Many friends asked me to systematically write about what’s happening in the Eastern crypto landscape, as it’s so opaque to people in the West. So when Soona Amhaz got me to promise to write a column about this, I used it as a forcing function to start this series as a brain dump of what I’ve learned by spending time in both sides of the crypto world. “Journey to the West” is one of the four great Chinese classics, a tale of a legendary group of friends and their journey. This column will be our little journey of enlightenment into the Asian crypto scene!
A bit about me: I was born and raised in China, and moved to the US to pursue a Masters degree at the age of 20. I deeply felt the pain when a strict annual quota of $50,000 per individual of foreign exchange currency was implemented for all Chinese people by the government — this affected all of my expenses overseas, including tuition and rent. The appeal of a borderless and permissionless world digital currency was obvious to me from day one.
Traditional venture business has been very regional or at least started as a very regional business, and Silicon Valley has been the center of technology innovation over the past few decades. However, crypto and blockchain innovation may be the first time Silicon Valley will not have an unfair advantage.
Since the early days, China and Korea have been major players in the crypto landscape. The top exchanges were started and still operate in China, and most of the biggest mining operations are also Chinese. In Korea, strict capital controls coupled with high demand and low supply created a massive “kimchi premium“ which kicked off a wave of crypto hype among Korean citizens. The hype of crypto and token investment, and the desire for social mobility via overnight riches have become a social phenomenon. Investing in crypto has become the Chinese and Korean “American dream”.
Being deeply plugged in the Eastern community, in the first article of this series I will clarify a few major misperceptions that are not obvious to the Western community
Did the ban last year put everything on pause in China?
The Chinese government officially banned ICOs in Sep 4th 2017 (if you say “9–4” to anyone in the Chinese crypto scene, they know you’re referring to this infamous day) but it hasn’t slowed crypto investments at all. If anything, the massive amount of news coverage of the ban has been the best publicity crypto in China could possibly have wished for. Immediately after the ban, everything quickly migrated from fiat exchanges to OTC transactions. The biggest OTC player processed around 20 billion RMB (around 3 billion USD) in last 12 months. As long as you have AliPay or Wechat Pay, you can buy bitcoin easily in a decentralized P2P way. Alipay has 400 million daily active users and Wechat Pay has 600 million, so now more than half a billion users have direct access to bitcoin if they want. There are also still millions of people investing in crypto presales through re-selling agencies who have access to allocation (although there is also a huge problem with scammy resellers who resell allocation they don’t actually have) or investing using ID information borrowed from friends in other countries. China nowadays has more than 200 crypto funds which are focused on primary investments, and that’s a conservative estimate. In 2018 globally I expect China remains the biggest player in crypto in terms of sheer numbers of investors, miners, exchanges, and crypto-focused entrepreneurs.
Did the exchanges all shut down last year?
Many exchanges did shut down last year including BTCChina and Yunbi, but quite a few survived (Huobi Global, OKEx, gate.io) and several new players have emerged (Binance, Bibox Exchange). What doesn’t kill something often makes it stronger. These exchanges are still primarily operating in China with offshore legal structures, and have quickly adapted to the large demand of token-to-token trading, although many of them used to be fiat-to-BTC only exchanges (like Huobi, which only even listed ETH in early 2017). Crypto exchanges have also tried to expand and influence the direction of blockchain development with the massive wealth they’ve accrued. They’re participating as dPoS and PoS masternodes in major blockchains like EOS, issuing their own platform tokens, and in many cases are even in the process of building their own public chains. Chinese exchanges nowadays are acting as exchanges, retail banks where retail investors can basically park their cryptocurrency, investment banks and underwriters, and market makers all in one. They’re creating vertical monopolies and are becoming “too big to fail”. Some of them have pretty aggressive franchise model of “exchanges on the cloud” — basically offering their backend to various local exchanges operators who have money and licenses, and then sharing that same backend and liquidity with the mother exchanges own tech stack. A few of the top ones, are preparing for IPOs in Hong Kong to feed the appetite of the massive capital markets who are looking for crypto-related assets.
In my next update, I will talk about the status of running ICOs or token projects in China, how miners and mining operations have been doing after the ban, and what’re my recent key takeaways from a trip to Korea. Hopefully, these can help you understand the eastern crypto landscape a bit better; feel free to contact me at dovey.wan@gmail.com and follow me on twitter @DoveyWan
