Crypto is synonymous with China, and for good reasons. Blockchain startup Block.one and the largest crypto group FTX Trading, for instance, were grown and nurtured in Hong Kong. The world’s largest stablecoin, Tether, was launched in China.
These crypto exchanges trade trillions of dollars thanks to a blend of China’s financial expertise and entrepreneurial spirit — which is attracting high-flying investors.
Unfortunately, the mammoth, rapidly growing, and flourishing crypto industry is now at odds with Hong Kong’s financial regulators. And most crypto exchanges are already facing crackdowns — leaving the industry to face an existential crisis.
If threats of incoming regulations are made real, the industry will lose much of its entrepreneurial freedom. And because of that, large crypto exchanges are now planning to relocate their businesses for good.
Proposal to impose stringent crypto regulations
Regulators in the UK, U.S., and parts of Asia took a tough stance on cryptocurrencies in a bid to regulate the industry — which they deemed increasingly “too large to ignore”.
Now, Hong Kong’s financial regulators want to mirror a similarly tough stance.
In 2018, China outlined a new framework that sought to regulate cryptocurrencies and further licensing arrangements. But the regulations are yet to become law — until now. China’s latest crypto regulation rules will make it among the world’s most stringent.
Large crypto companies plan to relocate
Under the new laws, cryptocurrencies will be limited to professional investors only. Meaning, those with $1M of liquid assets and crypto exchanges will need a license.
Currently, crypto groups in Hong Kong can opt for a licensing arrangement — whenever they want to. It’s optional.
Now with the ground shifting, many crypto groups have applied for a license to meet the new rules. But so far only OSL was successfully granted a license in December.
The lack of further approvals has sparked uncertainty over when the new rules will come into effect. As a result, large crypto companies have already created plans to relocate.
The industry is seeking rule changes that will allow licensed crypto exchanges to sell cryptocurrencies to retail investors.
On top of that, they want clarification from regulators on whether the new rules will allow Hong Kong-based crypto companies to service foreign retail investors.
The say regulator’s major concern should be to protect investors. However, under the new rules, this protection is undefined.
Odds are, a shutdown on the industry will push investors to trade crypto via offshore crypto exchanges or via risky P2P’s — as has been seen in mainland China.
