The chief executive officer of the central bank in Hong Kong seemed to have an optimistic perspective on the future of decentralized technology in the wake of the current crypto pandemic; nevertheless, the governor of the central bank in Korea had his worries about the subject.
At this very moment, the governors of central banks from all over the globe are assembling in Thailand in order to discuss the function of central banks in this day and age of fast advancing financial technology.
The Bank of Thailand (BOT) and the Bank for International Settlements will both act in the capacity of co-hosts while they are present at the conference (BIS).
A panel discussion on digitalized monetary systems was attended by Eddie Yue, chief executive of the Hong Kong Monetary Authority; Changyong Rhee, governor of the Bank of Korea; Adrian Orr, governor of the Reserve Bank of New Zealand; and Cecilia Skingsley, from the Bank for International Settlements. The panelists examined the growing popularity of digital assets and central bank digital currency (CBDC), in addition to the dangers that are linked with the recently established technology.
The chairman of the Hong Kong Monetary Authority highlighted the innovations and benefits brought about by blockchain technology, as well as the potential implications that it would have on central banks. He also underlined the conceivable effects that blockchain technology would have on monetary policy.
According to Yue, CBDCs and stablecoins may eventually be able to offer a way of transaction that is not only more efficient but also more cost-effective in the long run.
He did make the point, though, that every new piece of technology has its own unique set of hazards, whether they be innovation risks or operational risks, and that these risks are unavoidable.
Yue pointed out that blockchain is, by its very nature, a decentralized technology; as a result, it is far more difficult to mitigate the risks that are associated with on-chain activities.
The governor of the Bank of Korea, Changyong Rhee, has voiced some skepticism regarding the possible uses of blockchain technology in the future, especially in the financial sector. This is in light of the recent crypto outbreaks.
The crash of bankruptcy from the crypto exchange FTX escalates to the crypto industry. Huobi-related subsidiary is the latest victim.
Citing “Failure to withdraw cryptocurrency assets from crypto exchange FTX”, Hong Kong-listed company New Huo Technology Limited (HKEX: 1611) announced inside information Monday that around $18.1 million worth of cryptocurrencies owned by its subsidiary Hbit Limited, are deposited in crypto exchange FTX, per the latest announcement published on Hong Kong Exchange.
Among 18.1 million capital, around $13.2 million is “client’s asset based on the client’s trading request and approximately USD4.9 million is asset of Hbit Limited”. The listed company warned that the crypto assets “may not be able to be withdrawn from FTX” due to the filing of bankruptcy protection declared by FTX on Nov 11, which is suffering from a liquidity crunch.
The board of the company emphasised will continue to provide compliant, professional and safe virtual assets financial service to clients:
“The Board is of the view that the Incident currently does not affect the normal business operations of the Group. As Hbit Limited is legally and operationally separated from other business entities of the Group, other assets and business lines of the Group will not be affected.”
The Board acknowledged its financial performance could be affected if “the incident is not solved.”
Meanwhile, another Hong Kong-based crypto exchange AAX is also suffering from the recent turmoil. AAX said Sunday that the exchange continues the suspension of withdrawals for seven to ten days due to “a scheduled system upgrade”, to protect users from the malicious attacks
Ben Caselin, AAX Vice President, tweeted on early morning Monday, acknowledge this is “bad timing for a scheduled maintenance at @AAXExcahnge,” adding that the exchange “aimed to address serious vulnerabilities, to be prolonged for more than 24 hours. Out of extra precaution this will take longer,” urging the public to allow AAX to open up gradually.
However, AAX emphasized that the exchange has no financial exposure to FTX or tis affiliates, and its digital assets remain intact with a significant amount stored in cold wallets, according to the statement.
FTX filed bankruptcy protection last Friday after its exchange experienced a critical liquidity crunch, as its native token FTT experienced a massive price plunge. FTX failed to conduct an acquisition by its major competitor Binance , citing… .
