What Did China Do to Change the Rules of the Game in Cryptocurrencies?

As the global interest in cryptocurrencies wanes, two Bitcoin and crypto exchanges in Hong Kong have received the green light to serve retail customers, potentially boosting the city’s ambition to become a hub for digital assets.

The Bitcoin price, which had soared to a record high of nearly $65,000 in April, has lost more than half of its value since then, dragging down other major cryptocurrencies such as Ethereum, BNB, XRP, Dogecoin, Cardano, Solana, Tron, and Polygon.

The market slump has been fueled by regulatory uncertainty, environmental concerns, and cyberattacks.

However, some traders are still optimistic about the long-term prospects of Bitcoin and crypto, especially in Asia, where China’s crackdown on the industry has created opportunities for other jurisdictions to fill the gap.

 

New Regime

In June, Hong Kong announced a new licensing regime for crypto platforms, aiming to attract reputable players and protect investors.

Last week, the city’s Securities and Futures Commission (SFC) granted the first licenses under the new regime to HashKey and OSL, two local crypto exchanges that offer trading services for Bitcoin, Ethereum, and other digital tokens.

The licenses allow them to cater to retail investors, who were previously restricted to professional investors with at least HK$8 million ($1 million) in assets.

“This is a significant first-mover advantage,” said Hugh Madden, the chief executive of OSL, in a statement.”

A spokesperson for HashKey said the exchange “successfully underwent a simplified process to obtain the license upgrade…to expand its business scope from serving professional investors to retail users, fulfilling market demand for a licensed platform that offers users a safer and simpler process for buying and storing cryptocurrencies.”

The licenses are expected to boost Hong Kong’s competitiveness as a crypto hub in the region, as well as increase the adoption of digital assets among the general public.

According to a survey by Finder.com, 27% of Hong Kong residents own some form of cryptocurrency, compared to 9% in the U.S. and 8% in the U.K.

Hong Kong’s move comes amid a global crypto crackdown that has forced some of the biggest U.S. crypto companies to relocate or suspend their operations in various countries.

China, which once accounted for more than half of the world’s Bitcoin mining power, has banned crypto mining and trading activities since May, citing financial risks and environmental impacts.

 

Future Dominance

Some analysts believe that China’s stance on crypto could change in the future as the country develops its own digital currency and explores the potential of blockchain technology.

Jeremy Allaire, the chief executive of Circle, a U.S.-based company that issues the $28 billion USDC stablecoin, said he sees “enormous demand” for digital assets in emerging markets, with China and Asia at the “center.”

“Hong Kong is clearly looking to establish itself as a very significant center for digital assets markets and stablecoins, and we are paying very close attention to that,” Allaire told Bloomberg at the World Economic Forum in Tianjin, China.

Meanwhile, Bitcoin and crypto remain stuck in a narrow range, with volatility declining to historic lows. Some investors see this as a sign of maturity and stability for the nascent asset class, while others fear a sudden breakout or breakdown could be imminent.

“Bitcoin continues to demonstrate resilience around the $29,000 support level,” said Rachel Lin, the chief executive of SynFutures, a crypto derivatives platform.

“The market’s stillness over the past six months is so pronounced that Bitcoin’s volatility has dipped below equity markets such as the S&P 500 and even traditionally safe assets like gold. If this stability persists, Bitcoin could become a viable choice for risk-averse investors seeking exposure to the crypto space.”

 

SEC Regulations

As the International Monetary Fund (IMF) recently softened its stance on cryptocurrencies, the global market for digital assets has been heating up, with Bitcoin leading the charge.

The flagship cryptocurrency has nearly doubled in value this year, defying the threats of a regulatory crackdown in the United States and other countries.

Meanwhile, in the United States, the Securities and Exchange Commission (SEC) remains reluctant to approve a spot Bitcoin ETF, which would allow investors to directly buy and sell Bitcoin through a regulated platform.

Despite numerous applications from various firms, including the world’s largest asset manager BlackRock, the SEC has rejected all such proposals so far, citing concerns over market manipulation and investor protection.

The SEC has also been clashing with some of the leading crypto companies in the U.S., accusing them of offering unregistered securities to their customers.

For example, Ripple Labs, the company behind XRP, is currently embroiled in a lawsuit with the SEC over its alleged sale of billions of dollars’ worth of XRP tokens without proper registration.

However, despite these regulatory headwinds, the crypto market has shown remarkable resilience and optimism.

Bitcoin has rallied by 13% in the past week, reaching over $31,000 per coin. Other cryptocurrencies have also bounced back from their recent lows.

“The crypto market is proving remarkably resilient in light of recent SEC announcements,” Katharine Wooller, a director at Coincover, a crypto security company, said in an email. “The U.S. is only a small market for a truly global asset. With proper protection for digital assets and regulatory frameworks being established in a number of jurisdictions, reputable crypto is firmly in ‘business as usual’ territory.”