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A Stablecoin Version of the Hong Kong Dollar May Soon Be Available On DeFi Platforms

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Hong Kong lawmakers have proposed that a stablecoin version of the digital Hong Kong dollar be developed by the government and linked to decentralized finance (DeFi) platforms, according to a report by WU blockchain. 

Chain news published an interview with Wu Jiezhuang, a member of the Chinese People’s Political Consultative Conference’s National Committee and the Hong Kong Legislative Council, yesterday.

Previously, Startup accelerator G-Rocket announced plans to help 1,000 Web3 startups establish offices in Hong Kong in the next three years. 

The company, co-founded by Hong Kong Legislative Council member Wu Jiezhuang, aims to bring together Web3 companies from around the world interested in developing in Asia and starting in Hong Kong.

Wu Jiezhuang suggested in his interview with Lianxin that Hong Kong could establish a virtual asset rating agency, develop the digital HK dollar as a stable currency option, and regulate against hacker theft to gain investors’ trust in the Web3 industry.

G-Rocket has encountered a growing number of Web3 entrepreneurial projects in the past year. However, the report claimed that there has been an increase in Web3 entrepreneurs entering Hong Kong following the release of the “Policy Declaration on the Development of Virtual Assets in Hong Kong.”

The Digital HK Dollar Into A Stablecoin 

Lianxin and Wu Jiezhuang discussed about the potential for the entrepreneurial accelerator G-Rocket to support the development of the Web3 industry.

Wu Jiezhuang emphasized that Hong Kong, as an international financial center with comprehensive financial supervision, provides a good environment for the development of Web3 virtual asset exchanges. 

In addition to serving as a trading platform, these exchanges could also potentially develop decentralized asset management. Lianxin mentioned the Hong Kong Prospect Declaration for the Development of Virtual Assets, which includes three experimental plans, one of which is the digital Hong Kong dollar. 

Wu Jiezhuang suggested that this digital currency could be used as a stable currency option to effectively target the risks of Web3 virtual assets.

Lianxin asked Wu Jiezhuang for suggestions on decentralized virtual asset supervision, to which Wu Jiezhuang responded that the development of a digital Hong Kong dollar into a stable currency could be an effective way to mitigate risks associated with Web3 virtual assets. 

He pointed out that currently available stablecoins are issued by private companies and are not subject to government supervision, which introduces risks. He mentioned the stablecoin thunderstorm that occurred earlier this year, which may have damaged confidence in stablecoins. 

As a result, he proposed that the Hong Kong government consider issuing digital Hong Kong dollars and linking them to decentralized finance as a way to create an important infrastructure component for virtual asset trading platforms.

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Crypto Fraud: Hong Kong Police See Sharp Increase in Cases Over 70%

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Hong Kong police have seen a significant increase in online investment fraud cases, with about 70% of them involving cryptocurrencies. There were 1,503 reported cases over the first ten months of 2022, which represents a 90% increase from 2021.

As reported by RTHK, the most prominent case involving virtual assets included close to 20 million yuan. Additionally, Mr. Li, another victim mentioned in the report, claimed to have lost 180,000 yuan after investing in virtual assets online.

In September, Mr. Li was approached by a virtual asset investment platform staff member in the US who convinced him to invest in Sushi through the use of claimed inside information.

According to Mr. Li, the platform employed an online clerk to help facilitate each transaction and directed him to transfer money to a Hong Kong bank account for purchasing and selling.

Mr. Li’s investments in the platform plummeted, and he was removed from the account after requesting to end his position and receive the remaining balance. He alerted the police, who discovered that the platform was a fraudulent copy of an established one.

However, the police advised avoiding online investment platforms that handle every transaction or ask for personal bank account transfers. They recommended individuals not buy or sell without fully understanding the process if unfamiliar with it.

The report further highlighted that the police arrested 589 individuals, including key members, in 20 operations carried out last year. These operations concerned 881 cases involving online shopping, dating, and investment fraud, costing about 400 million yuan.

Hong Kong Crypto-Related Scams

Hong Kong scored 8.6/10 in a worldwide crypto readiness report. Additionally, 798 out of 10,613 cybercrimes in Hong Kong involved crypto, resulting in losses of $50 million for the crypto community in 2022, as per the South China Morning Post report.

Police data shows that over 10,100 victims were defrauded of almost $3.72 billion through the internet, phone, and investment scams in Hong Kong and abroad over the past 4.5 years. The funds were transferred to local bank accounts and crypto wallets.

Contrary to the typical belief that victims of scams are not well-informed and easily fooled by strangers, the report suggests that victims come from all social and educational backgrounds, including educated students, professors, and doctors.

