Hong Kong’s Crypto Rise: Harbinger for China?

Eastern Asia has seen its cryptocurrency market dynamics shift significantly, with a notable decline in crypto activity over recent years, primarily attributed to China’s restrictive stance. However, a wind of change may be blowing from Hong Kong, as the region experiences a surge in crypto-related initiatives and regulatory friendliness, igniting speculations regarding China’s evolving digital asset outlook, according to Chainalysis.

The Eastern Asia Crypto Landscape: An Overview

Eastern Asia, accounting for 8.8% of the global cryptocurrency activity from July 2022 to June 2023, has historically been a significant player in the crypto arena, largely driven by China’s previously bustling crypto trading and mining sectors. Despite the drop in activity, the region still holds a considerable share in the global crypto market, albeit less driven by institutional activity compared to larger markets. The region has displayed a higher inclination towards Decentralized Finance (DeFi) than similarly sized markets like MENA and Latin America.

Hong Kong: The Rising Crypto Hub

Hong Kong has emerged as a potential harbinger of crypto rejuvenation in the region, especially with its burgeoning status as a crypto hub. With an impressive $64.0 billion in crypto received between July 2022 and June 2023, Hong Kong’s activity isn’t far behind China’s $86.4 billion, a noteworthy feat given the vast population difference. The city’s lively Over-The-Counter (OTC) market, facilitating large, private transfers for institutional investors and high net worth individuals, has been a major driver of this crypto influx.

Institutional and Retail Dynamics

The crypto scene in Eastern Asia portrays a mixed bag of institutional and retail dynamics across different countries. For instance, South Korea’s crypto market appears to be the least institutional-driven due to stringent local regulations, whereas Japan aligns closely with global averages concerning retail versus institutional transaction breakdown. Unlike South Korea, Hong Kong sees a considerable share of its transaction volume from large institutional transactions, a characteristic that sets it apart from other countries in the region.

Crypto Platform Preferences: A Regional Perspective

A closer look at the most-used crypto platform types unveils intriguing regional trends. While Japan reflects a balanced activity between centralized exchanges and DeFi protocols, South Korea leans heavily towards centralized exchanges. The aftermath of TerraLuna’s misfortune and the subsequent regulatory revisions could have bolstered South Koreans’ trust in centralized exchanges. In contrast, China and Hong Kong exhibit unique crypto platform dynamics, with a significant amount of activity presumed to occur through OTCs or grey market peer-to-peer channels.

Decoding Hong Kong’s Crypto Surge: Implications for China

The speculation surrounding China’s warming stance towards cryptocurrency is further fueled by recent developments in Hong Kong. The Special Administrative Region has not only been fostering a conducive environment for crypto trading but also witnessed state-owned Chinese entities launching crypto-centric investment ventures. The burgeoning crypto market in Hong Kong, coupled with China’s indirect support towards Hong Kong’s digital asset initiatives, might hint at an exploratory approach by the Chinese government towards understanding digital assets better, without having to alter mainland policies drastically.

Hong Kong’s Progressive Steps Towards Web3 Adoption

Cyberport, a digital community in Hong Kong, emphasized the power of Web3 in the entertainment sector during a three-day annual event, showcasing local enterprises leveraging Web3 technology.

HKD 50 million was allocated to Cyberport to foster a thriving Web3 ecosystem, attracting businesses and talent, and organizing related educational and promotional events.

Hong Kong began tokenizing green bonds as part of its green finance initiatives, showcasing financial innovation.

The establishment of the “Task Force on Promoting Web3 Development” on June 30th, 2023, led by Financial Secretary Paul Chan, aims to promote the sustainable and responsible development of Web3 in Hong Kong.

Hong Kong’s crypto uptrend and regulatory receptiveness could potentially be harbingers of China’s cautious yet evolving stance towards digital assets. While the exact implications for China remain veiled, Hong Kong’s thriving crypto market is undeniably reshaping the regional crypto narrative, possibly laying down a framework for broader digital asset acceptance in the near future.


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Hong Kong IFEC Warns Against Trading on Illegal and Foreign Platforms for Virtual Assets

The investor and Financial Education Council (IFEC), a public organisation under the Securities and Futures Commission (SFC), has issued a warning regarding the potential risks connected to unlicensed and foreign virtual asset trading platforms. In reaction to the growing acceptance of virtual assets, which, despite their attraction, present a high-risk investing opportunity, this advise has been offered.

