At the start of this month, James Lau, Hong Kong’s Secretary for Financial Services and Treasury, informed the Legislative Council that the purchase of mining equipment falls under the Trade Descriptions Ordinance. This move places restrictions on who can mine cryptocurrencies like bitcoin. But, does it also signal a change in attitude towards crypto by the Hong Kong authorities?
Hong Kong’s Changing Crypto Landscape
Hong Kong is a center for fintech innovation and a significant market within the blockchain economy. As a Special Administrative Region, it benefits from different legislative rules than Mainland China – which shows in their liberal approach to cryptocurrency. At present, there are no statutory instruments to regulate cryptocurrencies directly. However, Hong Kong legislators are working towards changing this.
As cryptocurrencies have grown in popularity, so has regulatory concern over investor protection. In November 2018, the Securities and Futures Commission (SFC) revealed proposals for a new regulatory framework, which focused on exchanges. But more specifically, outlining a route to the licensing of crypto exchanges.
The SFC is approaching the matter in exploratory terms. Ashley Alder, CEO of the SFC, said:
“Those exchanges that want to be regulated by us will be set apart from those that don’t. This is essentially an opt-in approach for exchanges and platform operators, and they will first explore the conceptual framework with us in a strict sandbox environment.”
Under this scheme, crypto exchanges are required to deal only with institutional investors. Which the SFC sees as necessary for safeguarding investors. But as yet, there is no specific timetable for proceedings.
Hong Kong’s #Securities & #Futures Commission (#SFC修行) will propose a regulatory regime known as a "sandbox" for #crypto exchanges in the Asian financial hub#CryptoNews #Regulation #FinTechhttps://t.co/CTZ6mqCb8a
— SharkCIA News (@SharkCIANews) November 4, 2018
The Response To Crypto Exchange Regulation
While this move is indicative of a maturing crypto market. And confirmation of the growing acceptance of cryptocurrency as a legitimate asset class. Some believe the “sandbox” proposal is a step too far. Leo Weese, Bitcoin Association of Hong Kong President, believes the recommendations are unnecessary and will lead to an exodus of exchanges. Speaking to the South China Morning Post, he said:
“While Hong Kong was a better place when it did not bother such platforms, it 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 the SAR.”
Is Hong Kong Following China’s Lead?
Recently, the world’s largest producer of crypto mining equipment, Bitmain lapsed its IPO application for the Hong Kong Stock Exchange. Some have attributed this to low Bitcoin prices, affecting the company’s financials. But then again, others see this move as symptomatic that Hong Kong is no longer the crypto haven it once was.
Have you lost your mind??? Bitmain owns more Bitcoins than any other person, company or agency in the world and it's owned by the richest man in crypto. They made a billion dollars in Profit last year alone. Jihan simply changed his mind about the Hong Kong exchange. pic.twitter.com/ZTS8QkmS7r
— John McAfee (@officialmcafee) March 29, 2019
Although regulation is a necessary component for investor protection and confidence, are the harsh exchange proposals and restrictions on purchasing mining equipment too much?
Hong Kong prides itself on being the freest economy in the world. The Index of Economic Freedom examines factors related to taxation, government intervention, and openness to global trade and investment. It scored Hong Kong first, ahead of Singapore in second place.
That being so, one must wonder why cryptocurrencies are not afforded the same leeway.