Over the past three years, East Asia has strengthened its role as a major hub in the global crypto and stablecoin market. The region is home to five of the world’s top 50 crypto adopters—South Korea, China, Japan, Hong Kong, and Taiwan. From July 2022 to June 2023, it accounted for 8.8% of global crypto activity. This share rose to 8.9% between June 2023 and July 2024, positioning East Asia as the sixth-largest crypto economy in the world.
These massive adoption rates have sparked conversations about the potential for stablecoins and cryptocurrencies to challenge the dominance of fiat currencies in the region. This analysis explores the driving factors behind this rise and what the future of money might look like in East Asia.
Economic Woes Fuel Stablecoin and Crypto Adoption in East Asia
The surge in stablecoins and cryptocurrencies in East Asia can be attributed to several interrelated factors, including the devaluation of local currencies, rising inflation, and favourable regulatory environments. These dynamics have created a perfect storm for the digital asset market, encouraging more people in the region to turn to these alternatives as a hedge against economic instability.
According to Eric Jardine, Cybercrimes Research Lead at Chainalysis, there is a causal relationship between currency devaluation and the rise in stablecoin adoption. He explained that as local currencies lose value, individuals seek the stability offered by stablecoins, especially USD-backed ones. This is exactly the case in some East Asian countries.
Take South Korea, for instance; the sharp decline in the value of the Won in 2024 offers a glimpse of this. In April, it lost over 7% of its value against the U.S. dollar, the steepest fall since the 2008 financial crisis. By September, the country’s annual inflation rate fell to 1.6% from 2% in August. South Koreans began seeking safer alternatives as the Won weakened, leading to a noticeable shift toward stablecoins and cryptocurrencies.
In China, while inflation remained relatively low at 0.60% in August 2024, the yuan experienced a 2.2% depreciation throughout the year. Domestic challenges, such as weak consumer demand and a struggling property market, triggered capital outflows. Many Chinese citizens turned to cryptocurrencies despite the government’s strict regulations on crypto trading.
Japan, on the other hand, recorded rising inflation, with rates hitting 3.0% by August 2024, alongside significant volatility in the yen, which reached its weakest level since 1986. This forced the Bank of Japan to intervene twice during the year to stabilize the currency. Amid these fluctuations, more Japanese investors turned to stablecoins as a way to protect their savings.
Similar patterns emerged in Hong Kong and Taiwan. Hong Kong’s inflation hit 2.5% in August 2024, while Taiwan’s reached 2.36%. In Taiwan, the central bank actively worked to keep inflation below 2%, its “warning” threshold, which spurred further interest in alternatives like stablecoins.
Regulatory Clarity also played a role.
Beyond economic pressures, favourable regulatory environments in certain East Asian countries have played a major role in driving adoption. Early in 2024, Hong Kong’s Securities and Futures Commission (SFC) introduced and implemented a licensing system for virtual asset trading platforms. This regulatory framework ensures consumer protection while creating an environment for innovation. By mid-2024, Hong Kong emerged as the fastest-growing market in terms of global crypto adoption, with 40% of its value coming from stablecoins.
In South Korea, regulatory advances came with the full implementation of the Virtual Asset User Protection Act (VAUPA) in July 2024. This law safeguarded users’ assets and empowered regulators to ensure a safer and more transparent crypto market. Japan also relaxed its rules around token listings in September 2024, further encouraging blockchain-related projects.
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Fiat currency dominance & the future of money in East Asia
While stablecoins and cryptocurrencies are gaining ground in East Asia, they are not yet close to overtaking fiat currencies. Traditional fiat currencies, deeply embedded in these economies, remain important and popular due to the control central banks wield over monetary policy. These institutions manage inflation, control interest rates, and ensure economic stability, giving them considerable power to maintain fiat dominance.
Though fiat currencies continue to dominate more traditional sectors, such as government-controlled economies, national banking systems, and mainstream investments, stablecoins are increasingly carving out a niche where they struggle, particularly in cross-border trade and DeFi. In these areas, stablecoins offer advantages like speed and cost efficiency.
However, despite their growing appeal, cryptocurrencies face several obstacles to broader dominance. Regulatory uncertainty remains a key challenge. While countries like Hong Kong and South Korea have made strides in creating favourable environments, others, such as China, continue to impose stricter controls.
Additionally, volatility within crypto markets poses a hurdle. While stablecoins are generally less volatile than other cryptocurrencies, they are not entirely immune to market swings. Security concerns like hacking and fraud also present risks that limit broader adoption.
Yet, the economic benefits that stablecoins offer, particularly in times of currency devaluation and inflation, make them attractive alternatives. So, rather than completely overtaking fiat, these digital assets are more likely to act as complementary tools, particularly in cross-border payments and digital trade.
Finally, East Asia’s growing reliance on stablecoins and cryptocurrencies reflects broader economic and regulatory shifts. While traditional fiat currencies are unlikely to be completely replaced, the balance between them and digital currencies may continue to shift.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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