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In recent months, the cryptocurrency Bitcoin has seen a resurgence along with the price of gold. Since the sell-off in March triggered by the events of the pandemic, it has outpaced value increases in equities and precious metals due to an increase in liquidity. This is because cryptocurrencies are virtual currencies that use a decentralised network to conduct secure financial transactions.
Through online platforms, trading cryptocurrency CFDs, such as Bitcoin, Ripple, and Ethereum, is done by speculating on their price movements. This makes them a particularly attractive investment strategy during economic turmoil. In addition, these digital commodities can be stored on cryptocurrency digital wallets that can protect them from theft. Both of these points have made them very popular for the biggest financial hubs in the world, with blockchain firms using Hong Kong as one of the main centres for cryptocurrency. Yet despite the availability of these platforms, Hong Kong could be hit with changing laws and regulations that govern cryptocurrency trading in the near future.
There is also growing activity across the cryptocurrency industry on the island. Arrano Capital recently launched the first cryptocurrency fund in Hong Kong approved by the Securities and Futures Commission (SFC) for professional investors. It currently only transacts in Bitcoin. Gaven Cheong, a partner at Simmons & Simmons who handled the deal, explained to China Business Law Journal how, “The challenge initially was to try to get the manager of the fund within the remit of the SFC, and this meant making the fund invest in a portfolio of recognised securities.” He further describes how the SFC has taken steps towards building a formal framework and clear protocols to deal with the growing popularity of digital assets management solution.
However, limiting transactions to Bitcoin may not be the most sensible idea for Arrano Capital and future cryptocurrency funds following the report of China’s Center for Information and Industry Development (CCID). In the 18th and most recent version of the CCID’s Global Public Chain Technology Evaluation Index, Bitcoin ranked low among the list of leading cryptocurrencies in all of China. CCID’s standards include ‘basic technology, applicability, features, performance, safety, creativity, and decentralisation’. Bitcoin placed twelfth overall while cryptocurrencies like EOS, TRON, and Ethereum led the pack, respectively.
Technical specifications aside, it’s undeniable that cryptocurrency is a growing sector in Hong Kong. Blockchain technology outpaced other financial technologies in Hong Kong last year, including alternative payments, insurance technology, and credit technology. There’s also a growing interest in crypto- and blockchain-related jobs, as well as a thriving startup scene. In fact, digital asset firms represent over a quarter of the developing fintech entities in InvestHK, the government’s regulating body for foreign direct investment.
However, the ongoing developments led by the SFC’s acceptance of digital assets may not be enough. Analysts argue that Hong Kong is still not ready to become Asia’s leader in cryptocurrencies, though it’s certainly one of the top financial districts in the continent. Crypto firms and investments are rushing in faster than a clearer regulatory framework is being developed and implemented. Without the proper mandate in place, Hong Kong will fall behind in licensing blockchain companies, which is the first step to providing support and protection to the growing crypto environment.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.
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