Reportedly FTX was accused of unauthorizedly using its client’s capital to foster its sister trading Alameda Research. In addition, FTX also suffered from a hacking incident last Friday, over $600 million was bleached from its crypto wallets. Founder and former CEO Sam Bankman-Fried has stepped down.
In response to the recent crash in the crypto market, the Financial Deputy Secretary of Hong Kong has published a blog suggesting a regulatory regime would effectively avoid crypto exchange crash scenario amid the so-called “crypto winter”.
Emphasizing transparency, the blog mentioned the use of regulations and how they can help monitor the development of the virtual assets industry in Hong Kong. The article reads, “While actively embracing innovation, there must be a regulatory package that adapts and keeps pace with the times to properly manage risks and create prerequisites for the orderly and vigorous development of the market.”
Though the Financial Secretary’s Office in the blog did not mention the recent collapse of the FTX exchange but seemed only to be highlighting valuable points and advice. Expressing how important it is to maintain safety and adequately manage risks, the Financial Secretary’s Office noted:
“We must make not only full use of the potential brought by innovative technologies, but also be careful to guard against fluctuations and potential risks that they may cause, and avoid these risks and impacts from being transmitted to the real economy.”
Furthermore, the administration advised virtual assets firms to maintain separate accounts to distinguish clients’ assets. They also recommended crypto businesses set aside actual operating expenses for at least 12 months, among other requirements.
To conclude, the Financial Secretary’s Office reflected on the economy, saying, “When considering the entire development direction, one of the core aspects is that if finance serves the real economy, technological innovation should also play a role in serving the real economy.”
Notably, this update comes not long after Hong Kong published its latest policy statement related to the outlook of virtual assets development, including the issuance of tokenized green bonds and the preparation of developing the digital Hong Kong Dollar.
Prior to that, Hong Kong made some critical moves that defined its aim to become an international virtual assets centre. The City’s top financial regulator, the Securities and Financial Commission (SFC), was reportedly set to permit the relisting of Bitcoin (BTC) and Ethereum (ETH) in exchanges that allow retail traders.
Crypto exchange FTX founder Sam Bankman-Fried said that, unlike the West, although Asia does not have a key web3, blockchain and cryptocurrency hotspot, Hong Kong could emerge as a leader in that sector.
Speaking virtually during the annual Hong Kong FinTech Week 2022, Bankman-Fried said that other potential locations in Asia are Singapore and Busan.
“If you look at what the crypto hubs will be in the world, I think the Bahamas looks like one of them, Dubai looks like one of them, but if you look at the East, it’s not as obvious. It could be Singapore, could be somewhere like Busan in Korea, but I think there is a real chance it ends up being Hong Kong,” Bankman-Fried said.
Furthermore, the world’s youngest billionaire Bankman-Fried added that the Hong Kong government’s crypto initiative to start a consultation on legalising crypto trading by retail investors is a positive sign for a brighter future for crypto in the region.
Hong Kong is planning to issue tokenised green bonds and prepare for the development of the digital Hong Kong Dollar.
Financial Secretary of HKSAR Paul Chan spoke virtually during the Fintech Week on Monday to introduce the latest policy statement on virtual assets to the public, saying that “we want to make our policy stance clear to global markets, to demonstrate our determination to explore financial innovation together with the global, virtual-assets community,” hoping to maximise with the advantages and innovation of Fintech in terms of virtual assets.
Regarding the upcoming tokenisation of green bonds, Eddie Yu, Chief Executive of the Hong Kong Monetary Authority (HKMA), spoke at the same event and disclosed that the authority is planning to issue the first batch of green bonds this year globally, aiming to promote the product to retail investors on a small scale first. Details will be announced further later.
FTX was relocated from Hong Kong to the Bahamas in 2021 due to regulatory uncertainty.
Bankman-Fired also confirmed last week that FTX is planning to launch its own stablecoin.
