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Can Crypto Put Back Hong Kong’s Lost Position In The World Map?

The crypto market has seen many ups and downs, especially concerning its adoption and operations. Nations across the country have repeatedly presented their doubts about cryptocurrencies, ultimately banning the operational use of digital assets in their region. 

Following the footsteps of the crypto-ban was Hong Kong. The region witnessed a strict ban on dealing with crypto tokens inside its legislature. However, things have changed as crypto has gained significant prominence in 2022. 

Considering the growth and technology cryptos bring, Hong Kong has suggested lifting the ban on cryptocurrencies, allowing ordinary investors to invest in digital assets, including crypto marketplace funds. This move is considered a counter to restoring the SAR’s (Special-Administrative Region) position as an important financial center. Besides, it also aims to run pilot projects for NFT issuance and CBDC.

But what could be the possible reason behind such a drastic change? Let’s figure it out in the following sections of our blog. 

What’s Changed For Hong Kong?

The SAR put out a proposal to limit Bitcoin trading to accredited investors last year. Many BTC business owners, as a result, relocated their businesses to nations with friendlier legislation, such as Dubai and Singapore. Hong Kong declared it will investigate the property rights of tokenized assets and consider legalizing smart contracts to “provide a stable legal basis for their growth.”

Financial Services and the Treasury Bureau (FSTB) of the nation announced on Sunday that the local securities regulators planned to hold a public consultation on reestablishing “suitable” crypto access for retail investors, including the potential emergence of EFTs (exchange-traded funds) for Virtual Assets (VA) in its market.

The regulator’s statement noted the “future opportunities which will be finally opened as VA tries to move into the regions of Web 3.0 as well as the Metaverse” and said, “We recognize VA is here to remain, given that it has attracted the attention of international investors and is progressively viewed as a channel for financial innovations.”

DLT (Distributed ledger technology) with Web3, according to the Financial Services and Thrift Board (FSTB), has the potential to “become the future of commerce and finance” and would improve the effectiveness and openness of the nation’s financial system “under adequate regulation.” As a result, “existing frictions across the clearing, settlement, and payments will be reduced or resolved.”

The agency seeks to “improve investor education and also ensures that appropriate regulatory procedures are in place” and to take a “careful” and “conservative” approach to the risks that digital assets represent to retail investors.

Crypto = Future Growth!

The FSTB highlighted other regions that represent potential growth opportunities in addition to the expansion already attained in the nation, as demonstrated by NFT issuance, a rising number of Metaverse developers, and the use of DLT in financial transactions.

These areas include “trading arts as well as collectibles, the parsing of vintage products, or the tokenization of “a wide spectrum of products,” such as debt securities.

Previously, in May 2021, authorities in the People’s Republic of China’s special administrative region required that all markets operating in the city obtain a license from the regulatory agency and could only serve professional investors. The licensing scheme is scheduled to start in March 2023.

The FSTB emphasized in the recently released statement that digital tokens have characteristics that differentiate them from traditional assets. Therefore, to “create a solid constitutional basis for their development,” the agency may eventually be required to assess the ownership rights for tokenized items and the legitimacy of smart contracts.

The agency stated, “We understand VA have unique features separate from traditional investments, and their qualities may need to fit better into the present Hong Kong private property legislation categories or definitions. Due to its “increasing potential for major interconnection with the existing financial markets,” particularly in the payment system, stablecoins were also identified as a critical area of concern.

According to the FSTB, “international consensus would be to put in place adequate laws on topics like governance, stabilization, and redemption procedures of stablecoins” in light of the lessons learned from the most recent VA market crisis (Crypto Winter). 

Hong Kong Monetary Authority To Be Seen In Action

The Hong Kong Monetary Authority, the region’s central bank, is anticipated to announce additional discussions on a legal framework for stablecoins “in due course” (HKMA).

To investigate the various technological advantages that digital assets offer, the Hong Kong government has started several pilot projects, including one that examines NFT issuance all through Hong Kong’s Fintech Week, another that investigates the tokenization of green bonds, and another that evaluates the functionality of the e-HKD, the region’s digital currency.

The FTSB statement further stated how, with Hong Kong’s world-class financial infrastructure and legal & regulatory system, the government intends to encourage the sustainable growth of financial services across the entire VA value chain. As a result, their reformed operations will now span VA issuance, tokenization, trading, settlement platforms, and financing, including asset management, custody, etc.

Introducing A List Of Standards

According to knowledgeable sources, the system for registering coins on retail markets is expected to include market value, membership, and liquidity rules in the third-party cryptocurrency indexes. According to them, it is similar to the approach taken with structured instruments like warrants.

The Securities and Futures Authority representative of Hong Kong declined to discuss the new strategy. However, several Hong Kong companies focusing on cryptocurrencies saw a boost in stock prices on Friday. BC Technology gained by quite so much as 4.8%, achieving its highest level over three weeks, while Huobi Technology Holdings Ltd. grew little.

The unstable digital asset market, which is rebounding from a $2 trillion slump since its maximum peak in November 2021, is being debated by regulators all around the globe as to how to be controlled. The crash destroyed several cryptocurrency businesses while exposing unrestrained leverage and inadequate risk management.

Singapore, Hong Kong’s historical financial rival, has strengthened its digital assets laws due to the implosion to decrease retail trading. Singapore last week proposed banning leveraged retail coin transactions. China declared the cryptocurrency market to be virtually illegal a year ago.

The executive director of a company that deals in digital assets, Michel Lee, claims that Hong Kong has been working to establish a comprehensive crypto framework beyond retail tokens trading.

Hong Kong’s Future Looks Decentralized

Intending to become one of the crypto hubs; Hong Kong is taking all the necessary steps to implement its plan. Besides, the SAR isn’t holding back in introducing new and regulatory aspects in its transformation. 

Other potential measures in Hong Kong include setting up a process to approve exchange-traded funds and giving exposure to popular virtual assets, according to Elizabeth Wong, the Fintech director of the city’s Securities and Futures Commission.

At a conference last week, Wong remarked that the city could establish its cryptocurrency architecture. This will be separate from China’s, which is why the one nation, two networks strategy is used in the financial markets.

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