China’s central bank, in a recent public notice condemning Bitcoin, Ether and Tether, banned all crypto activities on the mainland as well as by Chinese nationals and companies overseas. How should we make sense of this new dictate — and what does it mean for Hong Kong, a Chinese territory where many crypto activities are perfectly legal?
There are few people more qualified to shed light on these questions than Angelina Kwan, a senior advisor to the board of HashKey Group who is also a former regulator for Hong Kong’s Securities and Futures Commission.
This Forkast.News Q&A with Kwan has been edited and condensed.
What was your reaction to China’s announcement? Did this surprise you?
The move was entirely expected. The digital assets industry has known for some time that crypto exchanges and crypto mining are prohibited in China. Knowing this framework, the HashKey Group has continued to focus its activities on Hong Kong, Singapore, Japan and other jurisdictions where regulatory guidelines on digital assets have been put in place. What is interesting is that this announcement came from the People’s Bank of China (PBOC), which is a very important government body and regulatory in the Chinese government hierarchy, and that sends a message about the seriousness of the directive.
What does this policy mean and what are the greater implications?
The PBOC, valued at US$3.21 trillion, certainly has the clout, financial and power backing to enforce the rules. It is the central bank of the People’s Republic of China responsible for carrying out monetary policy and regulation of financial institutions in mainland China, as determined by People’s Bank Law and Commercial Bank Law.
The greater implications are the following. First, China is serious about managing its monetary base, tracking payments and investments on the mainland, and ensuring its payments, funds and transfers are properly managed. Second, China is concerned about the volatility in digital assets. With social stability being paramount, they like to use this opportunity to protect their investing public. Third, the power use and ecological impact of Bitcoin mining, since China is trying to conserve energy amidst its current energy shortages and natural resources constraints.
All of these factors may have contributed to this policy being issued at this time.
It is fair warning that the payments systems, government and enforcement will now be much more involved to enforce the rules.
How does this affect crypto exchanges more broadly, even outside China?
For many digital asset exchanges that operate globally, they are aware of the laws promulgated in China. These digital asset exchanges have already amended their procedures and you will note that two exchanges that operate in China have made high profile announcements to further strengthen their controls
How much do you think the timing of this regulatory action plays into the developments in China’s own digital currency, the e-CNY?
China has been amending its digital asset regulations gradually since 2013. This is not the first and likely will not be the last.
You were a longtime regulator before you joined the blockchain industry from that perspective, what do you think is the greater intent of this PBOC announcement?
I cannot speculate on the Chinese government’s intent on a regulation announcement, but the change will avoid confusion with China’s CBDC (digital yuan) to be issued in due course, contribute to fulfilling the country’s climate targets, which is to become carbon neutral by 2060, to stop illegal cross-border transfers of assets and to protect China’s investing public.
How much of an impact will China’s regulatory activity have on the future direction of its neighboring authorities, such as Hong Kong?
Our view is that going forward, Hong Kong will continue to maintain its autonomy in managing its financial and administrative affairs, as granted under the Basic Law. As a major regional and global financial hub, it makes sense for Hong Kong to continue to provide an interface for China’s blockchain technology to find international uses and customers. China continues to be one of the most dynamic markets globally in the development of blockchain applications.
As we have seen many in the traditional finance industry leave Hong Kong partially out of fears that regulations from the mainland will cross into the SAR, do you expect the same to happen with the crypto industry?
As the digital assets industry becomes increasingly regulated, Hong Kong becomes more attractive — not less — as a financial center governed by the rule of law and providing a level playing field for industry participants. We do not have a crystal ball but do not foresee a day when digital asset activities will be blocked in Hong Kong. The waves of regulations coming in are more likely to be ones that drive a higher level of transparency, compliance, and security. HashKey has just moved our global headquarters to Hong Kong’s Central financial district, so we are clearly strongly committed to our presence here.
Sam Bankman-Fried, the CEO of major crypto derivatives exchange FTX, just announced that they no longer consider Hong Kong home and that the Bahamas is now FTX’s corporate headquarters. What does this mean for Hong Kong as a leader in the crypto industry in not just Asia but globally?
It is sad to hear that FTX will be making its new home in the Bahamas. Sam Bankman-Fried and his colleagues have been a part of the digital asset fabric that built Hong Kong to where it is today as a vibrant digital asset center. He has brought a lot of innovations to the digital asset industry. We hope he keeps some of his operations in Hong Kong.
While Hong Kong has over 30 digital asset companies, that number will continue to grow as new companies and startups flourish.
Hong Kong has been viewed as a financial hub that has been a prestigious destination for fintech startups, and in recent years, this has included cryptocurrency companies. Do you think Hong Kong can maintain its status as a global financial powerhouse even if the future of decentralized fintech has been outlawed in China?
At the HashKey Group, we have every confidence in Hong Kong and foresee a vibrant future as a digital asset center globally. We think Hong Kong is an amazing financial hub that has been and is a prestigious destination for fintech startups and digital asset firms. Hong Kong will continue to enjoy being an international financial center with digital assets financial services in place.
However, we cannot sit on our laurels. We need to constantly improve, develop our human resources, our systems, our infrastructure and talent to attract the best and brightest to Hong Kong.
Hong Kong is constantly bombarded with competitors, but it has always stayed at the top because of its “can do” attitude, clear regulations and rules, and low and simple tax regimes.
However, Singapore — our biggest competitor in Asia — and other financial centers from the Bahamas, Bermuda, British Virgin Islands and other countries around the world have been upping their game to attract these high-value players, not just digital-asset firms but also family offices. So Hong Kong needs to work doubly hard to keep its human resources and develop them.