Summary: The wind is blowing, Hong Kong Enters Web3.0 Era!
Foreword: In 2022, after the delisting of FTX, Japan, South Korea, the United States, and Singapore will tighten their regulatory policies on the encryption industry. Hong Kong announced a high-profile policy on the development of virtual assets, trying to strengthen the application of blockchain in the capital market, and striving to become the virtual asset innovation center in Asia. Hong Kong’s complete cryptocurrency regulatory framework will come into effect in June 2023.
Recently, due to the knock-on effects of FTX’s bankruptcy, Asian crypto asset-friendly countries have tightened regulations. Cryptocurrency investors in South Korea, Singapore and Japan were the largest users of the now-defunct FTX exchange, according to a CoinGecko report: Number of monthly unique visitors from January 2022 to October 2022. According to relevant data, the total traffic of these three Asian countries during this period accounted for 15.7% of the total traffic of FTX, among which South Korea had the highest number of users.
01. The change of attitude in Japan and South Korea stems from the delisting of FTX!
On January 10th, 2023, South Korea’s National Tax Service (NTS) suddenly seized the transactions of South Korea’s largest exchange, Bithumb Korea, and affiliates of Bithumb and Bithumb Holdings. Similarly, exchanges that have obtained Japanese licenses have all withdrawn from the Japanese market one after another. Among them, U.S.-based cryptocurrency exchange Kraken said it would cease operations in Japan after Jan. 1 and deregister from the Japan Financial Services Agency on Jan. 31th.
Japan and South Korea, which were once positive about Web3.0, are now cautious.
The change in Singapore is more obvious. Previously, Singapore was relatively open to blockchain technology and financial innovation, attracting investment. According to the KPMG report, in 2021 alone, investment in cryptocurrency and blockchain companies in Singapore surged to US$1.48 billion, 10 times that of 2020, accounting for 50% of the total in the Asia-Pacific region in 2021.
However, Singapore sovereign fund Temasek Holdings lost $275 million due to the collapse of cryptocurrency exchange FTX. Singapore’s Deputy Prime Minister and Minister of Finance Huang Xuncai said: Temasek’s losses are huge, and Temasek has launched an internal review to study and improve its processes and learn lessons for the future.
On November 30th, 2022, Lawrence Wong stated in Parliament that Singapore has no plans to become a hub for cryptocurrency activities, but to become an “innovative and responsible digital asset player.” Singapore police investigated Binance for possible violations of Payment Services Act. While Singapore allows investment in cryptocurrencies, the Singapore government’s focus will be on sound regulation and continuous reminders and public education on lessons learned from recent experience. At the same time, it reiterated that the government and MAS have distinguished development innovation from cryptocurrency speculation, and they do not encourage retail investors to participate.
In December 2022, the Monetary Authority of Singapore (MAS) issued two documents in a row to tighten the supervision of encrypted assets and re-amend the “Payment Services Act”, which includes lending to retail investors for cryptocurrency transactions and requiring the local encryption industry to Enterprises distinguish between company and customer assets, and restrict the issuance of local stablecoins. According to regulatory regulations, stablecoin regulated issuers must meet multiple requirements such as having at least 5 million Singapore dollars in pegged currency.
When other Asian countries “strongly regulate”, Hong Kong chooses to “go against the grain” and approach encrypted digital finance.
02. Brilliant Hong Kong is actively approaching Web3.0!
On October 31th, 2022, Hong Kong, China officially released the “Policy Declaration on the Development of Virtual Assets in Hong Kong” (hereinafter referred to as the “Declaration”),
This declaration officially declares to investors and entrepreneurs all over the world that Hong Kong, China will become the world’s virtual asset center and Web3.0 center.
The manifesto was released on the first day of Hong Kong FinTech Week 2022. On this most important day of Hong Kong’s financial industry, the guests were all people in the industry related to Web3 and encrypted finance — from senior officials of the SAR government such as the Financial Secretary of Hong Kong, China, the President of the Hong Kong Monetary Authority, to the co-founder of Animoca Brands Xiao Yat, FTX co-founder Sam, and executives from Citibank and Tencent Financial Technology, all the guests were discussing the development of Web 3.0 in Hong Kong.
The content of the declaration also clarifies the Hong Kong government’s attitude towards Web3 and encrypted finance: support NFT (Non-homogeneous Tokens), support stable tokens, support DLT (Distributed Ledger Technology), embrace Web3 and metaverse.
In addition, the government and regulatory agencies are also conducting a number of pilot projects to test the advantages of encrypted assets and their applications in financial markets, including the issuance of NFTs for proof of attendance during the Hong Kong Fintech Week; the tokenization of green bonds issued by the government for institutional investors Subscription; and the cross-border application of the central bank digital currency eHKD.
On January 12, 2022, the Hong Kong Monetary Authority issued a document on incorporating stable tokens into the regulatory framework. On January 31, 2023, it released the “Summary of Encrypted Assets and Stable Coins”. It is expected that in 2023~ Implementation in 2024.
Whether it is due to the regulatory requirements for the decoupling of Terra/USDT algorithm stable tokens, or because Hong Kong needs to establish the financial dominance of Hong Kong dollar stable tokens, the Hong Kong Monetary Authority needs a relatively flexible system to regulate and promote Hong Kong dollar stable tokens. development of the currency market.