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The AAX Scandal: The Arrest Of Top Executives On Fraud Charges In Hong Kong

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Following FTX’s bankruptcy, Atom Asset Exchange (AAX) is now the latest crypto exchange in Hong Kong to have troubles. Hong Kong police arrested two executives, Weigao Capital CEO Liang Haoming and former CEO Thor Chan of AAX, on fraud and misleading police charges.

Local media reported on December 23rd that they were accused of preventing customers from withdrawing money while experiencing liquidity issues by using system maintenance as a reason. They spread fake information and shut down the trading site using unlawful methods.

During the inquiry, one made a false statement claiming he had left the firm in May 202. The individual claimed that he purposefully misled the police because the police later discovered that he was a consultant and continued to attend business meetings.

Out of concern about more failures, investors worldwide have begun removing cryptocurrency from exchanges. Due to insufficient liquidity, many platforms had to suspend operations, trapping many assets and escalating investor resentment and mistrust.

However, according to the report, the mastermind behind the events remains unknown and fled from Hong Kong undetected. Alongside his departure, he left with a virtual currency wallet holding an enormous sum of money-approximately $30 million (or 230 million HKD).

 337 Reports Against AAX In A Month

AAX has been running since November 2019, and by November 2022, it has managed to amass more than 2 million users worldwide. AAX closed down for system maintenance during the middle of last month, leaving its users unable to check their balances or withdraw and transfer assets.

Since November 16th, victims have repeatedly asked the police for assistance, claiming that the platform has stopped functioning. The police have currently received 337 reports from several places, including Taiwan, Italy, France, mainland China, and Taiwan. Additionally, 190 of them were residents of the area.

According to the report’s statement:

The total loss amount ranged from a few hundred Hong Kong dollars to 12.6 million yuan, and the amount involved reached 98 million yuan.

Furthermore, the two bank accounts belonging to the company were frozen, as well as the account of the individual involved in this case. Additionally, two properties worth about $7 million were seized, which belonged to one of those arrested and the mastermind.

Senior Inspector Huang Zhongli stated:

The current $30 million assets in the virtual currency wallet have not been misappropriated, there is no trace of loss, and they are still safe for the time being. 

He also asserts that the police will keep a close eye on the movement of money and virtual currency in the wallet and, as needed, will maintain constant communication with foreign agencies.

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Hong Kong’s First Bitcoin ETF Is Here After $73M Seed Capital

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Bitcoin exchange-traded fund [ETF] in Hong Kong has now become a reality after two ETFs overseen by CSOP Asset Management have secured a total of over $73 million ahead of their launch on the Hong Kong stock exchange, notwithstanding the current market instability.

CSOP Asset Management’s ETFs, primarily invest in bitcoin and ether futures which are the only cryptocurrency assets currently permitted by Hong Kong’s Securities and Futures Commission [SFC].

Out of the two, the bigger one called CSOP BTC Futures ETF was able to raise $53.9 million, per the investment firm.

According to media reports, that outperformed ProShares Bitcoin Strategy ETF, the first U.S. bitcoin futures ETF, which made its debut on the NYSE Arca exchange in October 2021 with $20 million in seed money.

”Coming after the recent liquidity problems affecting some of the crypto platforms, our two crypto futures ETFs demonstrate that Hong Kong remains open-minded on the development of virtual assets,” said Yi Wang, head of quantitative investment at CSOP.

”As the ETFs do not invest in physical bitcoin, and are traded on regulated U.S. and Hong Kong exchanges, there are more regulatory safeguards for investors compared to tokens traded on unregulated platforms,” Wang stated.

On Friday, each lot trading on the Hong Kong Exchanges & Clearing [HKEX] will debut at HK$780 each.” The price of bitcoin may be subject to manipulation as a significant portion is held by a small number of holders” and the CME futures could drop to zero, the ETFs’ product document filed to the HKEX said.

The latest development follows the CSOP’s recent approval to list its Bitcoin and Ethereum exchange-traded funds by the SFC of Hong Kong on Dec 16.

Bitcoin And Ethereum ETFs In the Pipeline

A week ago, three asset management firms including CSOP Asset Management submitted their ETF applications to the Securities and Futures Commission or SFC, TronWeekly reported.

The other two AUMs in the race are Samsung Asset Management and Mirae Asset Global Investments.

Once granted approval, bitcoin and ether futures will go live on the Chicago Mercantile Exchange, according to people familiar with the plans.

Despite the FTX contagion that sent a chill across the industry, institutional and retail clients in Hong Kong, mainland China, and Taiwan have shown more interest in investing in cryptocurrency ETFs.

