 the Payment Services Act (PSA) was established, this act was amended in 2021. In 2022, the Financial Services and Markets Act was established for the Monetary Authority of Singapore (MAS) expressly to oversee digital payment token (DPT) service providers and virtual asset service providers (VASPs).
In Early May 2022, the MAS issued its fifth DPT Service Provider license to Coinhako— a cryptocurrency platform and the first local non-bank crypto exchange which received the authority’s approval in November 2021. Singapore’s regulatory approach is a balance between innovation and protection. This has fostered the adoption of cryptocurrency and made this major Asian economy a crypto hub.
Comparison and Analysis
After a closer look at China’s, Japan’s, South Korea’s, India’s, and Singapore’s regulatory approaches, we notice that the majority of these major Asian economies have embraced and are regulating or working towards crypto regulation. This has led to a growing adoption and demand for cryptocurrency as well as innovation within the crypto industry in Asia. Asia is a conducive region for crypto businesses, although businesses should be careful with the constantly changing regulatory framework of these Asian economies.
The Asian crypto world is one place we would keep an eye on as we expect further development of regulatory frameworks and we wouldn’t be surprised if we see a cross-border cryptocurrency regulation in place in Asia in a few years to come.
Conclusion
Only one country—China; out of the five major Asian economies we focused on placed an embargo on cryptocurrency. Although some countries like South Korea and India had an unfriendly stance towards crypto, they eventually had to embrace digital currencies and create a regulatory framework for it.
The crypto regulatory framework has been largely unthreatening in this region. Major Asian economies embraced cryptocurrency and this is gradually contributing to the massive growth of the Asian economy thereby making Asia a conducive environment for investors, businesses, and policymakers. In return, we expect more well-meaning crypto regulation in the region in a few years to come as cryptocurrency adoption would increase.
