This document discusses cryptocurrency opportunities and challenges in Asia. It provides background on Kapronasia and an overview of Asia's financial services landscape and needs. Regulation of cryptocurrency has varied across Asia, with more developed markets like Singapore and Hong Kong taking a measured approach. In China, cryptocurrency speculation was regulated though innovation in payments is still encouraged. Overall, cryptocurrency is most likely to succeed in Asia by enabling cheaper and more convenient international and remittance payments.

1. Crypto-currency in Asia -
Where are we today?
Zennon Kapron
Updated: October 7th, 2014

2. Kapronasia Background
• Founded in 2007 with the specific intent of helping financial
technology companies understand and take advantage of market
opportunities in the China Financial Services market
• Three business focuses: Research, Consulting, Sales Enablement
• Offices in Hong Kong, Shanghai, Singapore
Selected Clients:

3. Today
• Cryptocurrency in Asia
– Regulation
– Opportunities
– Challenges
• China
– Development
– Bitcoin / crypto in China
• Summary
• Q&A
3

4. Asia: The Basics
• Largest economic block in the world
• 48 countries
• 100+ languages and dialects
• 20+ currencies
• Varying regulations, cultures, practices…
• Increasingly wealthy customers and companies
• But also one of the least mature financial services industries ->
challenges & opportunities
4

5. Asia: What the region needs – Payment Opportunities
• Diverse domestic payment systems
– Vary by country
– Very few interoperability standards
– Potential for an Asian SEPA*? Possible with out an Asian EUR?
• Corporate International payments
– Leads the world in trade, yet payments are antiquated
– China International Payments System (CIPS) still in draft
– Very few options for corporates
– SMEs are stuffed:
• SWIFT is not cheap especially if you are an SME ($50)
• SMEs already struggling with costs and liquidity
• Ship today, get paid…sometime
*SEPA –Single European Payments Area 5

6. Asia: What the region needs – Remittance Opportunity
• The current remittance market – not as good as could be, but works
– Are people willing to change?
– Do people have the technology to change?
6

7. Asia: What the region needs - Opportunities
– Bitcoin remittance fees high – 10% for bitcoin ATMs
• Western union ~3%
• Brazil $5 to anywhere, any amount
– Needs and challenges vary
• China
– Move money out of country for life for kids
– Limited domestic investment products
– 0.5%
• India
– Avoid taxes
– Diversify investment
– 2-3%
– If there aren’t rupee ATMs, how can we get Bitcoin ATMs
there?
7

8. Asia: What the region doesn’t need…or won’t take
• Domestic payments are cheap: $0.10 to send a near-real time inter
-bank payment from SH to BJ
• Merchant payments are (often) cheap: ~1% discount rate in China
• Unplanned risk in the financial system
• Is there a need for a new store of value?
• What problems is it solving?
– Octopus card in Hong Kong
• Has gone from a privatized transit card to one of the most
convenient forms of payment
• Octopus HK Ltd. is a separate company -> focused on profit
– Singapore has EZ-Link – hasn’t yet been allowed to move into
other businesses, but could
– What is easier than swiping a card?
8

9. Asia: Regulation
• Regulation has been a bit all over the map
– Developed financial industries -> more measured response
– Less developed -> shoot from hip
• HK / Singapore will be key bases of development -> measured
approach to new ideas
– HK capital markets?
– Singapore payments?
• Certainly haven’t seen the end of regulation in Asia
– Additional exchange regulation might come
– But payment system / altcoin / ATM hasn’t even started
9

10. 10

11. China: China Basics – Society
• Lots of Rice and Tea…
• 50 years = Incredible Change that still influences
– Revolution 1950s-1970s
– Great Leap Forward 1970s
– WTO 2001
– Continual Global integration
• Heavily cash-based society
• Government is gradually extracting itself from business, but slowly
• The Government is right for China’s development
• Religion not prevalent => No karma => Confucian circles
• One Child Policy…gradually loosening
11

12. China: China Basics – Financials
• Chinese Yuan or Renminbi (RMB) is primary currency
• Fixed by the People’s Bank of China (PBOC, main reserve bank)
against basket of currency
• Capital Controlled Currency
– Individuals limited to US$2,000/time, US$50,000/year
• Investment options limited
– Capital Markets Restricted
– Bank deposit rate is fixed
• Real-estate and assets have become investment destinations of
choice -> asset bubbles
• China is not yet operating with a market mentality
• ….but – understands that it eventually will
• Financial Sector faces numerous challenges
– Lending still heavily towards state owned enterprises
– Shadow lending is a huge issue
12

