Asian blockchain: some people take low-cost airlines to resell Bitcoin for arbitrage, while others want to copy the next machine that makes money

I recently listened to an episode of Unchained, a podcast that discussed the various aspects of the Asian cryptocurrency market. Luis Buenaventura, founder of Bloom Solutions, and Leo Weese, president of the Bitcoin Association of Hong Kong, were invited. After staying in China for a long time, it is really interesting to listen to what is happening in other markets, such as:

Bitcoin may emphasize freedom too much for Asian cultural genes. Are we actually more concerned about whether it can save us money?

People will carry large amounts of cash and take low-cost airlines to different markets to buy and sell Bitcoin, Hong Kong in the morning and South Korea in the evening, not for chasing stars, but just for arbitrage?

When it comes to cryptocurrency, is Singapore a country where the central bank is no match for the banks?

The following is the content of the conversation, which has been partially edited but is still very long. Enjoy.

In Asia, people are concerned about whether Bitcoin can save them money

Laura Shin:

Let’s start with the most common question. What is the general difference between the Asian and Western cryptocurrency environments?

Leo Weese:

I have always been an outsider to Silicon Valley culture. Western concerns about cryptocurrency often revolve around whether it is good for personal privacy, personal freedom, and so on. However, from an Asian perspective, to put it bluntly, we are more concerned about whether it can save us money. Now most of Southeast Asia still needs to do the internal work of banks manually, it provides employment for many people, at least from this perspective, it solves the survival problem of some people, and for corporate businesses, the cost (of remittances) is also very competitive. So when the Bitcoin solution came up, I was thinking: Is Bitcoin better than this? This has always been a question for me. Because Asians are concerned about practical things. If you can reduce costs and increase profit margins, then we may have something to talk about. If not, simply describing the freedom, convenience and development potential of digitalization is not enough to convince people to use it. At least that's how I feel.

Luis Buenaventura:

In East Asia, especially Hong Kong, China, Taiwan, South Korea and Japan, stock trading is already much more popular than in the United States or Europe. Of course, many people do it for fun. People even trade stocks while driving a taxi or commuting. The demand for trading cryptocurrencies is the same, but it is easier to obtain. You can trade a variety of cryptocurrencies through various channels. Other than that, people don’t have many investment opportunities. So the emergence of cryptocurrencies provides people with a new investment category. Of course, many investment products may be bubbles and pyramid schemes, but they do create enough sensational effects and give people a crazy fantasy of getting rich overnight, which attracts quite a lot of people.

Of course, at the commercial level, about $300 million in personal remittances flow between Hong Kong and the Philippines every year. For example, a migrant worker, or someone working in Hong Kong, their concern is whether Bitcoin transfers are cheaper for me than any traditional remittance channels in Hong Kong. Take the World Bank data, Hong Kong and the Philippines are the most competitive remittance channels in the world, and I'm not talking about the crypto level, I'm talking about the traditional sense. Using traditional channels, you only need to pay less than 1% in fees to transfer money from Hong Kong to the Philippines, which is as cheap as personal remittances. So, many remittance companies will enter Hong Kong and compete by offering very cheap remittances.

Laura Shin:

Okay, now let’s talk about the use cases of cryptocurrencies in Asia, starting with the largest market, China.

Leo Weese:

Bitcoin liquidity in China remains strong. It is still very easy for a portion of this community to sell millions of dollars in cryptocurrency and find a market.

Laura Shin:

How do they do it?

Leo Weese:

They will have their own network of contacts, or through online OTC platforms, and if the price is right, people will buy these bitcoins. Some people make money through arbitrage. Some people register their family or friends into the cryptocurrency system through their personal bank accounts because their family or friends may also want to trade or invest.

Laura Shin:

What is Hong Kong like?

Leo Weese:

The liquidity of the Hong Kong OTC market is still very strong, and it is easy to buy tens of millions of dollars worth of Bitcoin from professional institutions. But the traditional fiat exchange market has never really taken off in Hong Kong. It has proved too difficult for these exchanges to establish fiat business relationships with banks. So Hong Kong people generally need to go to New York or Europe to deposit funds through fiat. Because European and American exchanges can relatively easily accept these international wires and then let Hong Kong people trade.

