As scrutiny tightens for the rapidly rising digital asset market, some regulators in Asia risk passing on both innovation and business opportunities, according to a recent panel discussion between industry leaders.
The meteoric rise of digital assets has naturally created increased regulatory pressure to increase scrutiny on risks across anti-money laundering, counter-finance of terrorism and more.
But the vastness of the digital asset universe and its inherent innovativeness has made it difficult and, in some cases, unpractical to regulate without potentially causing undue damage to market development.
«I think it’s quite important that we do not throw out the baby with the bathwater,» said Grace Chong, of counsel at law firm Simmons & Simmons during a recent virtual panel hosted by blockchain solutions provider Merkle Science.
DeFi Regulation: Largely Unpractical
«Let me say something which is, I suppose, unconventional for lawyers,» Chong said on an example of an area where regulation was not only difficult but unpractical. «I do think a large part of the [decentralized finance] space is not really susceptible to regulation in itself.»
Chong cites recommendations from the Financial Action Task Force she deemed excessive including the regulation of governance token holders and facilitators of decentralized protocols even after ceasing control.
«A lot of [tokens] are linked to models which regulators are inherently, probably, not comfortable with,» said Chong who is also a former in-house counsel at the Monetary Authority of Singapore. «Either we decide to actually cut out a large part of the market, which means a chilling effect, or we find a sensible way.»
Hong Kong Retail Ban: Easy to Bypass
Chong also spoke about the proposals in Hong Kong to limit crypto access to professional investors – individuals with HK$8 million ($1.03 million) or above in investable assets – calling the restriction «a bit limiting» with industry estimates placing this at just 2 percent of the city’s population.
«It may be that this is the first round of the [Securities and Futures Commission] trying to get comfortable with where the industry is but I do suspect that if this continues to be the case, once again, the chilling effect of investors going overseas [will happen],» she explained.
«As far as I can tell from my contemporaries, everyone is using some kind of device and there are ways to get around [the ban]. So, you do have to tackle the problem head-on.»
«Hard to Ignore»
The nuances of rules and supervisions aside, the opportunity cost of not being a participant in the crypto market is increasingly rising despite intensifying crackdowns in markets like China or India.
«With digital assets becoming more and more mainstream, it is becoming hard to ignore,» said Daniel Lee, executive director and head of business and listings at DBS Digital Exchange, citing studies that laud cryptocurrencies’ diversification benefits from low correlation with traditional asset classes.
«Most family offices and high net worth individuals have been in the crypto game for quite some time. What we are seeing is more people adding to their positions,» said Kanny Lee, managing director and head of Singapore at digital asset trading platform OSL. «They are not coming in asking: should I buy Bitcoin or Ethereum? They want to know the next flavor of the month is: should I get some Doge?»