Asia has become a hotbed of cryptocurrency startups and investments. Until recently, in fact, the total lack of government intervention and regulation has made the region an open playing field for startups issuing their own tokens as investment opportunities.
But along with that hype have now come a wealth of issues, not least of which include fraud and government intervention across the entire sector. For investors who are not seasoned and well-informed, these two issues present substantial challenges.
In general, the money going into cryptocurrency investment in Asia is ahead of the West. Until the crackdown, Chinese investments alone were as much as 80% of all global trades. Now, Japan and South Korea are the hotspots, with trades making up about 50% of the global market.
In the lesser developed countries of Asia, investor awareness lags behind. As governments in these countries move to establish policies and regulations regarding the crypto markets, they would also do well to launch programs that promote education for their citizenry.
Clearly, given the number of investors taken in by scams and frauds, there is a lot of room for investor education in the realm of cryptocurrencies. That education involves two facets:
- Understanding that the cryptocurrency market is highly speculative and risky, and that any promises of guaranteed returns are fraudulent.
- Understanding the government regulations surrounding cryptos both as legal tender and as investment opportunities.
Hong Kong, for instance, has opted not to ban cryptocurrencies. Instead, they are acting to educate the public on the risks through a campaign via the Investor’s Education Center. At the end of past year, Thailand was also starting an educational initiative.
The Depth of Knowledge Among Individual Investors is Also Concerning
One area of concern is the lack of true knowledge among individual investors. While 88% of those surveyed in Japan indicated an awareness of cryptocurrency, that understanding doesn’t appear to go very deep – 82.9% have never purchased it and 56.2% had heard of it, but didn’t know exactly what it was.
In India, stakeholders from various businesses were surveyed. This study showed 97% awareness. In spite of this, none of those surveyed had ever used cryptocurrency in their own businesses.
This lack of deep understanding of how blockchain technology works and what exactly cryptocurrency is has the potential to lead to a number of serious problems.
Crypto-Fraud and Hacking
Cryptocurrencies represent fertile ground for fraudsters, and the financial literacy of the average investor, especially in economies that are still developing, is not keeping pace with their growth.
Crypto startups are promising investors guaranteed returns for their investments, and this is obviously bogus. Like any other form of investing, putting money into Bitcoin and other cryptocurrencies involves taking risk, and those choosing to invest should become as educated as possible. Because government regulation has also not kept pace with the cryptocurrency boom, fraudsters can close up shop and quietly slip away with investors’ money. Investors have little choice other than to file complaints with their governments.
Virtually every country in Asia has individual investors who have filed complaints about being scammed through crypto investments. For example, the Thai government is trying to track down a bitcoin investment scam that targeted Buddhist monks, apparently recruiting 800 investors before it was discovered.
Even more legitimate platforms have been subject to hacking. Japan’s Coincheck recently lost $530 million through a hack, although investors have been promised a reimbursement.
The crackdown on crypto trading is real, and governments are faced with a real dilemma – how to regulate cryptocurrency exchanges without discouraging legitimate business opportunities for entrepreneurs and traders. Here are a few government responses just within the past year:
Vietnamese officials are beginning to formulate a legal framework for cryptocurrency operations within its country. In the meantime, the State Bank of Vietnam has decreed that Bitcoin and other cryptos are not a legal method of payment. When this decree may be eased will depend upon how long it takes for government officials and regulators to put policies into place.
South Korea and China have issued bans on ICO’s. and in South Korea, Bitcoin traders must identify themselves to authorities or face fines and prosecution. Indonesia has followed in the steps of Vietnam, decreeing that Bitcoin is not a legal method of payment.
In Hong Kong, Singapore and Japan, cryptos have a better environment but will be regulated as any other security – something that may give greater comfort to investors.
But the result of all of this government intervention has left many startups and other businesses who have incorporated cryptocurrency investments into their financing in a bit of a “legal limbo” that hampers their growth. Clearly, before cryptocurrency investment and trading will go mainstream the regulating bodies and the businesses will need to work out some mutually acceptable operational guidelines that would protect both individual and institutional investors.
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