Asia’s crypto industry is witnessing profound changes as governments across the region implement stricter regulatory measures while fostering innovation.

Key developments in India, Thailand, Japan, Hong Kong, and Indonesia highlight a collective move toward a more structured approach to digital assets, with each country overcoming its unique challenges and opportunities.

Tax Tensions: Binance Hit with $86 Million Demand in India

India’s Directorate General of GST Intelligence (DCGI) has issued a notice to Binance, demanding $86 million in Goods and Services Tax (GST) payments. The DCGI alleges that Binance, classified as an online information database access or retrieval (OIDAR) service provider, has failed to remit the appropriate taxes.

The company collected fees from Indian customers trading virtual digital assets but did not deposit the taxes. Local media reported that Binance’s earnings from transaction fees charged to Indian customers were substantial, reportedly amounting to at least $476 million. The fees were credited to Nest Services Limited, a Binance Group Company based in Seychelles.

Read more: The State of Crypto Regulation in India

Japan Takes Cautious Stance on Crypto ETFs

Japan continues to take a measured approach to the crypto market, particularly concerning the approval of crypto-linked exchange-traded funds (ETFs). Hideki Ito, commissioner of Japan’s Financial Services Agency (FSA), emphasized the need for careful consideration before following other markets like the US and Hong Kong in approving these financial products.

Despite Japan’s technological openness, the FSA remains cautious, prioritizing investor protection over rapid market expansion. This approach could delay the launch of crypto ETFs, even as major financial institutions like SBI Holdings prepare for potential market entry.

In late July, SBI Holdings partnered with US investment firm Franklin Templeton to establish a digital asset management company in Japan to launch crypto ETF products as soon as the FSA approves. Local media reports noted that SBI Holdings will hold a 51% majority stake, and Franklin Templeton will own the remaining shares.

Sota Watanabe, CEO of Startale and Founder of Astar Foundation, commented on the potential of Bitcoin ETFs in Japan. He views this move could prompt serious discussions for the much-needed crypto tax reform.

“With the current disparity between securities and cryptocurrency tax rates, ETF approval could highlight the need for a more uniform approach. This reform could unlock significant investment in the crypto space, potentially leading to a major shift in market dynamics,” Watanabe elaborated to BeInCrypto.

Hong Kong’s Spot Crypto ETFs Face Tough Terrain

Hong Kong’s foray into crypto ETFs has seen mixed results, with recent data showing both inflows and outflows. According to SoSo Value’s data, the spot Bitcoin ETF in Hong Kong recorded an inflow of 69.94 BTC on August 9.

This inflow is noteworthy because it is the first time the funds have recorded an inflow after consecutive days of flows and outflows since July 19. The total net assets of these ETFs have decreased significantly from their peak of $342.16 million on July 29 to $271.21 million as of August 9.

Ethereum-based ETFs in Hong Kong have also experienced similar volatility. On August 8, these ETFs recorded an outflow of 399.09 ETH, followed by an inflow of 1,250 ETH on August 7. Similar to its Bitcoin counterparts, the total net assets of these funds have also declined from their peak.

During a panel discussion at the Foresight 2024 conference, Gary Tiu, Executive Director and Head of Regulatory Affairs at OSL, a leading Hong Kong crypto exchange, highlighted systemic issues within the market that hinder the growth of ETFs. Tiu pointed out that the market structure in Hong Kong creates challenges for ETFs to gain traction as financial instruments.

“In Hong Kong, especially when it comes to funds and structured products, typically in between the issuer and the end investors, there is a very rich layer of intermediaries—brokers, banks, private banks, retail banks, et cetera. Those intermediaries make a lot of money from distributing financial products. So, I think the incentive system in Hong Kong is one of the reasons why ETFs do have a bit of a hard time growing as a financial instrument,” Tiu said.

Indonesia’s Roadmap for Crypto Regulation from 2024 to 2028

Indonesia is taking a structured approach to regulating digital assets. The Financial Services Authority (OJK) released a detailed roadmap for 2024-2028. This roadmap outlines the phased development of regulatory frameworks and industry standards aimed at strengthening Indonesia’s position in the Asia crypto industry.

The roadmap’s initial phase focuses on building strong regulatory foundations, while subsequent phases will highlight industry growth and long-term sustainability. Notably, the OJK has also introduced a regulatory sandbox to facilitate innovation within a controlled environment, allowing businesses to test new technologies while ensuring compliance.

In addition to regulatory development, Indonesia is tightening controls on crypto marketing, particularly by influencers. The new rules, which restrict promotional activities to official channels, have sparked debate within the crypto community.

Some crypto influencers have raised their concerns that excessive regulation could stifle innovation. However, the OJK maintains that these measures are necessary to protect investors and ensure market integrity.

Thailand’s Regulatory Sandbox Paves the Way for Digital Asset Innovation

Thailand is also making strides in the Asia crypto sector with the launch of its Digital Asset Regulatory Sandbox. This initiative, led by the Securities and Exchange Commission of Thailand (SEC Thailand), aims to provide a controlled environment for the testing and development digital asset services. By offering a structured framework, the sandbox allows businesses to innovate while adhering to regulatory guidelines, ultimately fostering a more secure and dynamic market.

Participants in the sandbox, including exchanges, brokers, and fund managers, must maintain transparency and solid operational systems. Furthermore, the SEC Thailand has set a clear framework for continuous reporting and risk management, ensuring that the innovation process does not compromise investor protection.

Read more: Crypto Regulation: What Are the Benefits and Drawbacks?

The sandbox is expected to be crucial in expanding the range of digital asset services available to investors in Thailand. Businesses interested in participating can start applying from August 9, with the SEC Thailand evaluating submissions within 60 days. Approved participants will have one year to conduct their tests, possibly extending the period or concluding the experiment early, depending on the outcomes.