As more and more traditional financial institutions become hesitant to get involved in the world of cryptocurrency, other places are emerging as new hubs for the digital asset industry. Hong Kong, for example, has proposed rules that would allow retail investors to trade certain “large-cap tokens” on licensed exchanges. This stark contrast with mainland China across its border where crypto-related transactions are outright banned is indicative of the growing trend of regulatory divergence within the crypto world.
The Securities and Futures Commission’s decision to allow large digital tokens like Bitcoin and Ethereum may help legitimize these asset classes and attract new investors. While the commission did not specify which tokens would be allowed, this announcement marks a significant step forward in legitimizing these assets and may encourage more people to invest in them.
By concentrating their operations overseas, many Chinese web3 startups are able to bypass the country’s controversial crackdown on crypto trading and access a wider pool of potential investors. This move has helped them expand their businesses faster than they would have if they had remained solely focused on China, while also tapping into skilled technical talent pools in more accommodating locations.
The return of some of these Chinese-founded web3 companies in exile might be a sign that the regulatory environment in Hong Kong is becoming more relaxed. This could allow these companies to be closer to home and potentially better serve the local blockchain community.
The question on everyone’s mind is: How long will China allow this experimentation to continue? The clampdown seems prescient given the burst of the crypto bubble, but it remains to be seen how long Beijing will allow this experimentation to continue. Meanwhile, money and talent continue pouring into web3 despite the burst of the crypto bubble. It’s hard to imagine Beijing sitting still while the rest of the world works on building blocks that some argue would spark a new wave of innovation as big as the current internet itself.
Given that blockchain technology offers a platform for secure, tamper-proof communication and transactions, it has the potential to revolutionize the way we do business. This is especially true in countries with stringent regulations regarding financial transactions. For example, Hong Kong could be a great place to test out blockchain’s potential with some buffer for the nation’s one billion netizens.
This proposal from Hong Kong is an important step forward in regulating the virtual currency industry. By requiring centralized exchanges and marketing services to get licenses from the securities and futures authority, investors will be able to trust that these companies are acting responsibly. This will help tackle some of theissues that have been raised with regards to virtual currencies in recent years, such as money laundering and market manipulation.
Token managers and issuers will need to adhere to rigorous due diligence processes in order to ensure their tokens are both suitable for onboarding clients and admitted into the ICO platform. Additionally, governance mechanisms will be put in place so that decisions made by the team are transparent and fair, while disclosures will outline any risks attached to investing in a particular token.
While centralized crypto exchanges must comply with the regulatory demands of their respective countries, this does not mean that they are not able to operate in others. Hong Kong, for example, has yet to provide a regulatory framework that would allow centralized exchanges to operate within its borders. Until such a time as this occurs, these exchanges must ban IP addresses from Hong Kong.
The regulatory requirements are open for consultation through March 31 and the new licensing regime will take effect on June 1. The new licensing scheme will require cannabis producers to meet higher standards, such as requiring a significant amount of square footage for production and having an operational security plan in place.