Speaking in an interview with Web3 news media, The Big Whale, Bankman-Fried discussed several of the industry’s perceptions concerning the exchange’s position atop the ongoing crypto winter.
As against the popular belief that FTX is the biggest winner in the industry based on its success in snapping up Voyager Digital and BlockFi, both crypto lenders that got riled up as prices of assets tumbled, Bankman-Fried reiterated that its role, irrespective of the perception is to help maintain industry balance which will, in turn, benefit everyone.
Acknowledging that this current crypto winter is the “first real Bear Market we’ve been through,” the FTX boss acknowledged that the market downtime is not affecting its business as such as it is always innovating.
“One of the main characteristics of crypto platforms is that our operation is not impacted by the market downturn any more than that,” he said, “Every day we continue to grow the business, and create services and new tools for customers. So, yes, the markets are less dynamic, things are a little tenser, but in the end, it doesn’t take us off course.”
Meanwhile, neighbouring Singapore is building measures to tighten its crypto regulations on retail investors.
Last week, the Monetary Authority of Singapore (MAS) unveiled a proposal to restrict retail participation in digital assets. Following this, small investors will be banned from funding coin purchases through borrowing.
Singapore’s central bank echoed sentiments similar to that of the MAS by asking companies to stop using tokens deposited by retail investors for lending or staking to generate yield. However, the restrictions proposed by the two regulatory bodies will not be applicable to high-net-worth investors.
However, Singapore is taking these moves to ensure positive growth of the crypto industry with security measures that will provide safety to investors.
Hong Kong is planning to shift to a friendlier approach towards cryptocurrencies starting next year, according to a Bloomberg report, while neighbouring Singapore is planning to impose fresh restrictions on consumers.
People familiar with the matter, who asked to remain anonymous, told Bloomberg that the information is not public yet. Still, Hong Kong has a planned mandatory licensing program for crypto platforms that are set to be enforced in March next year, which will allow retail trading.
They added that further details and program timetable are yet to be decided as public consultation must be done first.
Hong Kong is not planning to endorse specific coins such as Bitcoin or Ether. However, regulators are planning to allow listings of bigger tokens and even legalize crypto trading for retail customers, according to Bloomberg.
This move indicates a positive regulatory measure for cryptocurrencies, which contrasts with the city’s sceptical stance in recent years.
The city plans to reveal more about the details of the recently stated goal of creating a top crypto hub next week during the annual Fintech Week conference, which starts on Monday.
Hong Kong is shifting to a friendlier approach towards crypto as the city aims to regain its credentials as one of the top financial centres after a recent year of political instability and the COVID-19 pandemic led to the outward migration of talent.
The people familiar with the matter added that crypto regulators would likely demand criteria for listing tokens on retail exchanges, such as a company’s market value, liquidity and membership in third-party crypto indexes.
While other economies are starting to open up to cryptocurrencies, Singapore has said it is unwilling to change its regulations. Instead, it is strengthening restrictions on retail crypto trade.
The Monetary Authority of Singapore (MAS) on Wednesday unveiled a proposal to restrict retail participation in digital assets. Following this, small investors will be banned from funding coin purchases through borrowing.
Singapore’s central bank chief Ravi Menon told Bloomberg that the city-state would not stand in the way of other financial centres looking to draw retail crypto trading away with more relaxed rules.
“We don’t set ourselves out to compete with other jurisdictions, especially on regulation,” said Menon, the managing director of the Monetary Authority of Singapore. “We have to do what is right for us, what is necessary to contain the risks. And the risks primarily harm retail investors.”
Singapore’s central bank echoed sentiments similar to that of the MAS by asking companies to stop using tokens deposited by retail investors for lending or staking to generate yield. However, the restrictions proposed by the two regulatory bodies will not be applicable to high-net-worth investors.
These moves are being taken in Singapore to ensure positive growth of the crypto industry with security measures that will provide safety to investors.
