Hong Kong’s status as an upcoming hub for crypto businesses is getting more and more attention and discussion in relevant circles. In a tweet, Coinbase CEO Brian Armstrong referred to the city-state, emphasizing that the U.S. could lose its status as the world’s financial center due to a lack of crypto regulations.
Armstrong Calls for Regulations
“America risks losing it’s status as a financial hub long term, with no clear regs on crypto, and a hostile environment from regulators. Congress should act soon to pass clear legislation. Crypto is open to everyone in the world and others are leading. The EU, the UK, and now HK,” Armstrong said, retweeting a post saying Hong Kong will make it legal to sell, purchase, and trade crypto assets for all its citizens from June 1.
The news that Hong Kong will allow its citizens to buy, sell and trade crypto assets is based on a speech by Hong Kong’s financial secretary, Paul Chan, at the web3 conference in January. “Hong Kong has completed the legislative work of setting up a licensing system for virtual asset service providers, and the new system will be implemented in June of this year… Financial intermediaries and banks will be able to cooperate with licensed virtual asset exchanges in providing trading services to customers, subject to meeting relevant regulatory conditions,” Chan said at the conference.
Brain Armstrong’s criticism of the lack of crypto regulation in the U.S. and his call for Congress to enact such laws comes after heightened regulatory scrutiny following the FTX debacle.
SEC Chairman Gary Gensler has proposed new rules requiring crypto firms to act as qualified custodians of institutional funds. He believes there should be a transparent mechanism to ensure that clients' funds are managed separately from the company's assets to manage their affairs. This is necessary, Gensler said, to ensure customers don't go bankrupt or lose money as a result of the hack. Shortly after, a Coinbase executive clarified that the company complied with the SEC’s proposal in this regard.
Another regulatory uncertainty that Coinbase needs to consider right now is the SEC crackdown on staking services, calling them securities. In the past week, the agency forced Kraken to stop offering staking services to U.S. clients and was fined $30 million for offering unregistered securities. The CEO of Coinbase may be concerned that his company will be affected as well.
Hong Kong is a special administrative region of China with autonomous status in terms of legislation and governance. While China bans the trading and mining of cryptocurrencies within its jurisdiction in 2021, Hong Kong appears to be becoming a China-focused destination for such businesses.
Municipalities have taken many regulatory initiatives that are lacking in most jurisdictions around the world, including the US. In December, an amendment to existing legislation brought digital assets within the scope of anti-money laundering and counter-terrorist financing laws.
It also makes cryptocurrency companies seek licenses before starting to operate in Hong Kong. Hong Kong’s Securities and Futures Commission (SFC) said in January that it would publish a list of highly liquid digital assets that citizens can trade.
