Category Archives: Hong Kong

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Hong Kong Regulator: Sandbox First, Crypto Licences Could Follow

Hong Kong’s Securities and Futures Commission (SFC) is proposing a sandbox approach to cryptocurrency regulation. The idea was tabled by SFC chief executive Ashley Alder during a speech to delegates at this week’s Hong Kong Fintech Week 2018.

Alder said Hong Kong has seen the arrival of some of the worlds biggest platforms but there exists “a sizeable population of investors who have an interest in trading virtual assets through unregulated trading platforms”. A sandbox approach would allow the regulator to discover if it would be appropriate for crypto exchange operators to be regulated, Alder argued.

“If, and only if, we decide at the Sandbox stage that we should regulate, we would consider granting a license… the platform would then be subject to intensive reporting and monitoring to ensure that strict internal controls operate as expected and investor interests are protected.”

In a recent survey conducted by the Hong Kong Blockchain Association (HKBA), it was revealed that 23% of Hong Kong residents would consider investing in cryptocurrencies, given a recession. The response was based on the fact that many respondents anticipated a downturn in the world economy within the next year. Reportedly, a large portion of those surveyed would consider investing in cryptocurrency, despite their current concerns about digital currencies outweighing their potential advantages. Relevant to SFC concerns expressed at the Hong Kong Fintech Week was the fact that 60% of the respondents indicated that they felt that clear regulations and proper licensing laws were needed for cryptocurrency exchanges.

Alder said that the SFC had plans to clarify new regulatory standards for fund managers and that those investors coming on board with a mixed portfolio of more than 10% of virtual assets would need to follow the new requirements, regardless of whether the assets were “securities” or “futures contracts”. In the meantime, only professional investors should be allowed to trade until further guidance from the regulator is made public. The sandbox idea appears to fill in the cracks until more lasting regulatory plans can be formulated. In February the SFC said that it would crack down on unlicensed cryptocurrency exchanges.

Meanwhile, the blockchain sector is beginning to feel the pinch with a lack of qualified professionals to fill positions. A “talent list” has been issued by the Government of the Hong Kong Special Administrative Region in which it states that it needs “quality people from around the world in a more effective and focused manner to support Hong Kong’s development as a high value-added and diversified economy”. Among the 11 professions on the new list are those with DLT skills.

 

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Hong Kong Sees Green as Ireland Comes to Fintech Week

Hong Kong FinTech Week was certainly a productive few days for two visiting companies from Ireland, both opening doors to the Far East with newly-secured deals.

The green army descended on Hong Kong this week with no fewer than 14 Irish fintech firms showing their wares as part of the #IrishAdvantage Enterprise Ireland’s trade mission to China; representation aimed at promoting tech in payments, banking, insurtech, cloud communications and biometrics.

The two successful companies, Global Shares and Know Your Customer, appear to be leading a charge from the Irish Republic with, Daon, CurrencyFair, Solgari, Fenergo, Leveris, Fineos, Corylitics, Intuition, Priviti, Fexco, Kyckr and Circit also attending.

Global Shares are now celebrating a USD 15 million deal with online brokerage firm Huanying International, with plans to provided a range of financial services. The other successful company, smart technology client verification solution provider Know Your Customer (KYC), has partnered up with Hong Kong-based fintech company Neat Limited to enhance that company’s AML processes more effectively. Republic of Ireland Minister for Business, Enterprise and Innovation Heather Humphreys commented:

“The deals we’ve seen formalized today by Global Shares, Know Your Customer and CurrencyFair at Hong Kong Fintech Week demonstrate how much value Irish fintech companies can deliver to partners worldwide… It’s heartening to see recognition from companies the world over for the Irish fintech advantage.”

Early this year, another Irish company, Dublin-headquartered money transfer player CurrencyFair, broke into the Asian market. With an EUR 20 million investment drive, the Irish company acquired Hong Kong’s Convoy Payments, not only opening up business to Hong Kong and Asia but also to giving CurrencyFair access to existing US markets.

The recent Irish successes are not unusual, according to Enterprise Ireland CEO Julie Sinnamon, who suggested that Irish companies usually fare well in doing businesses in Hong Kong and was pleased to see these successes, adding:

“Between them, these companies have secured significant wins with some of the world’s leading financial services companies in Hong Kong such as HSBC, Standard Chartered and Bank of China as well as local Hong Kong entities such as the Securities & Futures Commission and the Hong Kong Jockey Club.”

 

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Ready Steady Go: On Your Marks for the Stablecoin Steeple Chase

With Japanese regulators confirming that stablecoins do not fit the definition of cryptocurrencies outlined in the country’s Payment Services Act, the stablecoin chase seems well and truly on in that country and, so it appears, everywhere else.

