Hong Kong's Cryptocurrency Regulation Puts Tension To Crypto Investors

October 16, 2020

Different parts of the world adopted cryptocurrency after it has been introduced to the market last 2009 and has been chased by many investors worldwide. In a short period, it created a new economy that offered new opportunities to the market. Hong Kong, on the other hand, takes advantage of this technology and adopted Bitcoin as its first digital currency. Hong Kong is a non-interventionist government and so the administration didn’t pay much attention to Bitcoin for many years. Many investors started to invest in the expectation that virtual assets could soon be used in payments, while retail investors engaged for short term gains.

However, in 2014, John Tsang, Hong Kong’s Finance Secretary described Bitcoin as “a commodity generated in the cyber world,” and explained that it shouldn’t be allowed to be electronic money or a store of value for making payments.

Bitcoin Volatility from data.bitcoinity.org

The government also warned the crypto users about the volatility of Bitcoin and described it is as a highly theoretically product. In 2017, China imposed a complete ban on cryptocurrency exchanges and coin offerings due to numbers of fraud cases and market manipulation.

Take MyCoin Hong Kong Bitcoin Exchange.

In 2015, it suddenly disappeared with the $387 million funds from different customer's deposits. MyCoin did not operate legally in Hong Kong and has believed that it never actually facilitated any virtual trading, but was running a Ponzi scheme instead. As of now, 5 scammers have been arrested, but others may still be on the run and developing similar scams.

Due to these matters, the HKSAR has formalized regulations protecting investor's interest in Bitcoin volatility and potential scams or frauds and that the government believed it could help make the city a major cryptocurrency hub in the future. In November 2018, Hong Kong's Securities and Futures Commission (SFC) established a ‘new regulatory framework’ for cryptocurrency assets portfolio managers. The SFC issued two circulars: one for the funds on investing in digital currencies and the other on trading platforms, which takes effect immediately. All transactions regarding cryptocurrency are now under the regulatory purview of the Hong Kong Monetary Authority or the SFC.

According to Gary Cheung, chairman of the Hong Kong Securities Association, "It will boost investor protection and hence attract more mainlanders to trade cryptocurrency assets in Hong Kong.” He also said that "This will help Hong Kong to be among the top cryptocurrency trading centers worldwide because proper regulation is very important for attracting big players.” And SFC chief executive, Ashley Alder said in his speech at the 2018 Hong Kong FinTech Week, "To afford better protection, only professional investors should be allowed to participate for the time being.”

The cryptocurrency regulation made some changes affecting the cryptocurrency space as a whole especially the small crypto investors. Professional investors under Hong Kong law pertains to those with at least HK$8 million (US$1.02 million) in investment assets and two years of experience. The fund manager brokers and platform operators will be accountable to make sure that only professional investors are eligible in trading.

The new law states that:

• All funds that invest more than 10% of their assets in digital currencies will need to apply for SFC license. This applies to all cryptocurrency-related investments, regardless if they are securities or not.

• Cryptocurrency trading platforms will need to voluntarily join the so-called “regulatory sandbox.” While negotiating with the SFC on their licensing requirements, the investors can continue to trade. The SFC will then decide on how to best license and regulate the sector.

The SFC chief executive said that a sandbox is important for cryptocurrency platforms in matching the new requirements for currency exchange. Alder also says that the SFC will obtain high criteria for these cryptocurrency platforms, fitting to those for other computerized trading platforms like dark pools.

Last October 24, 2019, President Xi of China has given a comment emphasizing the importance of blockchain, bringing out the need to expedite the improvement of technology in China. And according to a report by the South China Morning Post, October 24 has been proposed by the Communications Industry Association, an affiliate of the Chinese Ministry of Industry and Information Technology to become the designated day to celebrate blockchain. Based on Coindesk report, days after the comments were made public, the Standing Committee of the 13th National People’s Congress in China enacted a new law intended for “facilitating the development of the cryptography business and ensuring the security of cyberspace and information.” The law, which took effect last January 1, 2020 tackles about ensuing regulatory and legal challenges in commercial cryptography use-cases.

