Although the US government continues to establish its authority over the business via a flurry of legislation, other potential centres for the virtual asset market are emerging in other regions of the globe. In sharp contrast to neighbouring mainland China, where all cryptocurrency-related activities are prohibited, Hong Kong proposed legislation on Monday that would enable normal investors to trade some "large-cap tokens" on authorised exchanges.
Bitcoin and Ether, the two biggest digital currencies by market value, are feasible choices, despite officials from the city's Securities and Futures Commission being ambiguous about which major tokens would be accepted.
In response to China's crackdown on cryptocurrency trading, several web3 companies in the country have abandoned the home market in favour of foreign expansion. Although some companies have relocated their headquarters to more hospitable countries such as Singapore or Dubai, the majority continue to hire Chinese nationals to take advantage of the country's vast and relatively affordable pool of IT talent.
Now that Hong Kong has loosened its regulations on bitcoin, several of these web3 companies founded by Chinese people in exile may relocate closer to their home country.
In light of the recent wave of bankruptcies and layoffs that has rattled the global cryptocurrency industry, China's restriction on cryptocurrency trading to safeguard private investors from speculative behaviour looks prescient. While the cryptocurrency sector has had a bubble burst, web3 continues to attract top-tier talent and investment. China cannot be expected to wait on the sidelines while the rest of the world creates the foundations that, according to some, will launch a new wave of innovation comparable to the introduction of the internet.
Chinese regulators may utilise Hong Kong, a venerable financial hub, as a launching pad to study the possibilities of blockchain while providing security for the nation's billion internet users.
A Hong Kong proposal requires any centralised virtual currency exchanges providing services to investors in the territory or operating in the city to get licences from the securities and futures authorities. According to the release, the regulations address "critical areas" such as "safe custody of assets," "know-your-client," "conflicts of interest," "cybersecurity," "accounting and auditing," "risk management," "anti-money laundering/counterfinancing of terrorism," and "prevention of market misbehaviour."
The other important elements are token due diligence, governance, and disclosures, in addition to assuring appropriate client onboarding and token admittance.
Without the proper licences, centralised cryptocurrency exchanges cannot accept users from Hong Kong.
The new licencing system will be implemented on June 1st, after public comment on the regulatory criteria until March 31st.