![One country, two cryptosystems](https://www.hongkong-journalist.com/wp-content/uploads/2023/03/20-3-One-country-two-cryptosystems.jpg)
Key Points:
- The crypto business has had a tough year with the digital currency market falling and companies collapsing across the board. Hong Kong is working to establish itself as a center for virtual assets despite the unrest.
- This contrasts sharply with China’s restriction on bitcoin transactions, but analysts who spoke with CNBC expressed optimism that the mainland would learn from Hong Kong’s cryptocurrency ledgers.
With the collapse of the digital currency market and numerous companies, the crypto industry has had a difficult year.
Hong Kong is attempting to establish itself as a center for virtual assets despite the volatility.
The city’s promotion of digital assets stands in stark contrast to Beijing’s effective prohibition on trade and suppression of cryptocurrency-related activity on the Chinese mainland.
Hong Kong intends to enact new regulations in June that will call for cryptocurrency trading platforms to get Securities and Futures Commission licenses. In its proposal to regulate trading platforms for virtual assets, the agency has already started a consultation process.
Domain For China?
Businesses who talked with CNBC expressed hope that the central government may be keeping an eye on Hong Kong’s cryptocurrency developments.
“If anything, China might be looking at the effect on Hong Kong following those rules, the issuance of new crypto-linked products or blockchain-based solutions, and the pick-up of trading and business activity that might ensue,” said Justin d’Anethan, institutional sales director at Amber Group.
Deng Chao, CEO of Hashkey Capital, expressed similar views and suggested that China would take cues from Hong Kong’s potential legalization of cryptocurrencies.
“In the future, it may serve as a model for policy formulation in other regions [in China] if it proves successful,” he told CNBC in an email and added that Web3 and crypto businesses might eventually adopt a more compliant approach to their daily operations.
Web3 is the term used to describe the upcoming internet. Its supporters claim that it will increase decentralization and lessen the influence of powerful technological giants. According to some supporters, Web3’s use of cryptocurrencies is expected to be crucial.
Huang Yiping, a former member of the Monetary Policy Council of the Chinese central bank, called on Beijing to rethink its pervasive crypto prohibition in December.
If cryptocurrency transactions are prohibited for a long time, according to Huang, there may be missed possibilities for the advancement of digital technology.
Yet, it is still possible that Hong Kong won’t become China’s crypto north star.
″While there is some chatter about China potentially loosening its stance on crypto, so far there’s really nothing we can see to indicate anything like that,” said d’Anethan.
Also, it won’t be simple for regular investors to join Hong Kong’s cryptocurrency bandwagon.
“Hong Kong is going to impose a set of strict regulations on crypto trading platforms,” said Yuya Hasegawa, a market analyst from Japanese crypto exchange Bitbank.
“That means it will not be easy for newcomers to casually join in and start business,” he said, adding that he’s not sure if the government’s plans to allow retail businesses access to virtual asset trading will necessarily generate much growth for the industry and as a hub.
Hong Kong may face competition from other crypto hubs despite having lofty cryptocurrency goals and a relatively lax tax environment for enterprises.
“Regulation is, of course, necessary for healthy growth, but in order to compete with other crypto hubs, there also has to be appealing tax policy for crypto projects,” said Hasegawa.
He pointed out that Hong Kong has a relatively low tax policy on businesses: the corporate tax rate for the first 2 million Hong Kong dollars ($254,930) of assessable profit is 8.25%, while any profit above that amount is taxed at 16.5%.
But compared to other crypto hubs like Dubai, which charges a flat rate of 9%, and Switzerland — with an 8.5% corporate rate, “it’s still not that competitive,” he said.
Countries Hustle For Global Crypto Position
Recently, legislation to control the business was implemented by other entities that had previously tried to become hubs for digital assets. According to observers, regulation is necessary to bring stability to the cryptocurrency market and boost consumer adoption.
The UK government unveiled a plan last month for regulating the cryptocurrency sector in a manner similar to that of conventional financial institutions.
The Markets in Crypto-Assets law, implemented by the European Union last year, mandated that stablecoins keep sufficient reserves to cover redemption requests in the case of large-scale withdrawals.
Some countries, such as Dubai in the United Arab Emirates, are attempting to position themselves as crypto-friendly economic hubs.
However, other nations, most notably the U.S., have adopted a more aggressive posture toward the cryptocurrency sector, particularly in the wake of the collapse of the important cryptocurrency exchange FTX and the subsequent arrest of its founder Sam Bankman-Fried.
Hamstring Crypto Pattern
The recent failure of cryptocurrency-friendly institutions, including Silicon Valley Bank, Silvergate Capital, and Signature Bank is just the latest in a long list of problems that have plagued the sector in recent months.
The fact that all three were significant lenders to cryptocurrency businesses emphasizes the unpredictability of stablecoins.
Bitcoin fell below $20,000 for the first time since January on March 10.
Companies still believe that the acceptance of cryptocurrencies will increase, despite the recent decline in bitcoin’s price.
“For the longer-term investors, the green light by regulators should highlight the fact that crypto is gaining adoption regardless of temporary price moves or the volatility of this still young asset class,” said d’Anethan from Amber Group.
Crypto markets have rallied recently in spite of bitcoin dropping below $20,000 toward the end of 2022. Bitcoin was trading at $27,834 at 9:30 p.m. ET Sunday, according to Coinbase. That’s still nearly 60% lower than its November 2021 record high of $68,990.
“Although virtual assets are relatively new, retail investors already have some knowledge and experience in the market after these years of education. When the climate improves, maybe interest will also rise,” said Deng from HashKey.
- Published By Team Hongkong Journalist