As Bitcoin News reported yesterday, according to the FSA, firms issuing stablecoins in Japan need not register for licenses, though they may need to register for issuing payment instruments. Significantly, this clarification of the FSA’s 2017 guidelines means that large stablecoin transactions, up to JPY 1 million (around USD 9,000) can be made unhindered by the same guidelines which apply to other transactions.

A stablecoin is a cryptocurrency pegged against something of widely-accepted value such as a state currency, typically the US dollar, giving it price-stable characteristics. It is seen by some as a safe hedge against the volatility of conventional cryptocurrencies such as Bitcoin or Ethereum. Currently, they are underutilized apart from traders using them to guard their positions during bear markets.

What is the current state of play in the apparent rush towards stablecoins? There seems to be no stopping the charge as the London Block Exchange (LBX) announced its plans to launch the LBXPeg, a stablecoin backed by the UK pound recently.

LBX has stated the current stablecoin market needs disruption due to many firms’ lack of transparency, commenting that “many available stablecoin offerings are inadequate for the needs of businesses, traders and consumers” and citing “opaque management structures, distribution schedules, and auditing processes”.

Nick Tomaino, founder of @1confirmation, calls stablecoins “the holy grail of cryptocurrency”, suggesting that coins such as Bitcoin were too prone to volatility. Tomaino suggests that the US dollar is a fiat working example of stability. The dollar falls down as a stablecoin, primarily because it lacks user control being dependent on the Federal Reserve and the US banking system.

The Winkevoss Twin would clearly agree with Tomiano’s “holy grail” epithet, given their recent success with the New York regulator. The Gemini Dollar, launched by the Winklevoss twins, will allow users a one-to-one exchange on the US dollar on the Ethereum blockchain.

A Hong Kong-based blockchain investment firm is also planning to launch a new stablecoin backed by the Japanese yen. The company, Grandshores Technology Group, will launch the funding round in late 2018 or early 2019. Grandshore feels that the stablecoins will have mileage on release. It argues:

“We believe cryptocurrency traders and exchanges will be potential takers of these stablecoins… We are entering the next stage of blockchain evolution, a stage which is akin to when computer operating system was transiting from MS-DOS to MS-Windows.”

Australia company Bill Trade, which launches its own coin next year, sees stablecoins as solving “one of the principal issues that may drive investors seeking steady returns and merchants that currently accept traditional currency away from digital currencies: volatility”.

The chase is on.

 

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Hong Kong Stock Exchange Looks to Blockchain and Fintech Acquisitions

Hong Kong Stock Exchange (HKEX) has announced that it is considering investments in blockchain and other fintech companies through acquisitions next year.

If this materializes, it will represent a change in direction for the exchange which has close relationships with China. Hong Kong, being an autonomous territory of China, has a political system independent from the rest of the country, affecting both the economy and its commercial system. Many Chinese businesses have moved their operations to Hong Kong after China’s crackdown on ICOs and cryptocurrency in general. These included the world’s largest exchange, Binance, which moved from Beijing to Hong Kong and other locations around the globe to escape punitive legislation.

The territory is now laying claim to becoming a major hub for cryptocurrency and blockchain in the region, even creating a recent “talent list” to employ more industry professionals to support its DLT focus in the years to come through a new employment program. A fintech lead at InvestHK reflected on Hong Kong’s push towards blockchain:

“Blockchain is a very high priority for us. There is hype, and there is the fast grab of money with ICOs in some cases. But what we are looking at building here in Hong Kong is an infrastructure for new businesses and existing businesses, to make sure the technology and innovations remain a key enabler for financial sector growth.”

Unconfirmed sources suggest that Charles Li, CEO of HKEX, is now looking at blockchain and has had meetings with both potential start-ups and established companies. Concern remains about the current poor relationship between China and the US, and how this might affect businesses in Hong Kong. This is a possible reason why the exchange is considering adopting its own venture capital model similar to that of Nasdaq.

Earlier this month, HKEX senior managers had discussed possible acquisitions and more, the results of which will be revealed next year. Banny Lam, head of research at CEB International Investment, told Bloomberg, “The strategy is in the right direction but it is not easy to achieve the targets. HKEX needs to maintain a momentum of growth by exploring new businesses.”

In March, Financial Times reported that HKEX was collaborating with the Australian Securities Exchange (ASX) to implement blockchain. Perhaps, this is an indication of the direction the exchange is willing to take when it reveals its plans next year. Blockchain company acquisitions may be on the table.

 

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Hong Kong Firm Launches Stablecoin, Defying China Ban

A Hong Kong-based blockchain investment firm is planning to launch a new stablecoin backed by the Japanese yen. The company, Grandshores Technology Group, will launch the funding round in late 2018 or early 2019.

