Moving Forward: Hong Kong to Become the World’s Hub for Crypto and Web3?
Very few countries, or perhaps none, managed to take the Covid-19 pandemic in stride, and Hong Kong is no exception. The Hong Kong economy contracted by 6.1% in 2020, and by 1.4% in the second quarter of 2022. This was arguably a byproduct of tight prevention measures, lockdowns, and closures to international inbound routes enacted by the Hong Kong government to curb the further spreading of the virus. Further collateral damage could be felt in a general decrease in global appeal of the region to businesses and individuals.
In response to these downward trends, Hong Kong’s regulators have spearheaded initiatives to reverse the course with increasing investments in the promotion of financial innovation enabled by groundbreaking technologies, such as distributed ledger technology (DLT) and Web3, and facilitation of crypto adoption. In its efforts to rejuvenate its status as a financial and technological hub, the government announced its latest policy statement on virtual assets (VA) on October 31, which was presented at the ongoing Hong Kong FinTech Week 2022 (HKFTW 2022).
The HKFTW is not the only event happening around the issuing of the statement, as the “Navigating Beyond Uncertainty” Global Financial Leaders’ Investment Summit is being held at the same time as the HKFTW in the ‘Fragrant Harbour’ (a nickname for Hong Kong).
The Hong Kong Virtual Asset Policy Statement at Hong Kong Fintech Week 2022
The Hong Kong Fintech Week is the world’s first cross-border FinTech event, taking place in Asia’s financial capital from October 31 to November 4, 2022.
On its first day (broadcasted and replayable on the official YouTube account), representatives of Hong Kong’s government as well as the local financial authorities inaugurated the event by explaining the implications of the new policy for the city’s future development and international significance.
At present, Hong Kong does not have a compulsory regulatory and licensing system for virtual assets. In other words, crypto investors are allowed to trade digital currencies on unlicensed exchanges, e.g., Binance. Next year in March, though, the government plans on implementing a comprehensive regulatory framework for Virtual Asset Service Providers (VASP) to ensure asset protection, anti-money laundering, and counter-terrorist financing ordinance compliance, as well as sustainable development of corresponding technologies. After March 2023, once the VASP regime takes effect, only VASP licensed exchanges will be able to offer any crypto services. The industry expects that the Hong Kong regulator might allow VASP licensed exchanges to offer crypto services to retail customers in the future, but it is still subject to the upcoming public consultation and further announcement from the regulator .
Despite tightening regulations, the government aims to facilitate the creation of a VA-friendly environment while ensuring a sustainable and responsible development of the financial sector in Hong Kong. In a nutshell, local and international financial actors are welcome to boost the development of the industry, provided rules are respected to abate financial instability and illegal activities that may harm the narrative of a convergence between traditional and digital markets.
One of the very first panels at the event featured the Hong Kong Secretary for Financial Services and the Treasury, Christopher Hui, and the co-founder of Animoca Brands, Yat Siu, discussing the revolution, or evolution, of virtual assets for banks and financial institutions.
During the session, Christopher Hui reiterated the government’s stance towards virtual assets, NFTs, and even virtual-asset-adjacent ETFs:
We recognize the potential of DLT and Web3.0 to become the future of finance and commerce, and under proper regulation they are expected to enhance efficiency and transparency. The Government is prepared to embrace this future, we welcome the clustering of the Fintech and VA community and talent in Hong Kong, and we will promote the sustainable development of financial services across the whole VA value chain.
Read the full version of the policy statement.
So, what does the statement entail, exactly?
Vision and Approach
The long-term vision laid out in the statement is to embrace VA, distributed ledger technologies (DLT), and Web3 technologies and projects thanks to VA’s potential to improve transparency and efficiency of clearing, settlement, and payments. It allows new financial innovations aiming to be more cost-efficient, inclusive, agile, and future-proof.
We recognise VA is here to stay, given how it has attracted the attention of global investors and is increasingly viewed as a conduit for financial innovations, not to mention the future opportunities that will be opened up as VA moves into the areas of Web 3.0 and the Metaverse.
To reinforce the vulnerabilities of virtual assets and corresponding technologies, still in their infancy to a certain extent, the government is looking to prioritize financial stability and consumer protection, as well as fighting money laundering and terrorists financing in line with international standards.
The ultimate goal? To be able to sustainably promote the innovation and advancement of digital markets to develop in lockstep with traditional finance.
What does it mean for investors?
For decades, Hong Kong has represented a key financial hub with considerable magnetism not only in the APAC region but also at the global level. The government’s decision to make its main financial event pivot around Web3 and DLT is a clear indication that key markets are investing in crypto and blockchain, despite recent turmoil, economic strains, and continued skepticism surrounding the industry.
The decision is of great importance for the further evolution of the financial systems, and it is a good sign for the growth of the digital asset industry. Votes of confidence like this from a governmental level can have significant implications for adoption and development, so investors should keep a close eye on the future events and activities happening in the region.
WhaleFin is committed to regulatory compliance to facilitate the integration of crypto into the traditional financial system, and thus expand the potential of digital assets and innovation. Hong Kong’s government support of such a new industry is a landmark in the development of the sector, welcomed by industry participants worldwide with excitement.