Some acclaimed the move by the SCF, however for many, this became a burden to them. The president of the Bitcoin Association of Hong Kong, Leo Weese, has called the regulatory sandbox “a cage, that places unreasonable burdens on exchanges.” He is afraid that it may steer blockchain-related investment out of China. He also wrote online, “While Hong Kong was a better place when it did not bother such platforms, was inevitable this day would come. Exchanges will likely maintain parts of their teams in Hong Kong, but work harder to convince the public of a new narrative that places them outside SAR."

Despite the new law, so far, there are no plans for crypto exchanges to leave Hong Kong. To date, Hong Kong’s Securities and Futures Commission (SFC) granted OSL an “approval-in-principle” for its application to operate a virtual asset trading platform Type 1 (dealing in securities) and Type 7 (automated trading service or ATS). OSL is the first crypto company approved by the SFC, it has obtained insurance cover for both hot (online) and cold (offline) storage of virtual assets. It is also Asia’s leading digital asset platform and member of BC Technology Group.

As of September 2020, buying Bitcoin futures contracts has no legal way in Hong Kong. Hong Kong's Securities and Futures Commission (SFC) has released guidance on futures contracts about Bitcoin and followed the guidance up with a warning:

Here are the lists of Popular Exchanges to Buy Bitcoin & Crypto in Hong Kong:

• Coinmama allows customers in almost every country to buy bitcoin. They charge a 4.9%-5.9% (depends on volume) fee on each purchase.

• CEX.io lets you buy bitcoin with a credit card, ACH bank transfer, SEPA transfer, cash, or AstroPay. Purchases made with a credit card give you access to your bitcoin immediately. 

• Kraken is one of the world's largest cryptocurrency exchanges and the largest in Europe based on daily average trading volume.

• Gemini is a New York-based Bitcoin exchange, open to residents of the United States, UK, Canada, Hong Kong, Japan, Singapore and South Korea. Deposits can be made via wire transfer, SEPA or ACH transfer.

• LocalBitcoins is an escrow service which also helps to match bitcoin buyers and sellers. Users may advertise trades for whichever payment method they prefer.

• BTCC is China's second-largest Bitcoin exchange and the longest-running Bitcoin exchange in the world. You can fund your exchange account online via bank transfer.

• OKCoin is the largest Bitcoin exchange in China. Customers can make deposits to their exchange accounts via bank transfer.

• Huobi is the third-largest Bitcoin exchange in China. You can fund your exchange account online via CNY bank transfer or with USD via OKPay (1.5% fee) or international wire transfer (1% fee).

• Mycelium Local Trader helps you find local Bitcoin sellers. Once you locate a seller, you meet up in-person and conduct the trade. Mycelium charges no fees. While Mycelium Local Trader works great in highly-populated areas, users in low population

Source:https://www.buybitcoinworldwide.com/hong-kong/

Here is a map of Bitcoin ATM where you can buy bitcoins with cash. However, most ATMs have fees of 5-10%.

Written by: @Jane

If you want to know more about Hong Kong Cryptocurrency Regulations, you can visit this link:

https://www.charltonslaw.com/sfc-issues-regulations-for-licensed-crypto-exchanges/

Sources:

https://amp.scmp.com/business/banking-finance/article/2171157/cryptocurrency-rules-be-unveiled-sfc-hong-kong-aims-become

https://www.buybitcoinworldwide.com/hong-kong/

https://www.google.com/amp/s/tokenist.com/hong-kong-set-to-shake-up-cryptocurrency-exchange-licensing-process/amp/

https://fintechnews.hk/10331/fintechchina/china-blockchain-xi-jinping/

https://www.google.com/amp/s/www.coindesk.com/osl-crypto-exchange-hong-kong-regulation%3famp=1

Lead image from cfo.com