Asian regulators are jumping ahead of the U.S. by clarifying rules for cryptocurrencies, as evidenced by Hong Kong’s first trading platform license under a new Crypto asset framework.
Hong Kong opened up to mass market trading after confirming on Thursday that HashKey exchange and OSL had received licenses to legalize retail trading of tokens, as part of Hong Kong’s efforts to become a global hub for virtual assets.
Hong Kong implemented a mandatory cryptocurrency framework in June, the same month Japan’s stablecoin law went into effect, and South Korea approved its first stand-alone Crypto asset bill. Indonesia is building a government-backed cryptocurrency exchange to shore up the industry.
Officials in the region are seeking to draw lessons from a string of global bankruptcies last year, including the $1.5 trillion slump in Crypto assets and the collapse of the FTX exchange, to create a framework that protects investors while remaining attractive to businesses — a process with Challenging balancing act.
“There could be short-term pain as the industry grapples with this escalation,” said Angela Ang, a senior policy advisor at blockchain intelligence firm TRM Labs and a former regulator at the Monetary Authority of Singapore. “But if the industry invests in risk management and Working with regulators to develop fit-for-purpose cryptocurrency rules, we could see the long-term benefits of a well-regulated and productive cryptocurrency ecosystem in Asia.”
Meanwhile, the U.S. is mired in a cryptocurrency fog amid court battles, turf wars between regulators and disputes over proposed laws. Other jurisdictions, such as the European Union and Dubai, have also developed detailed cryptocurrency rulebooks. The elephant in the room is China, which has banned cryptocurrencies, but there are growing signs that citizens are flouting the ban.
The following are the Crypto asset rules in major Asian jurisdictions:
Licensed cryptocurrency exchanges in Hong Kong can offer trading to individuals and institutions, but retail investors are limited to larger cryptocurrencies such as bitcoin and ether. The framework emphasizes the need for adequate risk assessment, insurance coverage and custody of assets. Virtual asset firms have cautiously welcomed the rulebook, but have not yet committed to major investments.
The government allowed exchange-traded funds to invest in CME Group’s bitcoin and ethereum futures and sold its first Crypto green bond, which uses a Crypto ledger to speed up the settlement and coupon payment process. The mandatory licensing regime for stablecoins (a cryptocurrency token designed to maintain a constant value) will expire in 2023-2024.
Japan expanded its Crypto asset rules when its stablecoin law — one of the first among major economies — went into effect mid-year. Shortly after, MUFG said it was in discussions with multiple parties to use its blockchain platform Progmat to issue stablecoins pegged to foreign currencies, including the U.S. dollar, for global use.
Prime Minister Fumio Kishida’s economic agenda includes support for the growth of so-called web3 companies. The term “web3” refers to the vision of a decentralized internet built around blockchain, the underlying technology for encryption. Japan has begun to loosen some rules for cryptocurrencies, such as token listings and taxes, but is generally seen as heavily regulated.
Just over a year later, South Korea approved its first stand-alone Crypto asset bill, after a collapse of tokens created by South Korean Do Kwon fueled a rout in the cryptocurrency market. The code defines virtual assets and imposes penalties for violations such as the use of non-public information, market manipulation and unfair trading practices.
The legislation empowers the Financial Services Commission to oversee cryptocurrency operators and asset custodians. The Bank of Korea will also be able to investigate such platforms. The Act requires insurance, reserves and necessary record keeping. These rules cover assets such as bitcoin, while existing capital market laws apply to tokens that are considered securities.
The city-state aims to develop a hub for productive uses of the blockchain, such as tokenizing real-world assets that are currently difficult to trade. Meanwhile, officials are limiting retail investor participation in cryptocurrency-related trading and investing given the Crypto asset’s history of high volatility.
In July, Singapore said it would require cryptocurrency exchanges to hold client assets in trusts by the end of the year. The country will also move forward with a proposal to ban lending and staking by retail investors. Staking is the process of staking coins to help operate the blockchain in exchange for rewards.
Australia said it plans to start consultations on licensing and custody requirements for crypto asset service providers in the coming weeks. The development comes after opposition lawmakers introduced a private bill to regulate the Crypto asset industry. Meanwhile, the country’s big banks have restricted access to cryptocurrency platforms due to the risk of fraud.
Indonesia is using the structure of the stock market to reform cryptocurrency trading and mitigate the risks posed by the FTX crash. A key part of the plan is the creation of a state-backed cryptocurrency exchange where private-sector platforms will execute trades, which will become operational in August. The blueprint is similar to how a stock market works, separating trading, clearing and custody under official oversight.
© 2023 Bloomberg
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