Eye on Aisa: Binance Market Entry Breakdown (2/2)
Part 2: East Asia
TL;DR
Recently, Binance has been shifting its focus to the Asian market due to regulatory pressure and lawsuits from U.S. authorities making its operations difficult in the U.S.
The Asian market is actively showing continuous interest in the crypto asset market to boost its stagnant economic growth through blockchain, a new growth industry.
Although the paradigm of the crypto asset market has previously been centered around the U.S. and Europe, the potential for a pivot to the Asian market is becoming evident due to its openness to crypto.
Introduction
As previously explored, the global cryptocurrency exchange Binance is actively penetrating the Asian market. This is apparent through 1) their efforts to secure VASP (Virtual Asset Service Provider) licenses in major Asian countries and 2) the significant hiring effort that's currently underway.
Binance is swiftly expanding into Southeast Asian market where there is high growth potential, but it is also putting hard effort into the East Asian market as well. This is due to East Asia's robust economic infrastructure and high market liquidity (aka purchasing power). Binance focusing particularly on Hong Kong and Taiwan. In addition, recent indications suggest potential acquisitions of local cryptocurrency exchanges in South Korea and Japan, thereby expanding its influence across East Asia.
Hong Kong 🇭🇰
Binance's journey began in Hong Kong in 2017. As an hub for Asian finance, Hong Kong's economic freedom provided fertile ground for emerging industries such as blockchain technology. However, in 2017, Hong Kong's high rate of economic freedom became constrained as China and its banks initiated a series of regulatory measures on cryptocurrencies. By March 2018, Binance had moved its headquarters to Japan, Taiwan, and Malta.
As of June 2023, Hong Kong is opening up its virtual asset market, attracting numerous cryptocurrency exchanges once again. In fact, Huobi expressed interest in moving its headquarters from Singapore to Hong Kong. It's highly likely that Binance will apply for a virtual asset business license, like its counterparts. Unfortunately, the road to obtaining the license might be bumpy and costly due to an ongoing case with the U.S. Securities and Exchange Commission alleging securities law violations. This could potentially delay the acquisition of the license until the final verdict.
Taiwan 🇹🇼
In March 2018, Binance established an outpost office in Taiwan following Hong Kong and Japan. However, the lack of clear cryptocurrency regulations or licensing rules in Taiwan has led Binance to be cautious, maintaining only a passive presence. Most of their recent hiring in Taiwan seems to be focused on maintaining existing services rather than active expansion.
However, with increasing positive discussions on virtual assets and the approval of 24 exchange platforms under Taiwan's anti-money laundering law, the tide may be turning. Among those approved are the Taiwan local exchange Max Exchange, Bito Pro, and Ace Exchange. Taiwan's government announced concrete plans in March 2023 to regulate the virtual asset market via special legislation as the cryptocurrency market gained regulatory interest. Yet with the nascent stage of these discussions and the dominant influence of local exchanges, Binance’s entry into the Taiwanese market will not be smooth-sailing.
Japan 🇯🇵
Recently, Japan is the most rapidly growing virtual asset market in East Asia, with recent trading volumes nearly doubling in size.
Previously, Binance once moved its headquarters from Taiwan to Japan. However, without the Japanese regulatory body's approval, Binance had to halt its services upon the Financial Services Agency's request.
Binance had hoped to re-enter the market via a partnership with the local cryptocurrency exchange TaoTao, but this plan collapsed when TaoTao was acquired by Japanese financial giant SBI. However, with the collapse of FTX and other major incidents, Binance saw a new opportunity and announced its official entrance into the Japanese market by acquiring 100% stake in Sakura Exchange BitCoin, a local cryptocurrency exchange once operated by Kakao Piccoma (Webtoon Enterprise).
Binance has expressed its commitment to adhere to Japan's virtual asset regulations and plans to launch a cryptocurrency exchange for Japanese residents by the end of 2023. With Japan's tax policy on virtual assets becoming increasingly relaxed, the entry of Binance is expected to bring interesting developments to Japan's virtual asset market.
South Korea 🇰🇷
In April 2020, Binance made its foray into the South Korean market. Partnering with the local blockchain startup BxB, it launched Binance KR. This service was designed to cater specifically to the Korean market, even offering a won-denominated stable coin (BKRW).
However, Binance KR did not flourish as hoped. It struggled to compete with established domestic exchanges such as Upbit and Bithumb (Combined market share above 90%). Furthermore, tightening cryptocurrency regulations, like the Special Financial Transactions Information Act, resulted in Binance KR terminating its services in August 2021.
The curtain seemed to be falling on Binance's efforts in South Korea until late 2022, when the cryptocurrency market was rocked by the bankruptcy of FTX. This event caused a ripple effect, putting GOPAX, one of the top five exchanges in Korea with KRW handling license, at risk of failing to refund its customer deposits. Binance stepped in to provide financial assistance, ostensibly to protect investors and the market. However, speculation emerged that this move might have a hidden agenda: preparing the ground for a possible acquisition.
The prospects of Binance's takeover of GOPAX started to gain momentum as Binance appeared to be nearing an agreement with the U.S. Securities and Exchange Commission (SEC), showing willingness to substantially comply with American financial regulations. Yet, the deal is not yet sealed; it still needs court approval, and the process might take a significant amount of time. Even if Binance were to enter the Korean market through the acquisition, it could still face challenges attracting users from well-entrenched domestic exchanges like Upbit and Bithumb.
✅ Recap: Binance Market Entry Breakdown
Conclusion
The landscape of cryptocurrency regulation is shifting globally. Major countries are moving swiftly to tighten regulations and strengthen investor protection. Countries like Canada, the Netherlands, the UK, and Belgium are pushing Binance out completely or bringing it under regulatory control. The U.S. has even charged Binance and Mr. CZ for securities law violations.
However, Asia seems to be moving in the opposite direction. The region is showing an inclination to ease regulations and adopt a more open or embracing policy towards the cryptocurrency market. This trend is particularly evident in Southeast Asia, where traditional finance is less developed, and in East Asia, which seeks to invigorate its economic growth by embracing a promising new industry. Furthermore, in greater Chinese region, with Hong Kong at its outpost, is also showing signs of openness towards cryptocurrencies. These developments suggest that the global paradigm of the cryptocurrency market, which has been U.S. and Eurocentric, could potentially be shifting towards Asia.