Four Reasons Asia Loves Crypto

July 16, 2019 / by Peter Pham
asia loves crypto

Well, at least people in Asia do.

 The soaring values of cryptocurrencies these last few years have naturally caught the eye of investors in the region looking to grow their wealth fast.

In general, cryptos are viewed as investment vehicles that possess a real potential for strong performance and handsome profits.
 
However, for governments in the region, the crypto question—or ‘problem’, depending who you ask, is not so simple, and this has been reflected in their confusing approach and attitude towards blockchain-based currencies.
 
For now, I’d like to share my thoughts on what makes investors in Asia so inclined to play the crypto game. It’s not just a question of economics, but history, politics, and culture.

1. Gambling Culture

The riskiness of crypto strikes a chord in East Asia. The Chinese and ‘Sinosphere’ of cultures that include Korea, Japan and Vietnam have been required throughout their history to endure harsh risks for potential gain.
 
Despite Japan being considered a very risk-averse society, this attitude extends mostly to physical and social safety.
 
This is not surprising considering the country’s geographical location on a volcanic archipelago where the threats of earthquakes, eruptions and tsunamis are a fact of daily life.
 
However, bring money into the equation, and things change.
 
There’s a reason pachinko—a type of slot machine gambling—is so popular in the country, and that’s the same reason that Macau, a self-administered part of China, is the biggest gambling center in the world.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Vietnam, local people aren’t allowed in casinos; you need a foreign passport to enter. Similar restrictions apply in China.
 
So, the risk-tolerant, gambling-loving nature of many East Asians—which until now has been effectively repressed—is fueling demand for cryptos, which has proven difficult to regulate for many governments.

 2. Limited investment options

Due to the highly-structured, often-monopolistic nature of economies in the region, without the right connections, locals have limited options for increasing their wealth.
 
Digital currencies offer an opportunity to access new and foreign markets, circumventing tight government controls.
 
Despite serious uncertainty, they offer a change to mainstream assets that are prone to manipulation, corruption, and government meddling.

3. Mining

 Why is crypto mining so attractive in places like China and Vietnam?
 
Cheap electricity and low relative incomes.
 
It’s too expensive to mine crypto in developed nations, so miners have flocked to developing nations to take advantage of their cheap electricity.
 
This, in turn, has created a great return on investment for Chinese entrepreneurs who have created new and more efficient technology to cater to the crypto miners.
 
Also, since governments here have not yet found a way to regulate their activities like they have elsewhere, crypto miners have been able to flourish.

4. Government flip-flopping

 The Chinese government has an odd, love-hate relationship with crypto, and its approach for the most part represents the approach of South Korea, Japan and Vietnam.
 
…which is one of confusion and mixed signals.
 
One the one hand, they have banned multiple cryptocurrency exchanges. Yet they have also indicated that some kind of formalization and regulation of cryptocurrencies will be found in the future.
 
As we previously wrote, China is leading the world in filing blockchain-related patents.
 
The Chinese government even included blockchain technology development into its 13th 5-year plan, which focuses on the development of innovative technologies that give the nation an edge domestically and internationally.
 
I’ll discuss each nation’s specific approach in a later article.

Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). He currently manages the portfolio of Global Growth and Income Fund, an open-end fund designed to outperform the MSCI-Barra World Free index with a mix of high-growth and mature high-income vehicles. He also runs an asset management company, Phoenix Capital, that offers investment and financial advisory services. Recently, he partnered with S&P Dow Jones to construct the VN30 Equal Weight Index. Read More