Regulations
Under the “same activity, same risks, same regulation” approach, Hong Kong is working on a comprehensive framework for the regulation of VA activities to bolster its position in the international financial landscape:
A regulatory regime has been launched to license VA Exchanges using an “opt-in” approach, and on the asset management front, guidance has been issued on management of VA funds and discretionary accounts. Also, banks and financial institutions have been provided guidance on distribution of VA-related products, dealing in or advising on VAs.
VA service providers will be required to comply with the regulatory framework, and acquire the VASP license to enable product servicing. Financial intermediaries and banks will also be able to partner with licensed VA exchanges. This evidently further promotes the convergence of the digital and traditional markets, together with a focus on stablecoins, as they are seen “…to have a growing potential for significant interconnectedness with the traditional financial markets e.g. in the payment system.”
What does it mean for investors?
The recent hacks and exploits of blockchain vulnerabilities have temporarily undermined — yet not eroded — trust in the industry and its future. At the same time, they have also positively prompted investors to improve sector knowledge and “do your own research” (DYOR) to wisely gauge the risks associated with investments in cryptocurrency.
Nonetheless, platforms and exchanges bear great responsibility as suppliers of investment services to retail users, and more stringent regulatory requirements are arguably promoters of providers’ accountability and the sustainable growth of the space.
As cybersecurity security experts and anti-money laundering (AML) protocol advocates, we have heavily invested in the deployment of security, privacy, and compliance capabilities that are matched only by a few in the sector. To this goal, Amber Group has sought the independent evaluation of our top-notch security standards, including:
- The SOC Type 2 certification issued by Deloitte (for maximized Security, Availability, Confidentiality, Processing Integrity, and Privacy); and
- The independent assessment of our cybersecurity capabilities guided by the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) Cybersecurity Framework.
WhaleFin and Amber Group also work with world-leading partners like Fireblocks to provide institutional-grade custody and protection for the assets of its users, and also provide comprehensive asset insurance coverage for up to $100 million.
Curious? You can read more about our security framework here.
Pilot Projects
Hong Kong’s government also stressed the importance of dry runs to test the technological benefits brought by Virtual Assets and their further applications in the financial markets. This includes:
- NFT issuance for Hong Kong Fintech Week 2022: A proof-of-concept project to engage the Fintech and Web3 community;
- Green bond tokenization: Tokenizing Government Green bond issuance for subscription by institutional investors; and
- e-HKD: The potential “backbone” and anchor bridging legal tender and VA, offering price stability and confidence needed to empower more innovations.
What does it mean for investors?
Since the early days of Bitcoin and the Proof-of-Work system, many more consensus mechanisms have been explored and developed to mitigate the detrimental effects of high energy consumption required by mining computers. Most recently, the Ethereum Merge, a long due event, opened up new possibilities for the industry given its more sustainable approach as well as improved scalability opportunities. Numerous options are currently available to engage communities with a more holistic stance, coming from both the tech and financial sectors as well as new innovative industries, such as that of non-fungible tokens (NFTs).
NFTs are one of the most fervent and bubbly spaces in the Web3 environment, especially in the times of covid, inflation, and rate hikes that are putting a strain on the global markets. WhaleFin recently deployed its NFT marketplace, which aggregates different NFT auction platforms to offer a one-stop interface for all-things digital art, and it is supportive of numerous NFT projects, including its joint collaboration with the move-to-earn platform STEPN and the renowned football club Atlético de Madrid.
Read more here.
Navigating Uncertainty: Capitalizing on Investment Opportunities During Market Volatility
Currently, market uncertainty is more than endemic, it is global. It has been mischaracterized by some as the final faltering of crypto and rephrased by the majority as the temporary tweaks and turns of a new category that is finding its place. Uncertainty mirrors the feelings sweeping through different markets and sectors, but with a positive outlook on the long-term developments of the crypto and Web3 landscape.
This was also the topic discussed by our Managing Partner Annabelle Huang, who is attending the event and talked about how investors can explore the new opportunities that the current market can still offer, even though riddled with uncertainty.
Blockchain plays a key role in offering access to decentralization and decentralized finance, but it comes with risk. That is why custodians, fintech, and tech partners like Amber Group exist to bridge between pure DeFi and the traditional financial world.
- How can we tap into the investment opportunities in the current crypto ecosystem? What are the risks and the rewards?
- Has crypto reached a gold standard worthy to be viewed by investors as a long-term holding?
- What is the value of the crypto ecosystem and its potential to decentralize finance with leading crypto exchanges and financial services companies?
WhaleFin, powered by Amber Group, is an all-in-one digital asset platform designed to empower you to diversify, manage, and grow your wealth digitally in a secure manner. On WhaleFin, you can buy, sell, trade, and invest in crypto with ease.
Download the app here.
Amber Group is a leading digital asset platform operating globally with a presence in Asia, Europe, and the Americas. We provide a full range of digital asset services spanning investing, financing, trading, and spending, backed by some of the best investors across the world such as Sequoia Capital, Temasek, and Tiger Global Management.
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