Malaysia may become the next Asian crypto center, mainstream cryptocurrencies are still in the doldrums

Malaysia has the key ingredients to become Asia’s next crypto hub. The BTC price chart indicates that the cryptocurrency appears to be oversold, although momentum has waned.

Bad news about the situation in Ukraine continued Monday, driving investors to stay away from cryptocurrencies and other risky assets.

At press time, Bitcoin is trading around $38,300, down slightly over the past 24 hours. Ether traded just above $2,500, down 1.7%. Most other major cryptocurrencies are firmly in the red. It was the third day in a row that the cryptocurrency fell.

A recent attempt by Ukrainian and Russian delegations to negotiate safe passage for citizens of the Black Sea port of Mariupol and other bombed major Ukrainian cities failed.

Investors are concerned about energy prices, which have risen sharply over the past few months, as well as broader inflationary pressures. The average price of gasoline rose to $4.009 a gallon on Sunday, according to the American Automobile Association (AAA), a travel and other services group. That's not too far from the all-time high of $4.11 set in July 2008.

Oil is a tax on the global economy, Ben McMillan, chief investment officer at IDX Digital Assets, told CoinDesk TV's First Mover show on Monday. "We haven't seen oil at this price in over 10 years, and it's just going to continue to drag down the global economy. So I think the big question is really 'how bad is this war going to get and how long it can go on'. "

The tech-heavy Nasdaq Composite fell 3.6% and the S&P 500 fell nearly 3% as stocks struggled through their worst day in more than a year.

McMillan noted that Bitcoin has “priced in a lot of bad news” and that “the war in Ukraine certainly didn’t help.” But he also offered some optimism, emphasizing that investors have recently favored the two largest cryptocurrencies by market capitalization — bitcoin and ethereum — over other digital assets.

“We’re in a sub-$40,000 period right now, and historically we’ve started to see buyers coming out of the woods,” he said. “The structural bull case is complete. I think part of it is that the crypto space is swirling around. Core holdings of bitcoin and ethereum are migrated or consolidated.”

market insight

Financial centers typically need three things: good timing, common law, and a bilingual workforce.

When people think of financial centers in Asia, they usually think of Hong Kong or Singapore. The two cities share many similarities in that they retain a common law court system and, as a product of British colonialism, the workforce has a high level of English.

Singapore is often referred to as Asia’s crypto hub, a term that makes sense on the surface. Whereas the Monetary Authority of Singapore’s regulatory framework has always been considered a comprehensive treatment of cryptocurrencies, understanding the unique complexities of the asset class, Hong Kong has taken a more fragmented approach that, despite everyone’s best efforts, often has a feeling of being out of place.

But we forgot about Malaysia. Also a former British colony, Malaysia retains the institutional use of English as well as the common law court system. This heritage has not been eroded like Hong Kong, the beaches are better than Singapore and the cost of living is low.

Yes, Malaysia is not as spotless and free of corruption as the Lion City, but it does not have the anti-corruption helm of Lee Kuan Yew. Sovereign wealth funds were looted (financing The Wolf of Wall Street), and the police occasionally took bribes. But they know it's not right, and people are sued; in their raucous democracy, parties are thrown into the ballot box.

Based on English common law, Malaysia has a key advantage of being able to refer to case law (law based on judicial decisions) when making regulatory decisions. Because of its clarity, case law is always the preferred method of dealing with changing circumstances, and statutes or regulations are not a precise enough tool to combat. Lawyers specializing in regulatory matters in common law jurisdictions feel a little uncomfortable when authorities decide to use statutes for enforcement decisions.

Fusang, headquartered in Labuan, Malaysia, appears to be going well. Established in 1990 and known as the Hong Kong of Malaysia, Labuan is an intermediate jurisdiction located in Malaysia, but exempt from some rules and tax burdens. Labuan was underground and less well-known until Fusang Corporation pushed it onto the map by issuing digital stocks and bonds.

“It’s paper stocks today, digital stocks tomorrow,” said its CEO Henry Chong, explaining that it’s not a new asset class that needs a new set of rules. The clarity already exists because there are existing securities rules.

Chong believes that there are a lot of clear regulations on digital assets in the market. Those who don't speak clearly are complaining about having to follow the rules.

However, what Malaysia does not have is a mature capital market like Hong Kong. Kuala Lumpur is not synonymous with a financial center like Hong Kong. From a digital perspective, Singapore is also not mature enough.

“In the digital world, geography is starting to matter less. Financial centers are often developed around geography — Hong Kong is a prime example,” Chong said.

Chong believes that more competition will begin across jurisdictions and the case for Malaysia to be the next centre is sound.

Chong is not the first to make this point. CoinGecko, a contender for CoinMarketCap, was founded in Malaysia and continues to operate there, as well as in Singapore. Malaysia still has no capital gains tax on cryptocurrencies, and its educated, English-speaking workforce is quickly making a good impression on the decentralized finance (DeFi) industry stakeholders.

The mass exodus caused by the Covid-19 outbreak in Hong Kong could benefit Malaysia. Statistics released show that 76,000 more people have left Hong Kong than have arrived since March 2020, and the pace of departures has picked up over the past week as the city tries to enforce its strictest Covid-19 policies.

Some return to Europe, others go on holiday to Thailand, and maybe some to Malaysia. Remote work has become the norm. But the question is, how many will come back? This may be a must for the industry to consider decentralization, especially to regions with the same legal DNA.