The SFC has yet to authorise any platforms that can provide services to retail investors after the new regulatory framework for virtual asset trading platforms goes into effect on 1 June 2023. Investors are advised to remain cautious of the inherent dangers by IFEC, which emphasises that the bulk of these platforms that are now accessible to the public are still unregulated by the SFC.

Investors may be exposed while trading on unregulated sites. Investors may not be protected from potential dangers by such platforms’ lack of operational transparency and defined procedures. Many platforms, according to IFEC, have disclaimers that release them from liability even if they misplace investors’ virtual assets.

The IFEC also clarified potential problems brought on by disagreements between investors and platforms. Investor complaints might have few options if there is no regulatory scrutiny. Furthermore, it’s possible that the SFC won’t be able to help. The IFEC stressed that instances of fraud, security lapses, theft, or an abrupt halt to operations could result in the complete loss of virtual assets held on these platforms.

Although they might be registered or licenced with foreign regulators, offshore platforms can carry hazards. Investor protection may be compromised by some governments’ inadequate regulatory practises. Furthermore, because of their cross-border character, seeking out complaints or support abroad can be difficult. Investors may face an uphill struggle to make claims and seek legal redress if such platforms close or cease operations, the IFEC cautioned. Furthermore, local law enforcement and authorities might not be able to help if these sites have no relationship to Hong Kong.

The Hong Kong Special Administrative Region (HKSAR) needs more financial literacy, which the IFEC has long pushed for. It seeks to shield clients from the dangers of unregulated virtual asset trading platforms through this guidance, assisting them in making more knowledgeable and secure investment decisions.


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Hong Kong Monetary Authority Explores Virtual Asset Regulation in UAE and Highlights Converging Global Standards

According to a report by Ming Pao, the Hong Kong Monetary Authority (HKMA) recently visited the United Arab Emirates (UAE) to discuss the regulation of virtual assets (cryptos) with the local central bank. HKMA Chief Executive Eddie Yue shared that both regions have begun developing virtual assets within regulated environments, with Hong Kong having introduced regulatory frameworks earlier than the UAE. 

Yue also mentioned the recent strengthening of virtual asset regulation in the United States, raising questions about whether other jurisdictions, including Hong Kong, would follow suit or adopt a more relaxed approach. He noted that in the past, Hong Kong had stringent regulations on virtual assets, bordering on prohibition, while regulations in other regions were relatively unclear. However, there is now a global trend towards converging regulatory standards, which will help minimize potential discrepancies in the future.

Eddie Yue also discussed the challenges faced by virtual asset exchanges in Hong Kong when it comes to opening bank accounts. Yue acknowledged that there have been ongoing discussions between the HKMA and local banks regarding this issue. He mentioned that the perception of pressure during these discussions varied among different parties. Yue explained that while the United States previously lacked clear regulatory requirements for virtual assets, places like Singapore and Dubai had regulations in place, particularly targeting functions such as anti-money laundering. Hong Kong, after learning from experiences such as the closure of FTX, has gradually opened up its regulatory approach, aiming for strict yet clear guidelines. The banking industry is encouraged to continuously update its understanding and seek regulatory clarity from authorities.


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HashKey Launches Wealth Management Platform for Institutional Investors

Hong Kong-based digital asset firm, HashKey Group, has launched a new wealth management platform aimed at professional and institutional investors. The move comes in response to a growing demand from investors seeking access to virtual assets. The platform will allow the group to offer solutions to help tap into the “growing opportunities of virtual assets.”

HashKey’s venture capital arm, HashKey Capital, is the first to benefit from the new platform. It will manage portfolios that only contain virtual assets. The company was granted a “Type 9 asset management license” by Hong Kong’s Securities and Futures Commission, which likely paved the way for its latest offering.

The launch of the wealth management platform comes after HashKey closed a $500 million investment round for a fund that aims to push for mass adoption of blockchain and crypto technologies. The move highlights the company’s commitment to driving the adoption of digital assets.

According to a 2022 study from consultancy firm Boston Consulting Group, only 0.3% of individual wealth is invested in crypto, compared to the 25% invested in equities. However, HashKey believes there is “potential robust demand for virtual assets in the future.”

In addition to launching the new platform, HashKey is expanding its over-the-counter trading service. The company plans to increase the number of tokens in its spot market and increase its liquidity coverage to 24/7. The move is a response to recent challenges in the crypto market, which have highlighted the need for deep and reliable liquidity.

