China’s blanket ban on crypto casts a pall over Hong Kong’s digital asset ambitions

October 11, 2021

China’s ban on cryptocurrency trading is clouding Hong Kong’s role as a hub for innovations in financial technology, with the start-up community seeing weakening prospects of capturing mainland business, according to the South China Morning Post. 

The People’s Bank of China, together with nine other government bureaus and regulators, last month warned cryptocurrency players of potential violation of Chinese laws, calling such transactions illegal and liable for prosecution. The action caused ripples and slammed industry related stocks in Hong Kong, which has its own legal system and financial infrastructure for digital assets.

“When there is a complete ban on cryptocurrencies in China, this calls into question whether Hong Kong could develop into a global crypto asset hub,” said Alessio Quaglini, chief executive officer at Hong Kong-based Hex Trust, a digital asset custodian. “Business decisions are based on clarity and certainty. It’s a big problem” when there are doubts on both, he added.

China’s disapproval for cryptocurrency activities goes back to 2017 when it frowned upon power-sapping mining activities and ordered the closure of all exchanges. The move caused jitters among investors about keeping their assets in the US$2 trillion market within the mainland and Hong Kong jurisdictions.

Hong Kong has proposed a regulatory framework governing virtual asset service providers with a licensing regime to be overseen by the Securities and Futures Commission. The city’s government plans to move a bill to the city’s legislature by next year.

China’s ban on cryptocurrency trading is seen weakening Hong Kong’s role as a bridge for investors to access the mainland Chinese market.

China’s ban on cryptocurrency trading is clouding Hong Kong’s role as a hub for innovations in financial technology, with the start-up community seeing weakening prospects of capturing mainland business.

The People’s Bank of China, together with nine other government bureaus and regulators, last month warned cryptocurrency players of potential violation of Chinese laws, calling such transactions illegal and liable for prosecution. The action caused ripples and slammed industry related stocks in Hong Kong, which has its own legal system and financial infrastructure for digital assets.

“When there is a complete ban on cryptocurrencies in China, this calls into question whether Hong Kong could develop into a global crypto asset hub,” said Alessio Quaglini, chief executive officer at Hong Kong-based Hex Trust, a digital asset custodian. “Business decisions are based on clarity and certainty. It’s a big problem” when there are doubts on both, he added.

China’s disapproval for cryptocurrency activities goes back to 2017 when it frowned upon power-sapping mining activities and ordered the closure of all exchanges. The move caused jitters among investors about keeping their assets in the US$2 trillion market within the mainland and Hong Kong jurisdictions.

Cryptocurrency volatility highlighted by China’s recent crackdown and Elon Musk comments
Hong Kong has proposed a regulatory framework governing virtual asset service providers with a licensing regime to be overseen by the Securities and Futures Commission. The city’s government plans to move a bill to the city’s legislature by next year.

While the framework proposes to impose jail terms on operators of an unlicensed exchange, it however permits platforms to facilitate the trading of bitcoin and its peers. Operators are, however, restricted to only servicing professional investors, defined as those with a portfolio of at least HK$8 million (US$1.03 million).

Hex Trust has operating licences in both Hong Kong and Singapore to offer custodial services. The firm plans to get regulatory approvals to extend its services in Europe and the Middle East, Quaglini said.

As governments elsewhere take an opposite route to China by welcoming crypto start-ups, Hong Kong will face greater competition from other fintech hubs in attracting venture capital and hosting the next promising entrepreneurs in the field.

While the framework proposes to impose jail terms on operators of an unlicensed exchange, it however permits platforms to facilitate the trading of bitcoin and its peers. Operators are, however, restricted to only servicing professional investors, defined as those with a portfolio of at least HK$8 million (US$1.03 million).

Hex Trust has operating licences in both Hong Kong and Singapore to offer custodial services. The firm plans to get regulatory approvals to extend its services in Europe and the Middle East, Quaglini said.

Copyright © 2021 South China Morning Post

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