Crypto firms should look east for growth opportunities as USD dominance falters

The following is a guest post from BTSE CEO Henry Liu.

Every day it seems there are new headlines highlighting the faltering dominance of the US dollar as the world’s reserve currency. At the same time, US regulators are making it clear that USD-pegged stablecoins are not welcome in the world’s largest economy. With the future of both the fiat and crypto sides of the equation looking uncertain, crypto companies in particular are starting to look overseas to hedge their bets, or even to escape scrutiny themselves.

This creates a once-in-a-lifetime opportunity for Asia to step into the gap. The region is leading the way in developing globally competitive cryptocurrency regulations, not to mention building globally competitive economies as well. As such, Asia offers a well-developed and highly diverse environment for crypto companies to thrive. If they haven’t already, crypto firms should look east for their next growth opportunities.

The USD’s waning dominance in world trade

Official foreign exchange reserves in USD have been shrinking for some time. As seen in BIS second quarter review in 2022, the USD accounted for less than 60% of official foreign exchange reserves, the lowest share in the last 20 years.

The USD is also losing popularity as a currency for international payments, which has allowed other currencies to close the gap in global usage. For example, Russia announced that it will support settlement in Chinese yuan when trading with Asian, African and Latin American countries. Saudi Arabia has openly expressed that it would be open to trading currencies alongside the US dollar for the first time in 48 years, including the yuan, euro and rupee. Saudi Arabia has also openly discussed with India the possibility of starting rupiah-riyal trading as part of efforts to increase economic ties between the nations. And that’s not to mention the rumors of a new BRICS currency, which will possibly be a central bank-denominated currency. And at the same time, Malaysia, Indonesia, Singapore and Thailand have set up systems for transactions between each other’s nations in their local currencies instead of US dollars.

The dollar is still the world’s reserve currency. And the US economy is somehow the world’s largest market. Nevertheless, payment innovation appears to be increasing at the fringes, paving the way for a more multipolar payment ecosystem. And that has crypto firms thinking about the options on the table.

“Operation Choke Point”

At the same time, the US has yet to figure out its stance on crypto regulation. The lack of regulatory clarity has not only slowed the mainstream adoption of new technologies, but also innovation in digital payment options. It could potentially cut off consumers and businesses from more competitive payment services.

Crypto commentators are calling the latest round of regulatory scrutiny “Operation Choke Point 2.0,” reminiscent of an earlier crackdown on fraud and money laundering at US banks. The SEC’s recent purge of stablecoins has proven potentially fatal for crypto companies.

For example, the lawsuit against Paxos and Binance USD completely stopped the issuance of the coin. And that’s not to mention the CFTC’s separate beef with Binance itself for alleged violations of trading and derivatives laws. Kraken was charged with failing to register its staking-as-a-service program for cryptoassets, which resulted in the program being shut down. Furthermore, the SEC is now suing Tron founder and Huobi backer Justin Sun, alleging sales and airdrops of unregistered securities, fraud and market manipulation.

There is also increasing regulatory pressure on banks with exposure to crypto business. The recent collapses of several crypto- and startup-friendly banks have been described by some as a “controlled demolition” initiated by regulators, although I take that theory with a grain of salt.

Given the global nature of the freewheeling crypto industry, it’s no surprise that these events are causing Web3 projects and companies to consider moving elsewhere. Brad Garlinghouse, CEO of Ripple — which has its own legal battle with the SEC — has so the crypto industry has already begun to move outside the United States. Coinbase, meanwhile, has another SEC target identified The EU as its own escape route from perceived American hostilities.

With widespread Web3 adoption and a booming investment scene to match, I argue for Asia as a major emerging candidate. In fact, it’s already attracting crypto firms looking for a friendlier base to call home.

Asia’s increasingly competitive crypto hubs

Asia offers clearer regulatory frameworks, precedents for successful government and public-private partnerships, as well as capital to support such an influx of Web3 projects.

While 98% of stablecoins are currently denominated in US dollars, I predict that will change as Asian countries offer more regulatory clarity on this point. For example, the Hong Kong Monetary Authority is introducing a mandatory licensing regime for stablecoin issuers. Meanwhile, Japan has promised to start accepting stablecoins in the near future. Three domestic banks already have announced their plans to issue compatible stablecoins under the framework. And the Monetary Authority of Singapore has too proposed rules for stablecoins, back in October 2022.

In addition to clear regulations, or at least the promise of upcoming frameworks, there are several steps that governments in Asia are taking to support Web3 development. For example, Japan’s national strategy has a Web3 componentand South Korea’s government is even invest 200 million dollars in its metaverse ecosystem. Hong Kong has also vocally committed to establishing itself as a regional, even global crypto hubwhich is causing many crypto firms, including mine, to take a closer look acquire licenses for virtual assets in town.

Asia’s chance to shape the future of crypto finance

Ultimately, these examples show how an opportunity is opening up for Asia to shape the future standard for stablecoins, as well as crypto in general. While there may be strict compliance requirements in the region, regulatory clarity is the best way to improve customer protection and prevent errors. In general, an approach to regulation that encapsulates a willingness to collaborate, listen and work to protect customers without stifling innovation is key. Asia seems to be getting that balance right. And that message is already starting to spread.

Disclaimer: BTSE is an investor in CryptoSlate.