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April 15, 2024 by Lipika Deka
Hong Kong’s crypto landscape is all set to undergo a seismic shift after the public consultation on digital asset regulation concluded on a drastic note on 12 April. The nation’s new over-the-counter [OTC] licensing system covers mainly the top two dominant virtual assets, Bitcoin [BTC] and Ethereum [ETH], and has sidelined other coins, triggering a huge response.
This follows a Hong Kong lawmaker’s call for the prompt resolution of independent licensing rules for virtual asset custody services. He emphasized the importance of addressing this final piece of the puzzle.
The industry welcomes the establishment of a licensing system, but the currencies can only be included in virtual asset trading platforms licensed by the Securities and Futures Commission for retail trading. The virtual currency has been reduced to only Bitcoin and Ethereum in disguise, which has a great impact on business. It is expected that stable currency transactions can be relaxed; coupled with the addition of requirements such as the addition of a compliance officer and a money laundering reporting officer, it will increase costs.
This move can not only stifle innovation but also affect the 200 existing digital asset service providers in Hong Kong, struggling with reduced crypto options and increased costs. According to the report by the Hong Kong Economic Journal [HJEJ], the licensing system would make the roles of compliance officers and anti-money laundering specialists a prerequisite norm for crypto service providers. This could impact smaller players in the industry the most, who may need to increase spending to meet these requirements.
Industry experts have urged authorities to exempt stablecoins USDT and USDC. Some professionals are also against the suggestion to enhance KYC scrutiny for transfers of at least HK$8,000.
Hong Kong’s Crypto Shift
So someone who invests in altcoins or is part of a startup should now reassess their investment strategies, as this narrowed-down focus on a handful of crypto currencies is a hindrance to portfolio diversity and operational scope.
But on the brighter side, this consolidation could inadvertently act as a shield against extreme market volatility, offering stability and possibly better investor protection. This would also align Hong Kong with global financial regulation standards. However, the tradeoff for investors would be a less vibrant crypto ecosystem with fewer choices for consumers.
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