According to the Bloomberg report, Menon said Singapore still wants to be a crypto hub, but one that promotes areas of digital assets with “use cases” and tokenization – the process of using blockchain technology to securitize various assets.
“We accept that cryptocurrencies have a place in the larger digital ecosystem because they are the tokens native to the blockchain that powers much of this activity,” he said. “They need to have an expression in the formal financial sector.”
Meanwhile, other economies in Asia, such as neighbouring Japan, have already begun to take a positive stand toward crypto. Japan has already started to open its economy to crypto by making it easier for companies to list tokens, which is in contrast to its previous conservative stance that was partially to blame for driving away crypto start-ups.
In early October, Japanese Prime Miniter Fumio Kishida announced that the government will take an active role in promoting Web3 services.
Kishida said Web3-related growth – including metaverse and NFT-related developments – is now part of the country’s growth strategy. He added that the government is keen on creating a society where new services can easily be created.
On October 3, the Prime Minister delivered a speech before Japan’s National Diet (Japan’s bicameral parliament) where he said the government’s investment in the country’s digital transformation already embraces the issuance of NFTs to local authorities using digital technology to solve challenges in their respective jurisdictions.
While in August, the Japanese government proposed a corporate-friendly crypto tax that would take effect in 2023. The prime minister’s plan of revamping the economy relies on spurring growth in Web3 firms as a key agenda.
Chief Executive of HKSAR John Lee delivered his first policy address Wednesday, indicating that the administration has proposed a bill to establish a statutory licensing regime for virtual asset service providers.
In his first policy address to the Legislative Council, the leader of Hong Kong expressed his stance towards virtual assets regulation and the outlook as well as the development in terms of digital Hong Kong dollars, according to the latest published policy address.
Speaking of virtual assets among various issues, Lee, the successor of Carrie Lam, who took over the authority in July, said:
“On virtual assets, the Government has introduced a bill to propose establishing a statutory licensing regime for virtual asset service providers. The Hong Kong Monetary Authority (HKMA) is examining market feedback on the regulation of stablecoins and will ensure that the regulatory regime is in line with both the international regulatory recommendations and the local context.”
Currently, only one licensed virtual asset trading platform, OSL, is listed on the Securities and Futures Commission (SFC) as of August 2022; while another private company, Hashkey Group, secured Approval-in-Principle to operate a licensed virtual asset trading platform from the SFC in Hong Kong since 2020.
Previously, Lee’s deputy, Financial Secretary Paul Chan, disclosed to address the policy statement related to digital assets during the upcoming Fintech Week by the end of October.
Hong Kong remains struggling for the recovery and revival of the economy amid the pandemic of COVID-19, facing strong competitors regionally and globally as well. The city has joined other global countries to study the adoption of digital currency to boost the economy and its currency in the long term.
The policy address reads that the HKMA has also begun the preparatory work for issuing “e-HKD” and is collaborating with the Mainland institutions to expand the testing of “e-CNY” as a cross-boundary payment facility in Hong Kong.
Lee’s policy implementation comes after his speech in July, pledging to explore central bank digital currency in terms of retail level (rCBDC), and escalating the scenario for the application of mBridge initiative, a collaborative CBDC project between HKMA and the central banks of Thailand, China, the United Arab Emirates and the BIS to enhance multi-currency cross-border payments.
According to statistics from the government, there are over 600 Fintech companies in the city. Lee said the administration “is vigorously promoting Fintech by encouraging more Fintech services and products to undergo proof-of-concept trials, taking forward cross-boundary Fintech projects and nurturing Fintech talents.”
In addition, “the Commercial Data Interchange will be launched within this year to provide a one-stop platform for enterprises to share operational data, enabling banks to make accurate assessments on the operating condition of enterprises and providing SMEs with a better chance of securing loans,” according to the policy address.
The Hong Kong Special Administrative Region’s government will release the plans for the development of virtual assets in the city during the upcoming FinTech Week by the end of the month.
