Hong Kong should promote healthy development of virtual assets - China Daily



Hong Kong should promote healthy development of virtual assets

In the Hong Kong FinTech Week, currently taking place in the city, one of the highlights is that the government will clarify its stance and unveil its policy statement for the development of virtual assets in Hong Kong amid growing concerns about the city's diminishing status as a crypto hub resulting from regulatory uncertainty.

Virtual assets are units of assets that express, calculate, or store value in digital form, and can be transferred, stored, or bought and sold electronically, ranging from financial (such as cash and bonds) to physical assets (such as art and property), and the cryptocurrency is part of the virtual-asset ecosystem.

In January, the Hong Kong Monetary Authority released a discussion paper on crypto assets and stablecoins, but no new policy was announced after the consultation period. At the same time, Hong Kong has stuck to its relatively stringent travel rules, whereas Singapore has proposed various measures to attract fintech talents, which has caused a brain drain in the local financial industry.

With regard to developing crypto assets and fintech, many countries move steadily with a prudent attitude. For example, in August this year, Ravi Menon, managing director of the Monetary Authority of Singapore, explained the authority's conservative yet explicit stance as "yes to digital asset innovation (license required for service providers), no to cryptocurrency speculation", of which the latter the MAS "strongly discourages and seeks to restrict". With the authority clearly drawing the bottom line, businesses can decide more easily whether to make a move. The Organization for Economic Cooperation and Development also released a virtual-currency tax report in early October that put together the current tax provisions of member states on virtual currency and encrypted assets. This will help integrate the encrypted asset ecosystem into the regulations.

Cryptocurrency has become a mega-trend. A World Bank blog in April pointed out that the total crypto-assets on-chain volume over the past two years surged to a total of $2.8 trillion in the first half of 2021 alone. Compared with bitcoin (24 percent), the share of ethereum (40 percent) and stablecoin (24 percent) was gradually increasing with the global geographical distribution of crypto-assets activity. The article concluded that crypto-assets and underlying technology (such as blockchain) held promise for financial innovation, inclusion, efficiency and transparency, though they might also pose risks to global financial stability.

On the other hand, the Chinese mainland announced a ban on cryptocurrency trading last year, curbing what was considered unusually active trading. According to a report by the analytics platform Distributed AI Research Institute, mainland investors accounted for 39 percent of trading volume in the world's most prominent stablecoin, Tether (USDT), in 2018, and that figure jumped to 60 percent in 2019. However, it is interesting to note that despite the central government's ban, the Chinese mainland returned to the top 10 of the "2022 Global Crypto Adoption Index", published by financial data analysis company Chainalysis in September (the Chinese mainland was ranked 13th in 2021), showing that activities there are still active.

As for Hong Kong, the city is torn between the global trend and the stance of the central government on the development of virtual assets. Or as a local journalist pointed out, the dilemma faced by the local government is how we can strike a balance between the principle of "one country" and that of "two systems".

Nowadays, crypto assets are becoming more connected to the traditional financial system, the former Citigroup CEO believing every major financial institution will be considering trading crypto "in one to three years"; plus, Bloomberg reported that JPMorgan Chase, Bank of America and other investment banks were hiring related talents, reflecting the accelerated adoption of crypto assets by institutional investors. Goldman Sachs has also started offering cryptocurrency futures trading.

In addition, many Association of Southeast Asian Nations countries with close commercial and trade relations with Hong Kong have developed internet and virtual currency rapidly in recent years. The World Economic Forum states that ASEAN is the fastest-growing internet market in the world, with 125,000 new users every day. It is expected that the ASEAN digital economy will bring $1 trillion to the region's GDP over the next 10 years. According to the "2022 Global Crypto Adoption Index", among the 154 countries and regions, four ASEAN countries rank in the top 20, including Vietnam (first), the Philippines (second), Thailand (eighth), and Indonesia (20th). Therefore, to grasp the huge opportunity of the ASEAN market in fintech and smart city services, it is essential for Hong Kong to develop virtual assets.

The premise of this kind of development is clear and flexible regulation, which will help attract local and overseas companies to carry out related business here. What's more, if the Chinese mainland cannot roll out a complete regulatory system for cryptocurrencies in the short term, Hong Kong can take the lead to serve as a model for other cities in the Guangdong-Hong Kong-Macao Greater Bay Area. This is also conducive to the creation of new jobs and new types of work. Therefore, the Hong Kong Special Administrative Region authorities should gear up as soon as possible to attract and train these talents.



Dr. Winnie Tang

Adjunct Professor, Department of Computer Science, Faculty of Engineering; Department of Geography, Faculty of Social Sciences; and Faculty of Architecture, The University of Hong Kong