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Despite Actions Against Crypto In China, Hong Kong Strives To Become A Crypto Hub


Despite Actions Against Crypto In China, Hong Kong Strives To Become A Crypto Hub
With the collapse of the digital currency markets and numerous company collapses, the crypto industry has had a difficult year.
Hong Kong is attempting to establish itself as a hub for virtual assets despite the volatility.
The city's promotion of digital assets stands in stark contrast to Beijing's effective ban on trading and suppression of cryptocurrency-related activities on the Chinese mainland.
Hong Kong intends to enact new regulations in June that will call for cryptocurrency trading platforms to obtain Securities and Futures Commission licenses. On its proposal to regulate trading platforms for virtual assets, the regulator has already started a consultation process.
Companies that spoke 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 might 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 e-mail, 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 technology companies. According to some supporters, Web3's use of cryptocurrencies is likely to be crucial.
Huang Yiping, a former member of the Monetary Policy Committee of the Chinese central bank, called on Beijing to review its pervasive crypto ban in December.
If cryptocurrency transactions are prohibited for a long time, according to Huang, there may be missed opportunities for the advancement of digital technology.
However, it is still possible that Hong Kong won't end up being 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.
Furthermore, it will be difficult for retail investors to jump on the Hong Kong crypto 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.
While Hong Kong has high crypto ambitions and a relatively low tax policy for businesses, the city may face competition from other crypto hubs.
“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 brought up Hong Kong's relatively low corporate tax rate, which is 8.25% for the first 2 million Hong Kong dollars ($254,930) of assessable profit and 16.5% for profits over that threshold.
But "it's still not that competitive," he said, when compared to other crypto hubs like Dubai, which levies a flat rate of 9%, and Switzerland, which has an 8.5% corporate rate.
Recently, legislation to regulate the industry was implemented by other players who 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 maintain sufficient reserves to cover redemption requests in the event of large-scale withdrawals.
Other countries, including Dubai in the United Arab Emirates, are attempting to position themselves as crypto-friendly business hubs.
However, some nations, most notably the U.S., have adopted a more aggressive stance 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.
The recent failure of cryptocurrency-friendly banks, 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.
Despite the recent decline in price of bitcoin, businesses continue to believe that adoption of cryptocurrencies will increase.
“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.
Despite bitcoin's price falling below $20,000 near the end of 2022, the cryptocurrency markets have recently risen. According to Coinbase, the price of one bitcoin was $27,834 at 9:30 p.m. ET on Sunday. Even so, it is still almost 60% below the record high of $68,990 set in November 2021.
“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.