Bitcoin And Ethereum ETFs Filed By Hong Kong’s Three AUMs

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Hong Kong would soon have its first Bitcoin and Ethereum exchange-traded funds as three asset management firms have submitted their ETF applications to the Securities and Futures Commission [SFC], local media Nikkei Asia reported.

The three AUMs in the race are CSOP Asset Management, Samsung Asset Management, and Mirae Asset Global Investments.

Once granted approval, bitcoin and ether futures will go live on the Chicago Mercantile Exchange, according to people familiar with the plans.

The move comes amidst Hong Kong’s grand ambition to position itself as the global crypto hub.

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Bitcoin And Ethereum ETFs Filed By Hong Kong's Three AUMs 2

Despite the FTX contagion that sent a chill across the industry, institutional and retail clients in Hong Kong, mainland China, and Taiwan have shown more interest in investing in cryptocurrency ETFs.

This was stated by Chris Pigott, head of Asia ETF services for Brown Brothers Harriman, citing an annual survey by the company. However, the recent trouble at FTX and cryptocurrency market volatility could impact investors’ views, he said.

Pigott expects the first product to be released before the end of 2022 or early next year, depending on issuer readiness.

The Hong Kong SFC stated that the city’s cryptocurrency industry had made “significant advancement” in the past four years, providing the framework for retail investors, in contrast to mainland China, which has explicitly banned cryptocurrencies.

But on the regulatory front, officials are still cautious. Last month, the Hong Kong Monetary Authority told the city’s Legislative Council that sound regulation was necessary to become a digital asset hub.

The city is amending its anti-money laundering law, strengthening investor protection, and requiring all virtual asset exchanges to be licensed. The bill is anticipated to be passed this year-end.

Bitcoin ETFs Regain After BTC Tapped A 2-Week High

That said, approvals for the ETF applications could take up to three months but would be prioritized early if in the government’s interest. All sources declined to be named, claiming the need to protect their identities.

On Nov 30, Bitcoin strategy-focused exchange-traded funds tracked higher as the underlying digital currency hit a two-week trading high.

Funds such as the ProShares Bitcoin Strategy ETF [NYSEARCA: BITO], Valkyrie Bitcoin Strategy ETF [NASDAQ: BTF], and the VanEck Bitcoin Strategy ETF [BATS: XBTF] all traded in the green early on as Bitcoin gained over 2%.

At the moment, Bitcoin is hovering slightly above the $17k mark after a massive decline in early November.

Thai Crypto Exchange Plans To List In Hong Kong By 2024

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One of the biggest crypto exchanges in Thailand, Bitkub Capital Group, plans to list in Hong Kong when it goes public as early as 2024, according to CEO Jirayut Srupsrisopa, the South China Morning Post (SCMP) reported on November 22nd.

The Asian financial hub’s strong rule of law, great liquidity in its stock exchange, and geographic position all played a significant role in the CEO’s decision to choose Hong Kong over New York.

In an interview last week at the Asia-Pacific Economic Cooperation (APEC) summit, he stated that he believes their strength lies in the southeast Asian area. Thus, it is preferable to be connected to the market domestically.

Pointing out FTX collapse, Srupsrisopa argues that even though a few centralized companies mishandling customers’ funds may not mean that digital currency is bad. He contends it is actually a much better product than other alternatives, and customers will always choose what they feel is best for them.

He said:

“Hong Kong has always been a leader in the financial space. But to keep the momentum going and to stay the leader, you guys should have freer and more open regulations and be more receptive to embracing new technologies.”

Additionally, Srupsrisopa stated that Bitkub’s current priority would not be to go public; instead, they will use this time to consolidate their production while also cutting back on unnecessary expenditures.

While underlining that they are still in the early stages of exploration, Srupsrisopa stated that they are hoping to go public in 2024 once everything has returned to normal.

Furthermore, he explained that Hong Kong has more liquid markets than Singapore, often regarded as its key rival, and it is easier to convert assets into cash here. There are nearly forty listings for stocks on the Hong Kong Stock Market from Thai companies.

Hong Kong Ranks Top For Crypto Adoption

As public approval continues to fuel crypto’s growth, government regulations are needed to pave the way for mainstream adoption. Elements including the installation of cryptocurrency ATMs, pro-crypto policies, startup culture, and a just tax system indicate a nation’s willingness to accept digital currencies.

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Source: forexsuggest.com

With a crypto-readiness score of 8.6, Hong Kong was found to be the nation most positioned for broad cryptocurrency adoption in a Forex Suggest research.

