Aspiring crypto hubs including Hong Kong, Singapore and Dubai, face a more challenging outlook as a brightening US political backdrop for digital assets attracts the attention of companies and investors.

Despite this month’s selloff in crypto markets, optimism in the industry remains high that the regulatory tide is turning in the US. Republican presidential candidate Donald Trump is courting the sector in search of donations and votes, pledging to make the US the “crypto capital of the planet”, in part by firing Securities and Exchange Commission chair Gary Gensler, who cracked down on digital-asset firms for flouting rules.

Prospective Democratic nominee Kamala Harris has yet to take a stance on crypto but there are signs that her advisers are seeking a reset of ties with the industry, according to a report in the Financial Times. 

These trends point to the crypto centre of gravity tilting further back to the US, a shift that began with the successful debut of the nation’s first spot-bitcoin and ether exchange-traded funds (ETFs) this year. Those products now face their first major test, after a sharp selloff in crypto assets that peaked on Monday, when bitcoin sank more than 16%. 

Venture capitalists are already mulling more US investments and companies are weighing personnel moves. 

“Due to the hostile regulatory environment in the US, the availability of opportunities shifted overseas over the last couple of years,” said Cosmo Jiang, portfolio manager at Pantera Capital, the investment firm. “As the US continues to make progress and that shifts back, so will our capital allocation.”

While Trump’s pro-crypto stance is a volte-face - he previously dubbed the sector a “scam” - the overall US backdrop suggests the SEC clampdown has peaked. The likes of Hong Kong, Singapore, Dubai and European nations may have to work harder to woo investment into their digital-asset hubs.

Copper Technologies Ltd, a London-based crypto custodian, is considering a fresh focus on the US market, in the event of a Trump victory, according to a person familiar with the matter, who was not authorised to speak publicly. 

Copper opened a New York office in 2021 but drew back from the US, when digital-asset prices collapsed the following year. In a statement, Copper’s founder Dmitry Tokarev said he wouldd be “surprised to hear of a digital-asset firm not looking at the US as an opportunity for growth.”

The US bitcoin ETFs listed in January and have attracted some US$19.4 billion in net inflows to date, part of a record-breaking debut for a new fund category. The dollar, which ceded its role as the most-traded unit against cryptocurrencies to the South Korean won in the first quarter, regained the top spot in May, with more than 50% of global volumes, according to research firm Kaiko.

That capped a major turnaround from last year, when both trading volumes and companies migrated overseas in the face of a string of US enforcement actions, following the 2022 collapse of the fraudulent FTX crypto exchange.

A clearer US regulatory regime would mean “a lot more capital heading” towards the world’s largest economy, said Kelvin Koh, co-founder and chief investment officer at Spartan Capital, which operates from Hong Kong and Singapore. 

While it remains uncertain as to just what kind of crypto environment will emerge in the US after November’s presidential election, optimists anticipate a friendlier backdrop that boosts crypto globally - creating a bigger pie for all jurisdictions, even if America grabs a larger slice.

Given the size of US capital markets, other jurisdictions are likely to follow the lead of its regulators, meaning a supportive framework could have “a broader impact,” said Digital Asset Capital Management co-founder Richard Galvin.

The ripple effects from Trump’s rhetoric are already evident. In Hong Kong, Legislative Council member Johnny Ng said he would discuss the feasibility of “including bitcoin in financial reserves with different stakeholders”, after the former president touted plans for a US bitcoin stockpile in a July 27 speech.

Crypto entrepreneur Justin Sun, creator of the Tron blockchain, highlighted that the US already dominates bitcoin mining, the energy-intensive process through which the blockchain is secured. The US became preeminent in mining, after a crypto ban in China in 2021 squashed such activity there.

Despite the ban, Sun argued that China doesn’t want to fall behind in the overall development of digital assets. He predicted competition between Washington and Beijing that will “greatly benefit” the development of the crypto industry.

  - Bloomberg