13. China: China Basics – China Today
• World’s biggest land-grab
• 1.4B+ people = competition for
scare resources
• Increasingly wealthy middle-class
• Sacrifices for economic growth
(bad pollution, poor medical care)
• Developing country with modern
problems
– Obesity
– Income distribution
– Health care
– Starbucks…
13

14. China: Mobile Phones
China Mobile Phone Users and
Mobile Phone Penetration: Unit
56.3
100 Million, Percentage
64.4
7.47 8.59 9.86 11.12 12.29 12.35
100
80
60
40
20
14
12
10
8
6
4
2
Smartphone sales and % of
Overall Mobile Phone sales
2011-2014 (Unit: Millions & %)
30%
65%
88% 90%
500
400
300
200
100
• Absolute number: 747 million (2009) --> 1.24 billion (Q1-2014)
• Penetration: 56.3% (2009) --> 91.7% (Q1-2014)
14
Source: MIIT
73.6
82.5
90.8 91.7
0
0
2009 2010 2011 2012 2013 2014Q1
China Mobile Phone User
Mobile Phone Penetration
224 266 390 449
100%
80%
60%
40%
20%
0%
0
2011 2012 2013 2014
Mobile Phone Sales Volume
Smart Phones as % of Overall
Mobile Phone Sales

15. China: Could retail innovation be faster than in the west?
15
7
6
5
4
3
2
1
0
Comparison of China's Singles Day to America's
Cyber Monday and Black Friday US$Billion
Singles Day
5.75
1.72
1.2
China U.S.
Black Friday Cyber Monday
Source: Kapronasia, company reports

16. China: Could retail innovation be faster than in West?
• Online money market platforms now have AUM of more than 1
trillion Chinese yuan
• Over 100 P2P lending platforms
• In February 2014, Alipay announced payment volume nearly 6 times
PayPal in 2013…
16

17. China: Bitcoin and crypto
• Yet…with all that innovation, Bitcoin is on the sidelines.
• Speculation ruled, usage didn’t grow
• Regulators had no choice to move
• Yes, “Bitcoin is not illegal in China” but neither is it usable
• Innovation is not being regulated, but speculation is
– Alipay / Yu’ebao: ~1% of Chinese deposits, no regulation
– Bitcoin: maybe 0.0001% of Chinese deposits, regulation
• Bitcoin regulation was strong, but likely best for a still developing
financial industry
– China has gotten to the point where the government seems to be
happy with the level of control over bitcoin
• Although the usage was low before, we are seeing new payment
and usage models pick up
– Pay mobile phone bills
– P2P Lending
– Merchants? 17

18. Where can cryptocurrencies thrive in Asia?
Challenges Opportunities
18
Favorable
Regulation?
Need for
new store
of Value?
Would
Crypto
benefit
banking?
Crypto for
Domestic
Payments?
Crypto for International
Payments?
Payments
(Corporate)
Remittance
(Consumer)
China X X ? X √ √
Singapore √ ? X X √ √
Hong Kong √ ? X X √ √
Korea ? ? X ? √ ?
Japan ? ? X ? √ ?
India ? ? ? ? √ ?
SEA (ex-SGP) ? ? √ √ √ √

19. Summary / Closing thoughts
• If Bitcoin and Crypto to be successful globally as a medium of
exchange – Asia / China have to play a part
• If as an enabler of payment systems – not immediately needed
• More developed markets are and will be the primary drivers of bitcoin
in Asia: HK and Singapore
• Smart Contracts could play a role in Asia – might be an easier sell?
• More ‘pure play’ payment blockchain technologies might work – would
China agree to one Ripple gateway if they could monitor it?
• Need for ‘sneaking money out’ is overblown; wealthy have always had
ways to move their money around
• Solutions that win:
– Make things easier than what’s there: convenience, price, speed
– Will solve government’s problems, not the problem of government
19

20. Thanks / Q&A
Visit www.kapronasia.com or send us an email: research@kapronasia.com
Twitter: @chinafintech