Forbes: Hong Kong’s encryption regulatory policy allows more companies to choose to go overseas

Original title | “Hong Kong’s unfriendly encryption rules encourage competitors to attract Bitcoin millionaires”

Sam Bankman-Fried’s time in Hong Kong is relatively short, but it is very profitable. During his three years in the city, this workaholic known for sleeping in his office founded FTX, a crypto derivatives exchange that quickly became one of the busiest trading platforms in the world. The success of this business made Sam Bankman-Fried the richest man in the crypto field with a fortune of $26.5 billion at the age of 29. Then he left Hong Kong.

In September of this year, Sam Bankman-Fried flew to the Bahamas. When the FTX operations team welcomed the Prime Minister of the Bahamas to their new headquarters, the strange sight of him wearing a suit surprised many of his fans. Why choose the Bahamas?

He said from his office in the Caribbean Islands: “It is very important that encryption businesses have long-term regulatory guidance and clarity. Hong Kong has not yet drafted the actual bill… There is still uncertainty about the specific results.”


Picture: Sam Bankman-Fried, CEO of FTX, a crypto derivatives exchange

Hong Kong has developed into a hotbed of blockchain and encryption-related businesses. Many elites in the global crypto industry started in Hong Kong, including exchanges CryptoCom, Bitfinex, OSL, etc. Tether, the world’s largest stablecoin, was also launched in Hong Kong. According to data from blockchain data company Chainalysis, Hong Kong has inflows of $60 billion worth of encrypted assets between July 2020 and June 2021.

However, regulatory uncertainty in Hong Kong has become a catalyst for some crypto companies to move their businesses to other markets, where regulators are rolling out rules to support the crypto industry more quickly.?

Singapore is the nearest location. Since opening its doors to the crypto industry in January 2020, Brian Armstrong’s Coinbase , Zhao Changpeng’s Binance, and Winklevoss twins’ Gemini have successively set up business units in Singapore and applied for a business license in that country.

The Monetary Authority of Singapore (MAS) stated that as of July, it had received 170 applications for encryption licenses from encryption-related service providers. Although the financial regulator has rejected two applicants so far, the other three candidates, the Independent Reserve Bank of Australia Exchange, the brokerage arm of DBS Bank, and the Singapore fintech company Fomo Pay, have announced in the past three months that they have Obtain an encryption license. Crypto exchange Coinhako said in November that it also received provisional approval from MAS, making it the country’s latest regulated crypto exchange. So far, approximately 70 encryption-related service providers have received temporary exemptions, allowing them to operate for six months without a license.


According to CoinGecko’s data, based on 24-hour trading volume, CryptoCom, the world’s third largest crypto exchange, moved its headquarters from Hong Kong to Singapore this year. Eqonex Group is a digital asset financial services company listed on NASDAQ. It established its crypto derivatives exchange in Singapore last year and only operates other businesses in Hong Kong. The company’s predecessor, Diginex, is subject to Hong Kong’s regulatory system, which prohibits crypto derivatives and restricts trading services to professional investors.

Eqonex Group CEO Richard Byworth (Richard Byworth) said: “These two things we really don’t think are the right way to do it, and they actually run counter to the way we design our products.”?

In 2019, Hong Kong introduced a selective licensing system for platforms that allow investors to buy and sell securities tokens. Securities tokens are traditional stocks and bonds in digital form, but most encrypted assets do not fall within the scope of the framework. In addition, approved exchanges can only provide services to professional investors with liquid assets of at least 8 million Hong Kong dollars (1 million U.S. dollars). They are also prohibited from trading crypto futures and derivatives to investors.

So far, the only company that has obtained a license in Hong Kong is the crypto exchange OSL. The Securities and Futures Commission (SFC) said in November that it was considering applications from several other companies.

Now, Hong Kong’s regulators are discussing the possibility of imposing a compulsory license system on exchanges that provide crypto transactions, including Bitcoin and other crypto assets that were previously excluded. However, the proposal still recommends restricting crypto exchanges operating in Hong Kong to only providing services to high-net-worth investors.

“Frankly speaking, it is not easy to follow a set of rules. But in my opinion, what Hong Kong regulations do is to provide the highest level of protection for digital asset investors anywhere in the world,” OSL CEO Wayne Te Expressed by Wayne Trench.?


Picture: Wayne Trenchi, CEO of OSL, a Hong Kong digital asset trading platform

But some people believe that if the only option for retail investors is to use unregulated exchanges to trade encrypted assets in Hong Kong, then this policy will cause retail investors to take greater risks. Henri Arslanian, head of encryption at the international accounting and auditing company PricewaterhouseCoopers in Hong Kong, said: “Even though you want to ban it, people will always find a way to trade crypto assets, and they will buy it elsewhere. This is reality, and it has Ironically, this puts the public at greater risk.”

According to a recent survey released by payment giant Visa, about one-third of Hong Kong residents have invested, transferred or traded crypto assets in exchange for goods and services. This result shows that Hong Kong residents are second only to the United States in terms of participation in digital assets.

Eqonex’s Byworth said that Hong Kong still has other favorable policies that make it easier for Hong Kong companies to recruit and retain international talent. “Even if Hong Kong is going downhill in terms of encryption regulation and many talents are flowing out of Singapore, when it decides to change its course and switch to more flexible market regulation, it can regain considerable market share at any time.”


Photo: On November 4, 2021, visitors to Hong Kong Fintech Week walk past a booth displaying the Bitcoin and Ethereum logos.?

At the same time, Singapore has opened its borders to vaccinated travelers from at least 18 countries. In addition to beginning to relax travel restrictions, Singapore’s positive regulatory approach has made it more attractive. China recently banned all crypto exchanges and mining, while South Korea closed nearly 40 non-compliant crypto exchanges in September.

Coinbase made its debut in Japan in August and has had a positive impact on the country. Since the Mt. Gox exchange was hacked in 2017 and lost USD 460 million in Bitcoin, the country has been at the forefront of regulating crypto assets. . But encryption-related crimes are still a problem for Japan. Just a few months ago, Japanese trading platform Liquid also became a victim.?

To be sure, Singapore will not be satisfied with the status quo. Singapore still needs to decide whether to allow the trading of encrypted derivatives, ranging from the existing futures and options in the traditional market to the more innovative “perpetual futures”, a futures contract with no expiry date.


The Monetary Authority of Singapore stated last year that it would not supervise crypto derivatives unless they are offered on approved exchanges, and the agency warned retail investors of their risks.

The reality is that only a few countries have begun to discuss crypto derivatives. Arslanian of PricewaterhouseCoopers believes: “There is no universal and perfect encryption regulatory system. What the encryption industry wants is clarity and the ability to operate its business.”

The Bahamas has performed well in this regard, as it moved quickly at the end of 2020 to develop a comprehensive framework for crypto spot and derivatives trading, giving it a first-mover advantage.

According to Sam Bankman-Fried, market restrictions are not as important as restrictions that prevent companies from providing services to the rest of the world. “Because for most companies, this is not just to maximize the number of businesses that are targeted at the population of a place. The most important thing is where the company’s home is.”

Original Source | Forbes Asia Media Person, Zinnia Lee

risk warning:

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