In a blog post published by Financial Secretary Paul Chan Mo-po on Sunday, the policy statement will consist of the government’s “vision and strategy, regulatory regime, attitude towards opening up investors’ access to virtual assets, and the technological advantages brought by virtual assets launch pilot projects.”
The annual Hong Kong FinTech Week will be held from October 31st to November 4th, with the theme of “Breaking the Boundaries and Creating Extraordinary”. “The policy statement will clearly express the government’s position, demonstrate to the global industry our vision to develop Hong Kong into an international virtual asset centre, and our commitment and determination to explore financial innovation with the global asset industry,” the blog post stated.
Alongside the traditional fintech events, similar to last year, Hong Kong FinTech Week will also host the third-generation Internet (Web3), the Metaverse and other concepts to add new elements.
“A first-come, first-served basis, in the form of non-fungible tokens (NFT) to distribute limited quantities to participants version of the Proof of Attendance Protocol (POAP) token,” will be part of the blockchain attraction for the annual fintech event.
Owners of these NFT tokens will gain access to creating their personal avatars through 3D scanning, according to the blog post. It further added that token owners “will be able to use the tokens to participate in other industry events preferentially in the future.”
Development of virtual assets in Hong Kong
In terms of recent developments in the virtual assets sector in Hong Kong, Hashkeys Group and OSL Digital Securities Limited (OSL) have secured Type 1 SFC-licensed to deal with security. Type 1 license also empowers OSL to serve investors in Hong Kong through private security token offerings (STOs).
Previously, Blockchain.News reported that the China-based cryptocurrency exchange is the first regulated digital assets brokerage firm in Hong Kong to facilitate sales of new asset-backed digital tokens classed as securities to global institutions.
OSL has been doing that for a while. So far, its institutional clients include the likes of Animoca Brands, Head & Shoulders Financial Group, China Fortune Financial Group Limited, Volmart, and Monmonkey Group Asset Management Limited.
OSL first received approval in principle from Hong Kong’s Securities and Futures Commission (SFC) in August 2020, to license the cryptocurrency firm.
Meanwhile, the government has also actively begun introducing security measures against illegal acts conducted through virtual assets and blockchain technology.
The government has announced the framework of a new regulatory regime for virtual assets and associated products and services. The new framework for virtual asset service providers (VASPs) has been designed primarily to combat money laundering and terrorist financing risks. It is scheduled to take effect on 1 January 2023.
The key highlight of the new security measure is that the VASP regulatory regime consists of new licensing and regulatory requirements for VASPs’ operations.
According to the Financial Services and the Treasury Bureau, the licensing requirements of the new VASP regime are highly specialised and technical.
In response to the announcement of the framework of a new regulatory regime, Mayer Brown – a Chicago-based global white-shoe law firm – said, “Hong Kong’s new VASP regime is a recent addition to this space and it will be interesting to see the extent to which, if at all, the new regime impacts the growth of the VA industry in Hong Kong.”
Hong Kong’s Polytechnic University (PolyU) is offering a postgraduate course in the metaverse and blockchain-related technology from September 2023.
In doing so, it has become the first university in Hong Kong to launch a postgraduate programme in metaverse technology, beating other academic insitutions in a race to stay on top of emerging trends, including Web3.
According to the Polytechnic University’s website, the one-year Master of Science in Metaverse Technology programme will be under the engineering faculty’s computing department, cost at least $309,000 HKD (around $40,000) to meet graduation requirments.
However, the course will only commence depending on the number of students registered.
The university’s website reads, “the subjects offered will depend on the availability of teaching resources and the number of students registered.” It also states the “programme is offered subject to approval.”
The aim of this programme, according to Polytechnic University, is to provide students with “an in-depth understanding of the nature of metaverses,” an understanding of the fundamentals of the technology, “the ability to integrate various technologies into metaverse applications,” and “the vision of metaverse development as a multidisciplinary coevolutionary process.”
Meanwhile, the university’s Master of Science in Blockchain Technology for next September entry as well – which, according to the university the first of its kind.