HashKey’s move into the wealth management space comes as institutional investors continue to explore the potential of digital assets. Many are looking for ways to gain exposure to the emerging asset class, which has been one of the best-performing asset classes in recent years.

Overall, HashKey’s launch of a wealth management platform for professional and institutional investors is a significant step forward for the digital asset industry. The move highlights the growing demand for virtual assets and the increasing interest from institutional investors seeking exposure to the emerging asset class. With its new platform and expanded over-the-counter trading service, HashKey is well-positioned to capitalize on the growing interest in digital assets.


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Signum Digital Receives Approval for Security Token Offering Platform

Signum Digital, a joint venture of Coinstreet and Somerley, has announced that it has received approval-in-principle from the Hong Kong Securities and Futures Commission (SFC) for its security token offering (STO) and subscription platform. The STO platform, which will be managed under the brand name “CS-Pro,” is a new category of virtual assets built on blockchain technology that represents ownership of tangible assets, such as private equities, real estate, art, and collectibles. The STOs, linked to real-world assets, are expected to lower the risk for potential investors, facilitate their research process, and provide a foundation for the market value of the investment opportunity.

Signum Digital claims that its platform is a pioneering development in Hong Kong. After receiving final authorization from Hong Kong’s SFC, the CS-Pro platform will allow investors to invest in tangible assets through security tokens. The approval-in-principle from SFC for Signum Digital’s STO platform comes after the Hong Kong SFC released preliminary regulations for virtual asset trading platforms last month, and urged the general public to provide their input. The upcoming licensing system, scheduled to begin in June, mandates that digital currency exchanges submit applications for licenses that would let everyday investors trade specific high-capitalization tokens.

Hong Kong has been proposing new initiatives for the city’s cryptocurrency and digital asset sector since last year when it invited firms interested in providing STO services to pitch proposals. Cryptocurrency exchange Huobi Global also announced last month that it is applying for a license to operate in Hong Kong, possibly moving its headquarters from Singapore to the special administrative region. Recently, Hong Kong has displayed a good deal of interest in becoming a crypto hub as it has invested heavily in supporting the potential of technologies like Web3.

In mid-December, Hong Kong launched its first two exchange-traded funds (ETF) for cryptocurrency futures, which raised over $70 million ahead of its debut. The event came soon after the head of Hong Kong’s Securities and Futures Commission announced in October that Hong Kong is willing to distinguish its crypto regulation approach from the Chinese crypto ban enforced in 2021. Hong Kong’s regulatory framework aims to strike a balance between investor protection and fostering innovation in the fintech sector, including virtual assets. The approval of Signum Digital’s STO platform is expected to further strengthen Hong Kong’s position as a leading hub for the digital asset industry.


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UAE’s Ras Al Khaimah to Launch Free Zone for Virtual Asset Companies

Ras Al Khaimah, one of the UAE’s seven Emirates, is set to launch a free zone dedicated to digital and virtual asset companies. The new free zone, RAK Digital Assets Oasis (RAK DAO), aims to create a hub for non-regulated activities in the virtual assets sector. This move comes as the UAE continues to attract global players in the crypto industry, positioning itself as a forward-thinking hub for crypto firms.

RAK DAO will provide a dedicated space for digital and virtual asset service providers operating in emerging technologies, such as the metaverse, blockchain, utility tokens, virtual asset wallets, nonfungible tokens (NFTs), decentralized autonomous organizations (DAOs), decentralized applications (DApps), and other Web3-related businesses. The free zone is expected to start with non-financial activities before introducing financial activities at a later stage.

Entrepreneurs looking to launch a crypto exchange may have to wait as this is an ESCA-regulated financial activity. The Securities and Commodities Authority (SCA) is one of the UAE’s main financial regulators, and it has authority throughout the Emirates, except for the financial free zones such as the Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC).

The new free zone will add to the more than 40 multidisciplinary free zones in the country that have already attracted numerous crypto, blockchain, and Web3 firms. These include the Dubai Multi Commodities Centre (DMCC), DIFC, and the ADGM.

As part of the UAE’s efforts to create a friendlier regulatory environment for crypto firms, Dubai unveiled its virtual assets law in March 2022, along with the Virtual Asset Regulatory Authority. This was followed by the Financial Services Regulatory Authority’s guiding principles on regulating and overseeing the new asset class and its service providers in September 2022.