The country has about 150 crypto ATMs for its population of 7.4 million people, with an average of 2 cryptos per 100 thousand people, by which it ranked number 3rd. 

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Source: forexsuggest.com

The country is the capital of Asia for cryptocurrency ATMs, but recent regulations by the HKMA mean it may soon lose its title to other areas in Asia, such as Tokyo.

Taking the top spot for the smallest area per cryptocurrency ATM in Hong Kong. Users are not more than 7 kilometers away from an ATM in this city-state, which also happens to be one of the most densely populated countries in the world.

Moreover, the most significant barrier to the widespread use of digital currencies is crypto taxation. The countries with the lowest capital gains taxes on cryptocurrencies include Germany, Malaysia, Hong Kong, Switzerland, Panama, Portugal, and Turkey.

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Hong Kong To Become Virtual Asset Hub Despite FTX Collapse

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According to the publicly available statement from the Foreign Service Officer, the recently issued Policy Statement on the “Development of Virtual Assets in Hong Kong” outlines the SAR plans to deal with those who use this new technology and those developing it.

The Government of Hong Kong Special Administrative Region (SAR) issued its new Policy Statement at the end of the last month.  

In this Policy Declaration, they proposed several pilot programs – such as issuing a new batch of Green Bonds to be tokenized for institutional investors – expecting it to be launched at the end of this year and becoming the world’s first “Tokenized Issuance Government Green Bond.”

Additionally, the Hong Kong Monetary Authority (HKMA) is also researching the possibility of introducing the Digital Hong Kong Dollar, which would act as a link between fiat currencies and blockchain-based virtual assets. 

The HKMA recently held a meeting to discuss regulating stablecoins that can be used as payment methods. They will release the findings of this discussion shortly, and it will “provide the necessary support for promoting more innovations.”

According to the official statement:

the entire policy declaration aims to construct a comprehensive regulatory framework for the virtual asset industry, actively encourage technological innovation and application, and at the same time ensure proper risk management and control.

 Balanced Regulatory Framework For Virtual Assets

Along with aggressively embracing innovation, they also believed that there should be flexible regulatory support that keeps up with the trends.

The notice highlighted that it is necessary now that many cryptocurrency prices have decreased significantly or certain crypto-related companies, such as FTX, have gone bankrupt. Insiders call this a Crypto Winter, leading people to think about new ways of regulating things.

The government notice further claimed that to protect investors and promote innovation, The China Securities Regulatory Commission (CSRC) has closely monitored the developments of new technology – specifically when it comes to virtual currency.

Two virtual asset exchanges have received licenses from CSRC on the regulatory tenet of “same business, same risk, same rules.” These exchanges are required to meet all financial resource and operating expense requirements stipulated to be allowed to operate legally under these regulations.

Moreover, the SFC authorized two brokerages to carry out virtual asset transactions for their customers under the omnibus account structure and gave licenses to eight virtual asset fund management firms.

This new statement from the SFC suggests there will be public consultations on how to ensure small-scale retail investors can access virtual assets under their newly implemented licensing system. They may introduce ETFs investing in virtual assets, which the Hong Kong government supports.

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Huobi global to be acquired by Hong Kong-based firm

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The boost that cryptocurrency had been longing for has finally materialised. Crypto exchanges like Huobi Global continued to expand despite the turbulent bear market. While many of them suffered significant losses, certain notable ones, including Binance, Crypto.com, and Coinbase, continued on their expansion drive. Apparently just joining this list with its most recent announcement is Huobi.

Bitcoin exchange One of the largest token trading platforms in Asia, Huobi Global, said late Friday that it had consented to be acquired by the M&A fund of Hong Kong-based investment firm About Capital Management.

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Source

When the acquisition concludes, About will “hold the majority interest” of Huobi, according to a blog post by Huobi Global, a top-10 exchange by trading volume. The exchange said the ownership shift will not have an effect on trading activities.

The announcement follows months of rumors and speculating that Huobi’s founder Leon Li was looking for a buyer for his approximately 60% ownership in the company and was demanding at least $1 billion. The agreement’s terms with About Capital were kept under wraps.

According to the blog post, the exchange is planning an international expansion under the new ownership and will get a “injection of appropriate money in margin and risk provision fund.”

Li, who established Huobi in China in 2013, said in a statement that the exchange’s exit from the Chinese mainland in late 2021 marked the beginning of a push toward globalization that will now pick up speed under About Capital.

How had Huobi Global been doing in the past?

The Financial Transactions and Reports Analysis Centre [FINTRAC] of Canada issued Hbit Technologies Limited, a subsidiary of Huobi Technology Holdings Limited, a Money Services Business [MSB] Registration License in August.