On February 16th, the Hong Kong government announced that it would issue HK$800 million of tokenized green bonds under the government green bond program, which is the first batch of tokenized green bonds issued by the government in the world. As the first batch of tokenized bonds governed by Hong Kong law, it shows that Hong Kong can provide a flexible and convenient legal and regulatory environment for innovative bond issuance forms. The issuance of tokenized green bonds marks a milestone in Hong Kong’s strengths in combining the bond market, green and sustainable finance, and fintech.
03. Encryption Capital, Opportunities and Crisis in Hong Kong
On the evening of February 20, the Hong Kong Securities Regulatory Commission launched a consultation (public consultation) on proposals for the regulation of virtual asset trading platforms. According to the system that will take effect on June 1, all business operations or virtual asset trading platforms in Hong Kong need to obtain License issued by the Securities Regulatory Commission. In order to comply with the requirements of the new regulations, a transitional period of 12 months is proposed.
This new regime for centralized virtual asset trading platforms that provide non-security token trading services will come into effect on June 1, 2023. This also means that operators of virtual asset trading platforms (including existing platforms) that plan to apply for licenses should start to review and modify relevant systems and monitoring measures to prepare for the new system. Companies with no intention of applying for a license are preparing to wind down their operations in Hong Kong in an orderly manner.
As soon as this news came out, there was a frenzy in the currency circle, which triggered a surge in the “Hong Kong concept currency”. Obviously, behind this surge indicates a shift in investor confidence. At the same time, it has also made many virtual asset trading platforms very active, sending a request to Hong Kong to “apply for a license”.There are also many high-quality blockchain projects going to Hong Kong for deployment.
For example, on February 15th, Conflux Network announced on Twitter that it has reached a cooperation with China Telecom and plans to launch the first BSIM pilot project in Hong Kong. PlugChain, as a new public chain focusing on aggregated cross-chain oracles, supports Hong Kong to actively embrace Web3.0, and also attaches great importance to the ecological layout in the Asia-Pacific region. In the future, PlugChain will negotiate with the Hong Kong government on Hong Kong dollar stable tokens and infrastructure cooperation.
On February 20th, Huobi CEO Justin Sun announced that Huobi is applying for a Hong Kong cryptocurrency trading license. He said that Huobi will launch a new exchange, Huobi Hong Kong, in Hong Kong, and the new entity will focus on providing services to institutions and high-net-worth individual investors in Hong Kong. In addition, some project parties and institutions also announced that they are applying for Hong Kong encrypted asset licenses, including: OKX, Bitget, and Hippo Financial Services Limited, a trust service provider of Gate Group.
Cameron Winklevoss, co-founder of cryptocurrency trading platform Gemini, recently said on Twitter: The next round of bull market will start from the East, which will remind people that cryptocurrency is a global asset class. For the United States, there are only two options: either accept it or stay behind. Governments that do not provide clear rules and good-faith guidance will miss out on the greatest period of growth since the rise of the commercial internet, as well as the opportunity for future financial infrastructure.
It is not difficult to find that the US SEC has recently dealt heavy blows to cryptocurrency exchanges Kraken, BUSD issuer Paxos, and Binance. Hong Kong has embraced Web3.0 since last year, allowing investors to bet on Hong Kong and other eastern encryption-friendly regions. This year’s regulatory policies and cyberport production are actively deployed.
Hong Kong, the center of Web3.0 in the Eastern world in the future!
However, Hong Kong also faces challenges in becoming a Web 3.0 hub. A regulatory framework designed for traditional assets may not be suitable for rapidly developing digital assets and cutting-edge technologies.
The principle of “same business, same risk, and same rules” for digital asset regulation in Hong Kong means that traditional financial regulation also applies to digital assets. The rigor of obtaining a license alone has made it a more favorable playing field for traditional institutions. But innovation often comes from the unpredictable “grass roots”. Therefore, how to provide conditions for bottom-up innovation is a problem that needs to be solved.
Also, while Web 3.0 is fundamentally a tech movement, Hong Kong is not a tech hub with the same resources as Shenzhen or Silicon Valley. Therefore, Hong Kong needs a differentiated digital asset-oriented technical infrastructure.
The security of digital assets is different from that of traditional assets. The nature of their blockchain means that digital assets cannot rely on a closed security system like traditional finance. Licenses or regular audits cannot ensure the safety of user funds. Advanced technologies like multi-party computation are needed to give asset owners full control or co-management of their assets.
What kind of Web3.0 infrastructure does Hong Kong need to develop? Given last year’s heavy losses for retail investors, 2023 will be more promising for the institutional business. Digital assets are primarily held by exchanges, mining pools, investment funds, and other institutions. In order to reduce the risk of centralized platforms, a large part of these assets will eventually be transferred to custody platforms using the latest technology solutions.
More importantly, in order to comply with new regulations, institutions also need solutions that can achieve distributed private key management and fund isolation. Custody, institutional wallets, and digital security are just the infrastructure of a digital asset ecosystem.
Conclusion: In short, Hong Kong has the ability to become a virtual asset center in Asia. Whether it can lead the development of virtual assets in Asia still requires the Hong Kong government to carry out research and innovation in a proactive manner to effectively deal with the challenges brought by new assets. Opportunities and Challenges.
In the future, I hope that as mentioned in the “Hong Kong Declaration”: “Through a consistent, clear and clear regulatory framework, a solid foundation will be laid to meet the financial innovation and technological development brought about by the rapid development of global virtual assets.”
Web3 is worth looking forward to in Hong Kong!
