Cryptocurrencies have long been synonymous with China, and for good reason. For example, blockchain startup Block.one and the largest crypto group FTX Trading hail from Hong Kong. The largest stablecoin in the world, Tether, was launched in China.
These crypto exchanges trade in the trillions, not least because China’s mix of financial expertise and entrepreneurial spirit attracts many high-profile investors.
Unfortunately, the huge, fast-growing and thriving crypto industry is now at loggerheads with Hong Kong’s financial regulators. And most crypto exchanges are already facing harsh measures – which could plunge the industry into an existential crisis.
If the threats of new regulations come true, the industry will lose much of its entrepreneurial freedom. For this reason, major crypto exchanges are now planning to move their operations abroad for good.
Strict crypto regulations proposed
Regulators in the UK, US and parts of Asia have taken a tough stance on cryptocurrencies in a bid to regulate the industry, which they increasingly classify as “too big to be ignored”.
Now financial regulators in Hong Kong are looking to take a similarly tough stance.
In 2018, China unveiled new draft cryptocurrency regulation and further licensing rules. But the regulations haven’t gone into effect – yet. When it does, China will become one of the strictest countries in the world when it comes to crypto regulation.
Major crypto companies looking to relocate
Under the new laws, cryptocurrencies will be restricted to professional investors only. This means that crypto exchanges and all those who have liquid assets of over $1 million will need a license.
Currently, crypto companies in Hong Kong can opt for a licensing agreement – whenever they want. It’s optional.
Now that the situation is changing, many crypto players have applied for a license to comply with the new rules. But so far, only OSL managed to get a license in December.
The lack of further approvals has led to uncertainty about when the new rules will come into effect. As a result, major crypto companies already have plans to relocate.
The industry is seeking rule changes that would allow licensed crypto bo.rsen to sell cryptocurrencies to retail investors.
They also want regulators to tell them whether the new rules will allow Hong Kong-based crypto companies to serve foreign retail investors.
The main concern of the regulator should be to protect investors. However, no such protection is defined in the new rules.
Chances are that an industry shutdown will prompt investors to trade cryptocurrencies through offshore crypto exchanges or through risky P2P platforms, as has already happened in mainland China.