Despite the optimism of the group’s founding partner Yongii Yao, there is concern among possible investors due to China’s continued scathing stance on cryptocurrency in general and its current ban on ICOs on the Chinese mainland. Hong Kong officially remains a special administrative region of the People’s Republic of China.

Currently, Hong Kong is going ahead with a push to promote blockchain in the territory. A “talent list” was recently issued by The Government of the Hong Kong Special Administrative Region in which it states that it wants “quality people from around the world in a more effective and focused manner to support Hong Kong’s development as a high value-added and diversified economy”. Among the 11 professions on the new list, those with DLT skills were cited.

This isn’t really surprising given a new focus on innovation and technology China’s Administrative Region, given a recent push that has seen the promotion of blockchain in the public arena through generous grants through its local universities of USD 20 million for blockchain and fintech research.

Yao’s optimism leads him to feel that the stablecoins will have mileage on release. He argues:

“We believe cryptocurrency traders and exchanges will be potential takers of these stablecoins… We are entering the next stage of blockchain evolution, a stage which is akin to when computer operating system was transiting from MS-DOS to MS-Windows.”

This is the second recent statement concerning the release of a stablecoin this month after New York state in the US approved two new US dollar-linked stablecoins. Two companies, Gemini Trust Company and the Paxos Trust Company, are the first stablecoin providers to receive the go-ahead to list on exchanges in New York state. The Gemini Dollar, launched by the Winklevoss twins, will allow users a one-to-one exchange on the US dollar on the Ethereum blockchain.

There appears to be a degree of mixed feeling in the industry concerning stablecoins, illustrated by recent remarks by Berkeley professor of economics Barry Eichengreen who suggests that stablecoins, seen by some as highly attractive for investment due to their being pegged to the US dollar, aren’t so stable as the name suggests.

 

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Trader Triggers Emergency Mode at Exchange With 4.16 Million BTC Futures Position

The world’s second largest exchange Hong Kong-based OKEx, went into emergency mode in late July when a trader took up a 4.16 million Bitcoin futures position listed on the exchange.

The position, worth $416 million, triggered the exchange’s failsafe risk management system forcing futures traders to give up about 18 percent of their profits.

OKEx’s “socialized clawback mechanism,” was called on, which takes a percentage of profit from other short position traders to cover any financial shortfall. This procedure happens when an exchange’s insurance fund is not enough to cover margin call losses.

The client refused to liquidate part of his long position order when approached by the exchange forcing OKEx to freeze his account to prevent further problems.

This incident was seen by the industry as an example of how further regulation is still needed in order to offer a heightened level of protection to exchanges; such as in conventional stock exchanges where brokerages act as a buffer for ensuring clients have sufficient margin deposits and risk management in place on margin calls. Normally exchanges allow their clients to leverage their positions by as much as 20 times.

Soon after the incident, the subsequent drop in the Bitcoin price forced the exchange to liquidate the clients’ account as the required maintenance margin ratio wasn’t sufficient. The shortfall was 1,200 Bitcoin then valued at $9 million, forcing OKEx to add 2,500 of exchange funds into the insurance fund to limit the clawback.

OKEx released a statement explaining that a very large trade occurred which couldn’t be supported:

“An enormous long position in BTC0928 futures contract was force-liquidated at 20:17:14 July 31, 2018 (Hong Kong Time, UTC+8). Due to the sheer size of the order, our risk management system may be triggered to activate the societal loss risk management mechanism.”

Questions have been asked as to how the company’s risk management system allowed such a large trade in the first place, only triggering the system after the trade had been made.

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Asia is Buoyant, New Crypto Exchanges Set for Hong Kong, Korea, and Indonesia

While 160 crypto exchanges wait to enter the Japanese market, elsewhere, the market is turning more buoyant, as Hong Kong, Korea, and Indonesia are poised to become home to new exchanges. Bitone Trade HK, Huobi – Indonesia, and South Korean Probit have all announced that they are opening exchanges.

Hong Kong is particularly buoyant in the blockchain industry at the moment and is feeling the pinch in the sector with a lack of qualified professionals to fill positions. A “talent list” has been issued by The Government of the Hong Kong Special Administrative Region in which it states that it needs “quality people from around the world in a more effective and focused manner to support Hong Kong’s development as a high value-added and diversified economy”. Among the 11 professions on the new list are those with DLT skills.

The latest exchange, Bitone Trade HK will support 30 cryptocurrencies with plans to eventually list more than 100 coins. The company commented:

“Our platform is launched in Hong Kong which is Asia’s international financial center and we provide customers with stable and secure services. Mainly for the Asian market, our goal is to achieve a monthly transaction volume of US$5 billion”

Indonesia may not be one of the markets that spring to mind when the word cryptocurrency drops into a conversation, but the industry is beginning to express itself in South East Asia and forging its own way. The world’s fourth most populous nation has just launched its first formal blockchain association — Asosiasi Blockchain Indonesia (ABI), boosting hopes that the Southeast Asian country may yet embrace blockchain technology.

