China’s cryptocurrency ban clouds Hong Kong’s role as innovation hub for digital assets as tighter legislation seen

Name: Cryptocurrency volatility highlighted by China’s recent crackdown and Elon Musk comments
Uploaded: 2021-10-10T04:53:07.000Z
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Description: Cryptocurrency volatility highlighted by China’s recent crackdown and Elon Musk comments

China’s latest ban on cryptocurrency activities casts doubts on Hong Kong’s future role as an innovation hub for digital assets

Hong Kong-based start-ups will not be able to offer cryptocurrency services to mainland residents in the US$2 trillion market, some observers say

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China’s ban on cryptocurrency trading is seen weakening Hong Kong’s role as a bridge for investors to access the mainland Chinese market. Photo: AFP

Georgina Lee

Published: 12:53pm, 10 Oct 2021Updated: 9:22pm, 10 Oct 2021

China’s ban on cryptocurrency trading is clouding Hong Kong’s role as a hub for innovations in financial technology, with the start-up community seeing weakening prospects of capturing mainland business.

The People’s Bank of China, together with nine other government bureaus and regulators, last month warned cryptocurrency players of potential violation of Chinese laws, calling such transactions illegal and liable for prosecution. The action caused ripples and slammed industry related stocks in Hong Kong, which has its own legal system and financial infrastructure for digital assets.

“When there is a complete ban on cryptocurrencies in China, this calls into question whether Hong Kong could develop into a global crypto asset hub,” said Alessio Quaglini, chief executive officer at Hong Kong-based Hex Trust, a digital asset custodian. “Business decisions are based on clarity and certainty. It’s a big problem” when there are doubts on both, he added.

China’s disapproval for cryptocurrency activities goes back to 2017 when it frowned upon power-sapping mining activities and ordered the closure of all exchanges. The move caused jitters among investors about keeping their assets in the US$2 trillion market within the mainland and Hong Kong jurisdictions.

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Hong Kong has proposed a regulatory framework governing virtual asset service providers with a licensing regime to be overseen by the Securities and Futures Commission. The city’s government plans to move a bill to the city’s legislature by next year.

While the framework proposes to impose jail terms on operators of an unlicensed exchange, it however permits platforms to facilitate the trading of bitcoin and its peers. Operators are, however, restricted to only servicing professional investors, defined as those with a portfolio of at least HK$8 million (US$1.03 million).