How things change in crypto - in January 2017, before the crackdown by the authorities, China accounted for nearly 100% of bitcoin trading...
In the “golden era” of Chinese crypto trading, mainland operators built up considerable expertise before they were forced out of business. Some of those operators of Chinese exchanges are setting up again in “friendlier” jurisdictions around Asia, as Bloomberg reports, and their aspirations are global.
From OKCoin to Binance.com, Chinese exchanges and wallet services are seeking a second life in friendlier Asian jurisdictions as the mainland clamps down on trading and coin offerings. They’re applying for licenses in Japan - solo or via partners - setting up over-the-counter shops in Hong Kong, or laying the groundwork to operate from Singapore and South Korea. Forced out of their own home turf, the players that once dominated the world’s largest digital currency market are betting that investors harboring an insatiable demand for alternative investments will follow. Going abroad may help operators hedge risks, attract new customers and stake out other corners of the $170 billion industry.
“China used to account for a significant share of the cryptocurrency market, so we think the demand is there," said Hong Kong-based Lennix Lai, the financial market director for OKEx, which is backed by OKCoin.
“As formerly one of the biggest operators in China, we think we have a good chance of competing globally.”
The favourable treatment of cryptocurrencies by the Japanese authorities is a draw for some operators, according to Bloomberg. Exchange start-ups live or die by their ability to execute transactions, which is why it matters where their operations and servers are located...
Japan has emerged as a safe haven for many operators because of favorable policies: the domestic financial regulator approved 11 exchanges in September alone, with some like BTCBox already servicing a wide base of Chinese customers. The agency’s close involvement reflects a desire to root out money laundering and also prevent another fiasco like the collapse of Mt. Gox. That helped Japan regain its title as the world’s largest cryptocurrency market in past weeks. There’re at least 19 companies applying for a Japanese license. Zhao Changpeng, CEO of exchange operator Binance.com, says he too is looking for local partners and even considering acquiring an operational exchange. Others including Beijing-based Bixin have also expressed interest. Its overseas app is known as Pocket IM, a messaging service that doubles as a bitcoin wallet. The initial reception has been warm.
Quoine, a Japanese fintech company attempting to build a global liquidity platform in cryptos, is negotiating with a number of potential Chinese partners, From Bloomberg.
“We’re talking to almost all of those guys. They’re all desperate now,” said Mike Kayamori, head of Quoine, which last month won a license to operate a bitcoin exchange in the country. Kayamori expects to sign a deal with a Chinese partner by the end of the year.
“There’s a lot of Chinese retail people reaching out to us, but we can’t handle it. So if a Chinese partner can handle all of those and they connect to us, that will be much easier.”
Singapore is another option.
Others are exploring Singapore as a backup option, though the island nation has yet to enact specific regulations. Bitmain, which operates the world’s largest mining collective, said it’s opening a regional headquarters there. Co-founder Wu Jihan said he wants to recruit talent from Southeast Asia, and tap a hub of commerce that serves as research bases for the likes of Nvidia Corp. and Alphabet Inc.
Some Chinese firms are not only going it alone, but are looking to attract business from mainland China…indirectly.
OKEx is one of those going it alone, and in Hong Kong. It wants to corral Chinese investors who’ve resorted to peer-to-peer trading over messaging apps like Telegram since the clampdown: basically Chinese investors can still buy from individuals who’ve access to overseas markets. OKEx wants to scale that by rolling out its own over-the-counter trading platform in Hong Kong. They’re now trying to recruit people to act as third-party market makers, who’ll chaperone deals, make money off a spread and then split the revenue with OKEx. Lai expects to attract customers mostly from China, Russia and the U.K.
The Bloomberg report finishes on a cautionary note...
Wherever Chinese operators end up, one thing is clear: as regulatory winds continue to shift, exchanges and other cryptocurrency players need to be nimble enough to swiftly operate and move across various jurisdictions.
...because unlike other markets these days, the problem with cryptocurrencies is volatility, both in terms of regulation and price.