The ability of metaverse technology to provide an immersive virtual world where people can interact through digital representations of themselves, has boosted in popularity in recent years.
Along with the metaverse, web3 – also popularly known as the next generation of the World Wide Web – has amassed a huge following due to the concept of decentralisation through the use of blockchain and similar technologies.
Move-to-earn app STEPN announced that is opening an office in Hong Kong despite COVID-19 restrictions and a tough regulatory environment.
Co-founder Jerry Huang told the South China Morning Post that STEPN will move its regional headquarters to Cyberport in Hong Kong.
Cyberport is a tech hub with over 1,800 start-ups and companies.
According to Huang, the motive behind opening an office in Hong Kong had come about following a conversation with former Cyberport chairman George Lam. During the talk, they had discussed creating a web3 startup ecosystem in Hong Kong.
However, the company has not released dates for its big move.
STEPN rewards users with crypto for walking, jogging or running and to participate, a user must purchase an NFT and start either walking, jogging or running outdoors to earn tokens. It also allows users to either spend their earnings within the Web3 ecosystem or withdraw the amount to an external account and cash out a profit.
STEPN is currently based in Adelaide, Australia.
The move to Hong Kong has come at a time when several other companies have exited the city.
FTX moved its headquarters from Hong Kong to The Bahamas last year, attributing the move to regulatory uncertainty. FTX CEO and founder Sam Bankman-Fried also tweeted his frustration at strict quarantine procedures.
“Who would have thought two years ago that a significant consideration for where to live would be ‘it’s actually legal to enter and leave the country,'” he said.
While PwC global crypto leader Henri Arslanian also shifted bases for his new crypto asset management firm to the Cayman Islands and Dubai from Hong Kong due to regulatory approval times and travel restrictions.
Another major issue for companies exiting Hong Kong has been Beijing’s influence over the city, especially after the legislation of the National Security Law in June 2020. Also, adding to that is the Chinese capital’s antagonistic stance on non-government crypto projects and ban on several crypto activities.
in China, STEPN itself enjoyed a following in China until it turned off its GPS services there in July. It caused the app’s token, GST, to drop 10% following the announcement.
STEPN will be joining the remaining Hong Kong holdouts, including Cyberport-based Animoca Brands.
The months-long headwinds in the cryptocurrency ecosystem are beginning to fuel disinterest amongst institutional investors in Hong Kong.
According to a report from the South China Morning Post (SCMP), riding on an earlier report from Bitstamp which surveyed 253 Hong Kong institutional investors, as many as 9% said they will reduce their exposure to the nascent asset class or stop investing in it altogether.
This figure is significant because it is far above the 3% who held a similar view in the previous quarter.
“It is true that retail investors and the institutions who serve them are less active in crypto and perhaps looking for other assets in the short term,” said James Quinn, managing partner of Hong Kong-headquartered Q9 Capital, a crypto investment platform for institutions and high-net-worth individuals. Quinn added that “the ‘easy money’ is not so easy at the moment.”
It has been a roller coaster ride for the broader cryptocurrency ecosystem since the invasion of Ukraine by Russian troops.
The global economy was turned into chaos and this was further compounded by the collapse of Terra LUNA which lead to the bankruptcies of a number of established crypto firms beginning with Three Arrows Capital and later, Voyager Digital and Celsius Network amongst others.
While the survey still showcases a waning interest amongst investors, a good number of corporate buyers are still committed to investing in the industry. The Bitstamp survey showed that 29% of those surveyed still plan to commit additional funds to digital currencies.
The few institutional investors who still have an interest in injecting capital into the space will do so provided the funds are targeted at highly innovative protocols in the Web3.0 space. This model has guided the majority of new capital being injected into the broader cryptocurrency world today.
“The interest level remains high in further building the ecosystem, especially as it relates to proper investment products and solutions,” Quinn said. “[Institutions] are not changing course.”