There are many Bitcoin ATMs in Hong Kong, mainly serving those who value privacy or those who need Bitcoin frequently . In Hong Kong, there are almost no legal issues for Bitcoin transactions, and it is easy for anyone to trade Bitcoin, whether in the peer-to-peer market or through a dedicated over-the-counter trading platform. In theory, it is also possible to do an exchange without any license requirements, but once a bank account becomes a hindrance to the business model, it will be difficult to do so.

Compared to South Korea, Japan is less conflicted about cryptocurrencies

Laura Shin:

Interesting. The more I learn about the US, the more I realize how important these banking relationships are. Okay, let’s talk about Japan. What is the crypto industry like there, and how is it different from elsewhere in Asia?

Leo Weese:

Japan is very much a beacon of Asia, but it makes life difficult for its neighbors and other Asian countries. I have a feeling that if Japan had not taken such an active stance on Bitcoin, many places, especially Southeast Asia, would have banned Bitcoin a long time ago. But why is Japan so willing to accept Bitcoin? Japan is the only country that has given so much regulatory framework to cryptocurrencies and Bitcoin, and has a very strict licensing system for its exchanges because they almost treat it as an important part of the future banking industry. Unlike the Korean authorities, the Japanese authorities are also quite consistent in their messages and rarely contradict themselves . You are allowed to offer different kinds of cryptocurrencies and products to the public, but all exchanges need to be strictly scrutinized and will be subject to some restrictions.

Laura Shin:

OK, let's talk about Korea. What's the situation in Korea?

Leo Weese:

South Korea is similar to Japan in some ways, but it divides these financial institutions into at least five different roles that can generate conflicting messages, and South Korea's image, such as the international media's coverage of him, is often contradictory. For example, some say that South Korea may ban exchanges or ICOs, while others insist that exchanges are doing well in South Korea and ICOs are still legal.

Japan and South Korea have some implicit capital controls that make it hard for people to move money out of the country, or for foreigners to move money into the country, and I think both countries are very aware of this. They are very aware of the weaknesses of their banking systems, but they don't necessarily know how to solve them immediately. We can imagine whether this is a way out for Bitcoin, in these countries, people don't think Bitcoin can replace the local banking system immediately, but they at least know that this possibility exists and it can be an option in the future. But right now, because it's difficult for people to send money in and out, in Japan, people have at least solved the problem of the premium of cryptocurrency, but in South Korea, the premium still appears from time to time.

We saw people coming to Hong Kong on budget airlines in the morning, pockets full of cash, queuing up outside the market to buy Bitcoin, and then immediately selling it in South Korea for arbitrage, and flying back in the afternoon. The next day, they took the same flight again. This made the Hong Kong police, the South Korean police, and the budget airlines all look confused. In fact, they don’t need to carry so much cash, but this seems to be the most reliable way to achieve arbitrage in the two markets. It stands to reason that it should be more convenient, easier and safer to transfer money to Hong Kong through banks, but it seems unlikely.

Laura Shin:

Leo, those people you were talking about with their pockets full of cash, is that still happening or is that just in 2017?

Leo Weese:

This happened during the peak period, and yes, it still happens occasionally, but not every day. But as Luis said, when the premium goes above 3% or 4%, people quickly start doing it again.

Laura Shin:

Wow.

Leo Weese:

This is an easy way to make some extra money and travel to Hong Kong.

The biggest feature of Singapore is that the government and banks have different positions

Laura Shin:

Hahahaha that’s right, let’s talk about Singapore

Leo Weese:

Singapore is currently very open to cryptocurrencies, especially blockchain products. I think there may be something like regulated token exchanges in Singapore, but Singapore is not always easy to predict because its policies change back and forth, sometimes embracing and sometimes being conservative.

Luis Buenaventura:

Let me add some fuel to the fire. I think the most important difference between Singapore and other countries is the different attitudes of the government and banks towards cryptocurrencies.

The Monetary Authority of Singapore (MAS), the central bank of Singapore, has been committed to making Singapore a financial center in the Asia-Pacific region. For example, they have been experimenting with an interbank funds transfer system built on Ethereum. I think the limitation is that the MAS can encourage it, but banks may not necessarily want to join because it involves lending to crypto companies.

