Upcoming regulatory adjustments in Hong Kong for cryptocurrency-related service suppliers may appeal to companies and expertise again to town, because it seeks to regain its worldwide crypto hub place, trade consultants informed Forkast.
The Hong Kong Securities and Futures Fee (SFC) on Monday published draft rules for digital asset buying and selling platforms and sought public suggestions. As a part of the brand new licensing regime set to take impact in June, the SFC plans to require cryptocurrency exchanges to use for licenses that might permit retail buyers to commerce sure large-capitalization tokens.
Simply final month, the Hong Kong Financial Authority (HKMA), town’s de facto central financial institution, said in a consultation document that it plans to introduce a compulsory licensing regime for stablecoin issuers as early as this 12 months, and won’t permit algorithmic stablecoins
China banned cryptocurrency transactions in 2021, however Hong Kong has arrange a new licensing regime which will ultimately prolong to retail crypto buying and selling. Present rules in Hong Kong, a particular administrative area, permit solely establishments {and professional} buyers with portfolios of US$1 million or extra to commerce digital property.
“Like lots of its world counterparts, together with Singapore, the SFC is making an attempt to string the needle between digital asset innovation and investor safety in a post-FTX world,” mentioned Angela Ang, senior coverage advisor at California-based blockchain intelligence agency TRM Labs and a former regulator on the Financial Authority of Singapore.
To gas town’s Net 3.0 trade growth, Hong Kong’s Monetary Secretary Paul Chan said on Wednesday that the federal government is setting apart HK$50 million (US$6.37 million) to develop the Web3 sector, which has introduced a “golden alternative” to steer revolutionary growth.
Hong Kong beckons
As Hong Kong continues taking a crypto-friendly regulatory strategy after it announced its pro-crypto stance in October, the trade might even see extra Web3 companies establishing store within the metropolis, consultants mentioned.
Crypto trade Huobi World, for instance, is making use of for a crypto buying and selling license in Hong Kong, mentioned Justin Solar, an advisor to the trade, in a Monday tweet. Solar additionally informed Nikkei Asia that Huobi is seeking to relocate its Asia headquarters from Singapore to Hong Kong.
“I consider extra crypto exchanges, market makers and hedge funds will in all probability observe go well with returning to Hong Kong,” Youwei Yang, chief economist of New York-based BIT Mining and an adjunct professor instructing blockchain programs at China’s Xiamen College, informed Forkast.
Adrian Wang, chief government of Hong Kong-headquartered digital asset administration platform Metalpha, mentioned that the newest SFC session paper displays its intention to “welcome retail buyers to get into the digital asset house.”
“The proposed coverage went into extra element on anti-money laundering and know-your-customer with new necessities akin to battle of curiosity additionally included. General, that is good for the trade safeguarding the rights of retail buyers,” Wang mentioned.
Extra exchanges are more likely to develop their companies to Hong Kong if town continues its crypto-friendly stance. “I’m very bullish on (Hong Kong),” Henry Liu, CEO of BTSE, a crypto trade primarily based in British Virgin Islands with half of its operations in Taiwan, informed Forkast. “If we get to be compliant ourselves, we are going to go in, and as an organization, if we have to discover a native accomplice and we are able to help them in any method, we’re blissful to do this as nicely.”
Non-fungible token (NFT) companies have additionally proven curiosity in increasing in Hong Kong. ShucangCN, a Chinese language NFT platform that launched in January 2022 in China that rapidly turned one of many largest gamers within the nation, told Forkast final month that it has arrange NFT China in Hong Kong to construct NFT platforms within the metropolis.
Stablecoin regime
Within the January stablecoin session paper, the HKMA “clarified its intention to offer regulatory precedence to stablecoins,” world fintech regulation agency Linklaters wrote in a February analysis report.
The authority’s transfer to prioritize stablecoin regulation is sensible, as stablecoins are used as an on- and off-ramp instrument to purchase or promote native crypto property, Kelvin Low, a regulation professor at Nationwide College of Singapore, informed Forkast.
Stablecoins are “a superb choke level to manage entry to the bigger crypto markets,” mentioned Low. “They’re additionally necessary to manage as a result of they’re extra readily bought as protected property when in reality they aren’t.”
The significance of stablecoins has turn out to be more and more outstanding, and “if a regulator will get to grasp stablecoin regulation, they might just about pay money for the event development of crypto asset markets,” mentioned Jason Jiang, a senior researcher of OKG Analysis Institute, a unit of Beijing-headquartered blockchain agency OKG.
“Hong Kong, which has the world’s largest offshore yuan market and has served as an necessary offshore yuan enterprise hub, is a perfect testing floor for the event of crypto property,” Jiang added.
Whereas the stablecoin proposal is “a step in the fitting path,” technological developments could occur sooner than the regulator can sustain with, mentioned Joanna Cheng, affiliate normal counsel of product and regulatory (APAC) at crypto custody agency Fireblocks.
“By the point the laws takes impact in late-2023 or early-2024, the problems round stablecoin could have modified so this stays to be seen,” Cheng mentioned.
No algorithmic stablecoin allowed
One other main takeaway from the HKMA’s January doc was that the authority had made it clear they might not permit algorithmic stablecoins.
“Algorithmic stablecoins simply don’t work, so the HKMA is right to exclude them from licensing,” Low mentioned. “The speculation of algorithmic stablecoins depends on assumptions that don’t maintain in the actual world so they’re all the time at risk of collapse.”
One of many issues with many crypto firms, Low added, is that “they misuse recreation idea to design tokenomics to constrain human conduct, however should you seek the advice of precise video games theorists, you will discover that their usefulness on this respect is very controversial.”
Jonathan Cheong, head of authorized, threat and compliance at Singapore-based cyrpto trade Bybit informed Forkast that the brand new rules will possible goal a long-standing challenge of stablecoins – redemption worth.
“The proposed rules can have an amazing concentrate on management processes of redemption at par and to realize this, issuers of stablecoins might want to have management processes on worth stabilization and capital adequacies,” Cheong mentioned.
The brand new regime has additionally sparked curiosity from some blockchain companies in Hong Kong that accommodate stablecoin fee. For instance, BSN Spartan Network, a Chinese language blockchain accessible solely exterior the Chinese language mainland, could develop its Hong Kong enterprise to the stablecoin sector, in keeping with Tim Bailey, vp of worldwide gross sales at Crimson Date Know-how, the developer of BSN.
“We’re actively engaged in monitoring and learning the stablecoin house and, relying on the regime guidelines when they’re launched, would think about making use of for a license for an official BSN Spartan Stablecoin,” Bailey, informed Forkast. BSN Spartan presently accepts USDC as considered one of its fee strategies.
“The licensing of payment-related stablecoins will make funds and settlements far more environment friendly,” Bailey added.
