As U.S. and European regulators continue to deal with the aftershocks of the FTX meltdown in late 2022, East Asia is emerging as a global leader in cryptocurrency regulation. Japan and South Korea in particular are preparing comprehensive cryptocurrency legislation that aims to protect the rights of crypto investors, with some of these regulations already in place, while other ones are expected to come into force later this year.

One reason that these countries are so focused on pushing forward wide-ranging regulations is that they both faced intense crypto turbulence long before the implosion of FTX. For years, Japanese investors have been the victims of hacks against crypto exchanges, which prompted regulators to demand exchanges separate customer and corporate assets, require most exchange assets to be kept in cold wallets, and compel exchanges to maintain significant reserve capital to hedge against risk. These regulations meant that FTX Japan’s customer assets remained essentially unscathed.

In South Korea, government regulators started working on the Digital Asset Basic Act (DABA) in June 2022, a month after the collapse of stablecoin issuer Terra, which was co-founded by Korean national Do Kwon.  

Now, the Web3 Project Team of Japan’s ruling Liberal Democratic Party is proposing a slew of regulations that cover NFTs, DAOs, and stablecoin trading licenses. Meanwhile, South Korea’s legislature is debating 17 crypto proposals for DABA on a bipartisan basis that addresses areas such as reserve requirements, NFTs, and the metaverse.

Adding in the already-strict cryptocurrency regulations in mainland China and the digital asset policies announced by Hong Kong this past autumn, East Asia now arguably boasts the world’s most mature crypto legislation. However, the regulations still reflect the significant differences that exist among East Asian nations.

While factors like global regulatory cooperation and influence from tech giants such as Samsung have a notable impact on regulations in Japan and South Korea, respectively, China’s crypto regulation ecosystem — including its initiatives to develop Web3 and the metaverse — is almost completely state-owned and driven.

As such, the People’s Republic of China has no incentive to allow cryptocurrency trading within its territory or to relax the government’s influence over national tech giants anytime soon.

Going forward, it will be interesting to observe how China, Japan, and South Korea each promote their immense cultural resources and IPs in the metaverse according to their respective regulatory frameworks.

In addition, the competition between financial hubs like Hong Kong and Singapore, and between ambitious countries like Japan and South Korea in attracting digital assets will also likely intensify. However this competition ultimately plays out, East Asia is poised to play a major role in global crypto legislation in 2023 and potentially set the tone for broader regulations in other key global markets worldwide.    


Analysis Market