Alarm bells have been ringing in the cryptocurrency industry in Hong Kong, with the Securities and Futures Commission (SFC) alerting investors to the risks of using cryptocurrency exchanges and investing in initial coin offerings (ICOs) in February and then following it up with regulatory action, when it halted Black Cell Technology Limited’s (Black Cell) ICO in March.
On these censures, law practice Charltons Quantum noted that: “Most of the Hong Kong ICO issuers and crypto exchanges contacted, however, confirmed that their activities comply with the requirements of the SFO [Securities and Futures Ordinance],” noting they either ceased to offer non-compliant ICOs in Hong Kong or only deal in tokens that are considered as securities.
Gabriel Chan, the Secretary-General of the HK Blockchain Society, was largely in the favor of the March ruling. “Black Cell is in crystal clear violation of security regulations, specifically the Collective Investment Scheme (CIS). Some ICOs bend the letter and spirit of the law; Black Cell quite clearly breaks it,” he told Asia Times in an email.
Chan added: “Hong Kong regulators are relatively tolerant of the ICO market. Perhaps Hong Kong is delicately striking a balance between staying on good terms with the [Chinese] Central Government while staying relevant in the emerging blockchain and FinTech market, especially in Asia.”
The SFC move has not stopped Clipper Coin Capital (CCC) establishing its CCCX token on Coinsuper to become the first dedicated cryptocurrency investment bank and hedge fund in the city.
Zhen Liu, the CCC founder, sees a shift in the types of investors that are putting their money into digital currencies. “The market is changing, it used to be gamblers only; like going to Macau, you don’t care what’s in the slot machine. Now high net worth individuals and institutions have a lower risk appetite and want return on investment,” he says.
Liu sees an uphill battle against regulation in both Hong Kong and the region. “Blockchain is a fundamental challenge to the monopoly of the finance industry. For the regulatory authorities, this is central challenge to their reason of being, so they are generally going to be hostile towards it. But the reality is regulators are way behind the reality on the ground,” he says.
Asia is a central driver of the crypto-currency market, a fact that is no surprise to Liu.
“Crypto-currency is absolutely driven by Asian markets, China in particular has been printing money at twice the speed of GDP for the past 15 years, this creates a lot of bubbles, of which some has been leaked and poured into cryptocurrency to get away from capital control,” says Liu.
For other Asian countries, Liu sees crypto-currency as a scheme to rediscover some of their past success. “In Japan, the cryptocurrency market is being used to encourage inflation and move the economy,” he says, echoing statements reported by agencies as made by Nomura analysts that Bitcoin could be contributing an extra 0.3% of GDP to Japan.
In Hong Kong, Gabriel Chan, the Secretary-General of the HK Blockchain Society, believes it would be a mistake for the city’s authorities to stop initial coin offerings. “It is not in the interests of Hong Kong to slam the brakes on ICOs,” Chan says.
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