Hong Kong’s Cryptotrade Regulation Comes at a Curious Time

By Clark

Hong Kong has recently taken steps to tighten cryptotrade policies, with the aim of curbing illegal transactions. The city established what it’s calling a Financial Action Task Force (FATF) to handle regulations on crypto transactions between users. To be clear, this does not appear to be a move toward restricting the flow of cryptocurrency into and throughout Hong Kong. However, it is meant to establish thorough regulation beyond what the blockchain itself provides, and at least in the short term it could cut down on crypto transactions in the city.

The formation of the FATF comes at a curious time for two reasons. First is that cryptocurrencies have thrived, for the most part, with global markets in decline. In Hong Kong specifically, the HSI futures charts have shown weakness in the past two months, indicating a widespread downturn. With those charts representing the SEHK’s most influential companies, we have a clear picture of a struggling economy, much like what we’re seeing elsewhere in the world. And yet, as the SEHK and other markets struggle to rebound, cryptocurrencies have mostly risen in value. In short, cryptos are looking more appealing now than they have in some time, to many investors. This makes for interesting timing for Hong Kong to tighten regulations, just as more people are in theory considering crypto investment.

The second reason that Hong Kong’s timing seems somewhat curious is that it comes just as some of Asia’s major financial institutions are developing digital currencies of their own. For starters, China has started trials on its own digital currency, which is backed by the government and managed by the People’s Bank of China. It has recently been made clear that this is not a cryptocurrency in the strictest sense, but it is the first step in an intended long-term replacement of cash with digital assets. Meanwhile, Hong Kong has been considering its own digital currency as well, specifically in collaboration with Thailand. In that case, it sounds as if the main purpose is for central banks to use digital currency to simplify cross-border payments — but we don’t have too many details yet.

None of these developments or circumstances necessarily mean that Hong Kong’s tightened regulation on cryptocurrency exchanges will be problematic. However, it’s interesting to look at the new regulation in the context of digital currency developments. With Asian economies struggling, cryptos thriving, and multiple banks in the region exploring digital currencies of their own, it seems likely that more people in and around Hong Kong will be looking into digitizing their assets. The hope will be that the new regulatory measures will simply make it safer — rather than more difficult — for people to do so.

Clark

Head of the technology.

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