The business is allowed to engage in a number of regulated activities with this license. This covers the trading of cryptocurrencies in Canada, as well as money transfers and exchange transactions.

A Memorandum of Understanding (MoU) was signed later in September by Huobi Global, Huobi Korea, and the government of Busan Metropolitan City. The collaboration will help the city’s local blockchain infrastructure grow.

The exchange was to help supply the essential technology, funding, and research and development for the Busan exchange.

The topic of Huobi has been widely discussed during the past few months. There were unfavorable rumors that Leon Li, the founder of Huobi Group, was selling a significant portion of his ownership. Many people started thinking that the platform will eventually fold, just like its counterparts had.

With the most recent information, however, the businesses appeared to confirm the rumors. If it really fails like its contemporaries, only time will tell.

Did someone say cryptocurrency ready? Here comes Hong Kong

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The existence of cryptocurrency depends on public approval, but for it to become widely used, governments must establish a supporting infrastructure that meets both the needs of the technology and the general public.

A nation’s willingness to adopt cryptocurrencies is indicated by elements including the installation of cryptocurrency ATMs, pro-crypto policies, startup culture, and a just tax system. With a crypto-readiness score of 8.6, Hong Kong was found to be the nation best prepared for widespread cryptocurrency adoption according to a Forex Suggest study. The United States and Switzerland made it to the top three despite having greater crypto infrastructure than the island nation, with scores of 7.7 and 7.5, respectively, as seen below.

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The number of cryptocurrency ATM installations in relation to the jurisdiction’s population and geographic extent as well as the number of blockchain startups per 100,000 people were the two most important variables in the study used to determine a nation’s preparedness. Hong Kong topped the list as a result of its smaller land mass.

According to data from CoinATMRadar, 88 percent of all crypto ATM installations worldwide are located in the U.S. On the other hand, Hong Kong only installed 146 crypto ATMs, or 0.4 percent of all crypto ATMs placed worldwide. Hong Kong citizens are never more than 4.3 miles (7 kilometers) from a cryptocurrency ATM due to the limited region.

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Source: Forex Suggest

In contrast, Switzerland has one ATM for cryptocurrency every 161.5 miles (260 km), while the United States has one every 168.3 miles (271 km).

Cryptocurrency taxes- Obstacles to crypto adoption

The largest barriers to the widespread adoption of cryptocurrencies are crypto taxes. For the lowest crypto capital gains taxes, Hong Kong, Switzerland, Panama, Portugal, Germany, Malaysia, and Turkey tie for first place.

The success of a nation’s initiatives to support a developing crypto infrastructure significantly depends on investor opinion. However, investors from developed nations like Australia, Ireland, and the United Kingdom have expressed the greatest interest in cryptocurrencies, indicating robust global competition for cryptocurrencies.

Hong Kong’s regulatory heat forces crypto exchange FTX to move

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Hong Kong’s latest regulatory turnover has caused an array of platforms to flee from the region. Prominent cryptocurrency exchange, FTX was the latest to move away.

This year was all about regulations in the crypto-verse. Even though the crypto market started out to steer away from the harsh regulatory system put forth by centralized entities, the digital asset market succumbed to this regulative society. Just as the value of the market began surging, regulators across the globe started taking a keen interest in the industry. This further pushed several crypto platforms to shut shop or even turn into a centralized firm.

Hong Kong was one such region that began overseeing its crypto scene. With newly established regulations, crypto platforms in the region were obligated to abide by it or close shop. Crypto derivative platform, FTX took another route and decided to relocate from HK.

Hong Kong bids adieu to FTX

In a recent tweet, Colin Wu Chinese crypto-journalist revealed that FTX had shifted its headquarters from Hong Kong to Nassau in the Bahamas. The tweet read,

This moe was directly linked to the harsh regulatory climate in the region. Nassau which is the capital of the Bahamas is reportedly more crypto-friendly and the chances of FTX thriving in the Bahamas was higher.

Just a couple of days ago, the crypto exchange noted that its subsidiary, FTX Digital Markets had garnered a registration from the Securities and Exchange Commission of the region. Not only did this open the doors for new opportunities but it also paves the way for the crypto platform’s growth.

Ryan Salame was appointed as FTX Digital Markets’ CEO. Salame was previously serving as the Head of OTC at Alameda Research. Speaking about this shift and his new position, Salame said,

“I’m excited to plant the flag for FTX in The Bahamas. The relationship we have fostered with local regulators culminating with us being authorized under the framework offered through the DARE Act, gives me confidence that we’ll be able to work closely with regulators to make sure our offerings are compliant in multiple jurisdictions.”