In fact, it is not as easy to deal with banks in Singapore as in Malaysia. At least they will not reject you because the word "cryptocurrency" appears in your business documents. This is a very funny phenomenon. The government wants to encourage but the banks still do what they want. I think it is because cryptocurrencies have been found to be used for money laundering and terrorist financing, and banks were fined heavily, so they dare not try again. Let's do a simple calculation. If I was fined 100 million for lending 10 million to a cryptocurrency company, I would definitely not do it. So the government's encouragement does not necessarily change their (banks') minds.

Laura Shin:

Now let's talk about the Philippines. What is the situation there, besides the cross-border remittance aspect that we mentioned earlier?

Luis Buenaventura:

The Philippines is one of the few countries that allows cryptocurrency trading. The virtual currency trading license was introduced right at the time of the bull run in 2017. So far, nine companies have been granted licenses, and quite a few are Chinese or Korean companies, mainly because they cannot get licenses in their own countries. The strategy is to show their international investors or institutional clients that we are somehow legal. There are only a handful of countries issuing such internationally recognized licenses, so there are fewer options. I think Japan's leadership in this field is a bit limited to a dozen companies (meaning only a limited number of licenses are issued). But there are currently 60 or 70 companies queuing up for licenses in the Philippines. According to the previous approval schedule, it should be 10 companies every two years, so if you are number 70 in the queue, I think you will have to wait for a while.

Indonesia is the most advanced country in Southeast Asia when it comes to cryptocurrency

Laura Shin:

What is Southeast Asia, such as Indonesia, like?

Luis Buenaventura:

I think Indonesia is the most advanced country in Southeast Asia in terms of cryptocurrencies. They do about $300 million in cryptocurrencies per month, and most of that is done on an exchange called Indodax. This exchange has been around since I've been in the space, at least 5-6 years, and I think Indodax is the most important exchange in all of Southeast Asia. Thailand also has five cryptocurrency exchanges that have been issued provisional licenses by the local Monetary Authority, but none of them, to my knowledge, are as big as Indodax.

Laura Shin:

Is this just because of Indonesia's size? It is well known that its land area is the fourth largest in the world.

Luis Buenaventura:

That could be one of the reasons. It could also be because it has been around the longest and Indodax started to be a platform for other crypto businesses to build their businesses as early as 2016. So if you want to do a crypto-based remittance business in Indonesia, you have to work with Indodax to provide liquidity for your business or work with them on the payment side.

“In any case, Libra is at least better than the peso”

Laura Shin:

All right. Let's talk about India. I think what's going on there is very interesting. What do you know about India?

Leo Weese:

I don't know much about it, but it seems to be a huge but very difficult market. The local government has many ways to control capital in and out of the country, and Bitcoin cannot be well integrated into the existing system. Indian authorities will take many measures to restrict Bitcoin business to ensure that people do not use Bitcoin for illegal activities. Indian exchanges do not seem to be doing well, and Bitcoin is more of an over-the-counter transaction, just like in China.

Laura Shin:

Yes. This is actually a segue. Recently, the news about Facebook Libra came out, and you can see from their publicity that they are targeting these emerging economies. But these developing economies, especially China and India, cannot enjoy Libra's services at all, so I want to know the general reaction of Asia to Libra.

Leo Weese:

He did spark a wide discussion and it was a big deal because it put cryptocurrency on the path to legitimization, because people expect companies like Facebook to have a clear plan and a clear strategy to make cryptocurrency more legitimate and reasonable to the public, and then there will be a large number of copies or imitations.

But Libra's current strategy is very hidden. Usually, with payment and transfer mechanisms like Facebook's launch in India through Whatsapp, it is easier to understand how users transfer money. But in Libra's current disclosure, this mechanism is not clear. We don't know how people will get Libra tokens. We don't know how people can trade or use them for purposes. I think the most important thing is that we really don't know how people will price their products and services in Libra, and how the market will form such an exchange rate.

For me, the most exciting and interesting thing about Libra is that it is a free-floating currency. It may be a fiat currency backed by a basket of currencies, but it is not pegged one-to-one, I can buy one Libra, two Libras, 3.3 Libras. Unlike most of the previous technology companies building payment platforms and e-wallets, it is not denominated in local currency.

Laura Shin:

Yes. I think that's a very compelling point, Luis, what do you think of Facebook's Libra?