Sheikh Mohammed bin Humaid bin Abdullah Al Qasimi, the chairman of the RAK International Corporate Centre, the operator of the new free zone, expressed excitement about the project, saying, “We are building the free zone of the future for companies of the future. As the world’s first free zone solely dedicated to digital and virtual asset companies, we look forward to supporting the ambitions of entrepreneurs from around the world.”

The establishment of RAK DAO is a strategic move for the UAE as it seeks to cement its position as a global leader in the crypto industry. By creating a regulatory environment that is friendly to crypto firms, the UAE aims to attract more players in the industry and foster innovation in the emerging technologies sector.


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HK to Issue Tokenized Green Bond, Open Market for Virtual Assets ETFs Trading

The HKSAR government published its latest policy statement Monday 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.


Over 200 key finance entrepreneurs joined the Fintech Week that started on Monday in Hong Kong, which is one of the critical events for the city to show its confidence in developing its economy amid the recovery from COVID-19.

Paul Chan, Financial Secretary of HKSAR, spoke to Fintech Week virtually due to his infection with Covid 19 during his overseas trip to Saudi Arabia. Chan introduced 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,” expecting to catch up with the advantages and innovation of Fintech in terms of virtual assets.

“The policy statement explains in detail our vision and approach, regulatory regimes, thoughts on investors’ exposures, and our pilot projects to embrace the technological benefits and financial innovations brought by virtual assets.”

Per the latest policy statement issued by the government. Serval pilot projects are ongoing, including:

(a) NFT issuance for Hong Kong Fintech Week (“HKFTW”) 2022: A proof-of-concept project on our part to engage the Fintech and Web3 community;

(b) Green bond tokenisation: Tokenising Government Green bond issuance for subscription by institutional investors;

(c) e-HKD: The potential “backbone” and anchor bridging legal tender and VA, offering price stability and confidence needed to empower more innovations.

Green Bond Tokenization

Regarding the tokenisation of issued 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 retail product investors on a small scale first. Details will be announced further later.

Meanwhile, cross-border payment with digital Hong Kong dollars, or e-HKD, is also ongoing. The head of the regulator said the pilot tests of mBridge were going well. Over $170 million in Hong Kong dollars with 160 crosses broader transactions has been conducted, which are associated with around 20 commercial banks in four regions.

Opening market for VA ETFs trading

Given the increasing acceptance of virtual assets as a vehicle for investment allocation by global institutional or individual investors, the policy statement reads that Hong Kong’s recognition would open the possibility of allowing Exchange Traded Funds (ETFs) on virtual assets in Hong Kong.

Yet, the turmoil and the volatility triggered by the so-called crypto winter in the first half year resulted in significant exposure to investors and hampering the performance of the crypto market. In terms development of cryptocurrency trading, Yu, the head of HKMA, said Hong Kong is capable of developing the ecosystem of virtual assets, given that supported by sufficient education for investors and a comprehensive regulatory system.

The fintech Industry welcomes policy statements in general.

Adrian Cheng, CEO of New World Development, welcomes HKSAR’s latest stance on the development of virtual assets in the city.

Speaking to Blockchain.News through a statement, Cheng said that he fully supports the government’s issuance.

“With our unique position in Greater Bay Area, Hong Kong will dominate regional development of GBA cross-border blockchain infrastructure and blockchain ecosystem.”

New World Development believes in virtual assets financial markets, CBDC payment, and GBA blockchain infrastructures would be key strengths and pillars for the city, transforming the city to be a digital financial centre.    

Cheng suggested regulations in Hong Kong “would need to further evolve and expand beyond the current regimes of SFC Type 1 & 2 client asset holding licenses and trustee license.”

The property company is actively engaged in the crypto community and NFT projects. In August, Cheng purchased an NFT of 101 Azukis but also invested in RTFKT and Animoca Brands.

Image source: Shutterstock


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CBDCs Require Balance between Data Access & User Privacy Protection, HashCash CEO Says

Since central bank digital currencies (CBDCs) are showing more exposure to the market, taming illegal activities requires a delicate balancing act between data access and user privacy protection, according to HashCash Consultants CEO Raj Chowdhury.

Chowdhury pointed out:

“CBDC projects need to address their drawbacks and act considering the potential side-effects. They may lead to the disintermediation of the nation’s banking sector, and lend the government an upper hand in state-sponsored censorship of a citizen’s spending patterns.”

