Hong Kong – Cryptocurrencies have struggled in recent years, with prices skyrocketing after periods of boom and bust, with the industry threatened by a surprising recession and an uncertain regulatory regime.
But even as these issues have led some jurisdictions to crack down on the sector, Hong Kong is betting the new regulatory framework will help avoid the setbacks seen elsewhere. , accepts virtual assets.
Hong Kong officials have acknowledged that cryptocurrencies will continue to exist and that the semi-autonomous China needs to welcome the crypto industry if it is to maintain its status as a global financial hub. has been marred by years of stringent COVID-19 restrictions and a brutal crackdown on dissent.
Earlier this month, the authority granted licenses to two cryptocurrency exchanges, issuing licenses authorizing them to engage in retail trading of digital assets for the first time.
HashKey Exchange and OSL have secured regulatory approval after the Hong Kong Securities and Futures Commission (SFC) began applying for a license for private investments in June.
SFC CEO Julia León said in a speech in June, “While we do not aim to be a hub for cryptocurrency trading, cryptocurrency trading is an important part of the crypto asset ecosystem. I know it’s part of it,” he said.
Leon emphasized that a balanced regulatory regime is essential to building trust in the industry.
“Historically, many jurisdictions have taken a light-weight approach to regulating crypto service providers,” he said, adding that “‘crypto winter’ has strengthened the resolve of global financial regulators.”
The new guidelines for retail trading of cryptocurrencies have been widely welcomed across the industry.
“Hong Kong has taken a proactive approach to managing risks associated with digital assets,” Dave Chapman, co-founder of OSL, which has offices in Hong Kong and Singapore, told Al Jazeera.
Chapman said the SFC’s new regulatory framework “reflects a thorough understanding of the sector, ensuring both a healthy market environment and strong protection for investors.”
The new regulation comes as mainland China continues to ban cryptocurrencies, and why is the Chinese government accepting virtual assets in Hong Kong at a time when the ruling Communist Party is tightening its control over Hong Kong? The question arises as to whether to allow
“One country, two systems”
Neil Tan, chairman of the Hong Kong Fintech Association, said the move would give Hong Kong the freedom to formulate its own policies and regulations in the financial sector under the “one country, two systems” principle that should guarantee the city’s autonomy. said to emphasize. And freedom will be granted until at least 2047.
Hong Kong becoming a hub for crypto-assets and Web3, an envisioned online ecosystem based on decentralized blockchain, will give the Chinese government “exposure and scrutiny of the crypto industry,” said Tsunami Advisors Money. Tan, who is also a Zing partner, told Al Jazeera.
“This will allow China to indirectly influence the industry,” Tan said, “and help Hong Kong maintain its status as an international financial center.”
“This is another asset class that attracts foreign direct investment and another way to promote the internationalization of the renminbi,” he said.
However, Tan warned, “These are purely speculative reasons, and the actual motivations may be influenced by a combination of economic, social, political and strategic factors.”
The move in Hong Kong comes amid dramatic changes in the global cryptocurrency industry, including the bankruptcies of cryptocurrency companies FTX and Three Arrows Capital last year.
Meanwhile, Binance and Coinbase are embroiled in lawsuits filed by US regulators, including the Securities and Exchange Commission (SEC), which is stepping up scrutiny of the industry.
Chamas Palihapitiya, founder and CEO of technology investment firm Social Capital, said in an April podcast that SEC Chairman Gary Gensler blamed digital currencies for the U.S. banking crisis earlier this year. He blamed it on , declaring that “cryptocurrencies are dead in the United States.”
Still, regulations seem to be getting clearer in Washington, DC.
A U.S. congressional committee passed legislation in late July establishing a regulatory framework for digital assets. This move, along with the recent favorable U.S. court ruling against cryptocurrency company Ripple, has led to crypto’s rally.
Bitcoin, for example, is up more than 50 percent year-to-date.
Some experts argue that the cryptocurrency boom has already peaked and Hong Kong is just trying to catch up with other regions.
“I think Hong Kong’s attitude towards cryptocurrencies is correct, but it is slow, which means the cryptocurrency trend has already passed,” Lu Fanzhou, assistant professor of finance at the University of Hong Kong, told Al Jazeera.
“Hong Kong could have become the world leader in cryptocurrencies,” he said.
OSL’s Chapman expressed a more optimistic view.
“The potential of blockchain technology is transformative and we are in the early stages of fully realizing its impact,” he said, adding that “Hong Kong will be fully regulated and the financial system in this market will be challenged. The integration underscores its adaptability and progress,” he added. – Strengthen our position as a global financial hub with a thoughtful approach. ”
“As long as Hong Kong combines strong regulation with investor education and continuous review of governance, it can lead the way in ensuring good practices in the digital asset industry,” Chapman said.
In fact, Hong Kong is not a complete novice to cryptocurrencies.
In December 2020, the SFC licensed the city’s first virtual asset trading platform for institutional investors. And before that, both Hong Kong and mainland China were hubs for cryptocurrency companies.
“A significant number of people, projects and platforms are coming from here,” said Tan of the Hong Kong Fintech Association.
“This has allowed Hong Kong to continue to attract cryptocurrency companies through offshore migration and become a hub for cryptocurrency activity in the region,” Tan said. He added that the Chinese government is against digital currencies but understands the importance of blockchain technology.
“The favorable regulatory environment and Hong Kong’s unique advantages have made Hong Kong feel like a kind of homecoming for many businesses,” he said.
