As the US government continues to rein in the crypto industry with a wave of regulation, other places are emerging as new hubs for the virtual asset industry. On Monday, Hong Kong proposed marriage regulations that would allow retail investors to trade certain “large-cap tokens” on licensed exchanges, a stark contrast to mainland China across the border, where crypto-related transactions are outright prohibited.
The city’s Securities and Futures Commission did not specify which major tokens would be allowed, though a spokesperson for the regulatory body said it would likely be Bitcoin and Ether, two of the largest digital assets by market value.
Since China cracked down on crypto trading, the country’s web3 startups have largely abandoned their home market and shifted their focus overseas. Some of the more resourceful have chosen to set up new bases in friendlier locations like Singapore and Dubai, though they normally keep developers in China to tap into the country’s large pool of affordable tech talent.
With the introduction of more relaxed cryptocurrencies regulations in Hong Kong, some of these China-founded web3 companies may return into exile and be closer to home.
China’s suppression of crypto trading to protect individual investors from speculative activity now seems prescient, given the wave of bankruptcies and layoffs that have rocked the global crypto industry. But despite the burst of the crypto bubble, money and talent keep pouring into web3. It is hard to imagine Beijing sitting still while the rest of the world works on the building blocks that some have to argue would unleash a new wave of innovation as big as today’s Internet itself.
Traditionally a financial hub, Hong Kong could potentially be a laboratory for China’s policymakers to test blockchain’s potential with some buffer for the country’s one billion netizens.
Hong Kong’s proposal stipulates that any centralized virtual currency exchanges operating in the city or marketing services to the area’s investors must obtain licenses from the securities and futures authority. The requirements “cover key areas such as safekeeping of assets, know-your-customer, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/terrorism counter-financing and prevention of market misconduct”. announcement reads.
“In addition to ensuring appropriateness in customer onboarding and token admission, the other key proposals relate to token due diligence, governance and disclosure.”
In other words, centralized crypto exchanges should ban Hong Kong IP addresses until they obtain the relevant permits to operate there.
The legal requirements are available for inspection until March 31 and the new licensing regime will come into effect on June 1.