Even though the CBDC idea is revolutionary, Chowdhury believes caution should not be thrown to the wind because of possible dangers regarding storage. 

He noted:

“The working principles of CBDC are converse with the ideals behind Bitcoin and blockchain technology. A centralized storage system has grave security risks, which will likely diminish the anonymity and privacy normally associated with conventional cash or crypto transactions.”

Therefore, extensive research is necessary before launch to iron out possible difficulties. 

The issuance of CBDCs seems to be a race against time because, in the eyes of many nations, owning a CBDC is instrumental in having control of the global markets. 

For instance, the Reserve Bank of Australia (RBA) recently launched a year-long trial to explore innovative use cases and business models of a CBDC, Blockchain.News reported. 

Therefore, the pilot project aimed at getting better insights into the regulatory, legal, and technological aspects of CBDCs. 

Meanwhile, CBDCs are expected to drive the financial inclusion of nearly 1.7 billion people left out of the banking system once implemented. 

This attribute might be propelled by the fact that CBDCs are digital assets pegged to real-world assets and backed by the central banks. As a result, they represent a claim against the bank exactly the way banknotes work.

Image source: Shutterstock


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South Korean Stakeholders Opposes the Proposed “Know-the-Sender” Rule

Some stakeholders are pushing back against the proposed Know-the-Sender (KTS) rule that the South Korean parliament is looking to pass into law.

At a public hearing organized by the Political Affairs Committee of South Korea’s legislature on Tuesday, Choi Hwa-in of the Financial Supervisory Service (FSS) sounded a note of caution that the growing blockchain industry in the nation could be “severely limited” if the KTS proposal is passed into law.

The Know-the-Sender rule was proposed by Kim Byung-wook of the majority Democratic Party and Yoon Chang-hyeon of the People’s Power Party on Oct. 28. Under the provisions of the regulations, anyone, particularly business entities that receive digital currencies, must share the details of the sender, including their names and locations. The rules are further stretched as businesses that send funds to one another must supply the core details of the sending outfit.

The KTS rule is also stretched to foreign-based firms, as they will now be required to register with the South Korean Financial Services Commission (FSC). Cho as well as Yoon Jong-su pushed back against this stance, highlighting the impracticality of the proposal. 

According to the professionals who opposed the bill, the proposal can shut down the digital currency ecosystem, as most foreign virtual asset service providers may not have the requirement to register with the FSC as required.

South Korea tags as a controversial country when it comes to regulating entities providing digital currency services. Despite the long-drawn attempt to tax crypto gains, it is still unclear whether the scheduled timeline of January 2022 will pan out. 

The country’s regulators shut down a number of exchanges back in September, with only Upbit and a handful of trading platforms coming off as the only startups who were able to secure banking partnerships to fulfil the needed requirements. The KTS rule has been tagged as the most unfavourable proposal that can further tighten the Korean cryptocurrency space.

Image source: Shutterstock


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South Korea May Have to Postpone Crypto Taxation, Lawmaker Declares

Rep. Noh Woong-rae of the Democratic Party of Korea has expressed his scepticism about the possibility of the country’s Ministry of Strategy and Finance actualising its plans of taxing incomes from transacting digital currencies.

According to local news sources Thursday, the lawmaker believed the entities involved do not have the right infrastructure to carry out the exercise, a feat that may affect the success of the exercise.

“In a situation where the relevant taxation infrastructure is not sufficiently prepared, the deferral of taxation on virtual assets is no longer an option but an inevitable situation,” he said, adding his plans to sponsor a bill to defer the exercise, “As the relevant laws for tax deferral and real tax cuts are currently pending in the standing committee, we will actively persuade fellow lawmakers so that they can be dealt with in the regular National Assembly.”

Backing his scepticism with examples bordering on how difficult it would be to obtain data for cryptocurrency transactions coming from overseas and P2P payments, the lawmaker pointed out that this situation can create several blind spots that will make the taxation efforts challenging to achieve success.

The country has been pushing cryptocurrency exchanges to get their books orderly, prompting them to form partnerships with banks operating in the country to capture users’ data easily. While the biggest exchanges in the country, including UpBit, have met this demand from regulators ahead of the September 24 deadline, many others find it difficult to form the right partnership with banks and risk being banned from operating by the deadline.

Amongst the major clamour, the lawmaker is looking to change the taxation model on crypto. The current provision will tax income on crypto transactions as ‘Other Income’, while he will try to change this clause to “income from other financial products.” 

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