Luis Buenaventura:

Now, for people in their 20s and 30s in the Philippines, when they were born, one dollar was worth 27 Philippine pesos, but today it has shrunk by half (half a dollar to 27 pesos), we have lost about 50% of the purchasing power against the dollar, and I think the potential of Libra here is that it may provide people with an additional option to abandon the Philippine peso . So, I have been advocating this. I know this is a very anarchist point of view, but I have been advocating for people to stop saving Philippine pesos for a long time. Mainly because every year we have lost 2-5% of the purchasing power against the dollar. This has been pretty consistent over the past decade. So, there is no point in keeping your pesos in the bank. In the long run, you have been losing money.

Laura Shin:

In the long run, Libra could threaten developing countries where money devaluation is severe for this reason.

Luis Buenaventura:

Yes. Definitely.

Asia: We need more investment options

Laura Shin:

In the West, the topic of cryptocurrency is generally discussed around Bitcoin, such as its digital gold properties, and Ethereum is centered around capacity expansion, or the "smart contract war" caused by various smart contract platforms. Then people are also interested in some cross-chain protocols, such as Cosmos and Polkadot, and think they may compete with Ethereum. So what are the topics discussed in the Asian cryptocurrency circle in the past year?

Luis Buenaventura:

We see a lot of projects trying to be the next Ethereum, just like in 2015 and 2016, many projects were trying to be the next Bitcoin. But I think people don't know what smart contracts mean or what they can do. People want to build the second Ethereum more to replicate the next get-rich-quick machine than a smart contract platform. In the past ten or even twenty years, Asia has seen a surge in the prices of various assets, especially real estate. Any type of license, any form of asset prices are rising, and there is a lot of capital looking for alternative investment targets, but there are not many options except for the stock markets in Tokyo and Hong Kong, and it is difficult for funds to enter the US or European markets, so some cryptocurrency projects or smart contract platforms will get investment. Even if some projects look like scams or are not built on a solid technical foundation, it is better to invest in them than not at all.

Laura Shin:

Interesting. What crypto projects are Asians excited about? Are there people/projects that may not be as well known in the West but you feel deserve more attention? Underrated?

Leo Weese:

I think there are a lot of cool technological innovations in Japan. For example, the people at Crypto Garage (Crypto Garage is a subsidiary of Digital Garage LLC), I think what they do is underestimated, especially their technological breakthroughs don't get the attention they deserve. I think Silicon Valley and Europe are a little too much in the spotlight, especially when it comes to Lightning Network, smart contracts, Bitcoin or Layer 2, but Japan should not be underestimated.

*Note: The Japanese government announced the approval of the new virtual currency settlement system "Crypto Garage" project. This system settles virtual currencies and cash in a reliable and instant manner. Virtual currency traders can exchange virtual currencies and cash at the same time.

Luis Buenaventura:

One startup I want to highlight is Bitspark in Hong Kong. The founders are George Harrap and Maxine Ryan, who have been working in this field for 5 years. Asians don’t necessarily think the same way as North Americans do, and I think it’s a better strategy to make products that are based on the region’s needs, rather than trying to force a product designed for the Western market into here, which is likely to be unacceptable. They are now doing the exchange of fiat and cryptocurrencies in Asia and Africa, without going through any financial institutions such as banks.

(over)

After listening to the whole conversation, I felt the fundamental difference between Eastern and Western cultures in accepting cryptocurrencies. Although the soil is different, people "need" cryptocurrencies to some extent . People need cryptocurrencies, on the one hand, as investment products, because our investment options are too limited. On the other hand, especially for Bitcoin, it may have more significance. For those areas where the currency is severely depreciated (such as the Philippines), people may be more willing to hold it, but Bitcoin does not have many payment attributes (payment scenarios), so the popularization prospects of cryptocurrencies like Libra are more obvious.

Except for Japan, the attitudes (policies) of various countries towards cryptocurrencies seem to be constantly fluctuating. However, in any case, there are still some people who use blockchain to build a technical financial transportation channel for inclusive finance and for people who are not covered by centralized financial facilities. This seems to be a dark road, a road that is blocked everywhere, but it must be a free road.

Reference Podcast:

https://unchainedpodcast.com/how-asias-trading-culture-results-in-a-vastly-different-crypto-scene/

Compiled by: Jessie

Source: Orange Book