Huobi Indonesia built on the Huobi Cloud platform will list 123 coins on its new exchange. Currently, the platform lists three base cryptocurrencies: USDT, BTC, and ETH.

South Korea and Japan are considered the crypto powerhouses in the region and never run out of crypto news. Its latest exchange, soon to be launched Probit will list 157 currencies and plans to support eight languages on the platform. The bonus for users is the platform’s heightened levels of security, ensuring that more than 95% of digital assets are stored in a cold wallet supported by hardware keys and software double authentication. The company assures its clients that their “goal is to provide a virtual currency trading platform with the highest level of security.”

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Hong Kong on the Lookout for Blockchain Professionals

Hong Kong is ramping up its blockchain profile and, as a result, has announced that it will be needing more industry professionals to support its DLT focus in the years to come through a new employment program.

A “talent list” has been issued by The Government of the Hong Kong Special Administrative Region in which it states that it needs “quality people from around the world in a more effective and focused manner to support Hong Kong’s development as a high value-added and diversified economy”. Among the 11 professions on the new list are those with DLT skills.

This isn’t really surprising given the new focus on innovation and technology China’s Administrative Region, given a recent push that’s seen the promotion of blockchain in the public arena through generous grants to its local universities of USD 20 million for blockchain and fintech research.

Education is not the only area to benefit from this heightened interest in new financial tech in Hong Kong, as a government-led cross-bank cooperation project was announced recently, thought to be the largest of its kind globally. It will include UK banking giant HSBC and Standard Chartered PLC. Other banks involved are said to be one of Australia’s big four, ANZ, and four Asian banks, BOC Hong Kong Holdings, Hang Seng Bank, Bank of East Asia Ltd and Singapore’s DBS Holdings Ltd.

The new scheme designed to build on these recent developments. The Quality Migrant Admission Scheme (QMAS) will have an annual quota of 1,000 applicants, although it is unclear exactly what percentage of these will be connected to fintech. Applicants will have the advantage under the scheme of settling in Hong Kong without a specific job offer, enabling them to come to Hong Kong, then seek employment in their specialized sector.

The Chief Secretary for Administration and Chairman of the Human Resources Planning Commission, Matthew Cheung Kin-chung, wants to target internationally bred skills and talent. He commented:

“Hong Kong welcomes talents from all over the world with valuable skills, knowledge and experience to work here, bringing their talent into full play and further developing their careers… stimulating the development of local talents and propelling Hong Kong forward.”

The fact that DLT know-how has been listed as a required skill is a positive outcome for the industry in the region given China’s continued prohibitive stance regarding cryptocurrency-related activities.

 

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BitMEX New Offices Among Most Expensive in the World

The Bitcoin Mercantile Exchange (BitMEX), a top crypto derivatives exchange, is leasing some of the most expensive office space in the world. It is moving into the Cheung Kong Center in Hong Kong, which costs HKD 225 per square foot, or USD 29 per square foot per month. The space BitMEX has leased is on the 45th floor and is 20,000 square feet, so this comes out to USD 580,000 per month and nearly USD 6.9 million per year.

The Cheung Kong Center also has offices for Bloomberg, Barclays, Bank of America, Goldman Sachs, and La Ka-Shing who is a billionaire with a business empire. Perhaps this clustering of financial powerhouses in the same building will prove beneficial for the exchange’s operations long term.

This is perhaps a strange time for BitMEX to be buying some of the most expensive office space in the world, considering the entire crypto market is in a bear market which has seen Bitcoin decline from USD 20,000 to USD 6,000 in less than a year, and declines for other cryptocurrencies have been even more extreme. However, BitMEX trades Bitcoin and Ethereum derivatives contracts that can be used to go long or short. Additionally, it offers 100x leveraging.

This makes BitMEX and its traders in a prime position to profit from volatility. It doesn’t matter if the market is going down, as long as the market is volatile BitMEX makes tremendous profits, and the crypto markets have been defined by volatility in 2018. BitMEX has seen rapidly growing volume in 2018 despite the bear market. For example, as of this writing on 23 August 2018, BitMEX has USD 3 billion of trading volume, which is quite common. BitMEX’s volume has exceeded USD 6 billion on record days.

It also seems strange from a geopolitical standpoint that the largest fiat to crypto related exchange in the world is moving to Hong Kong. To clarify, BitMEX has the most volume by far out of any crypto exchange but they trade derivatives, not actual cryptocurrency. Although Hong Kong has an autonomous government that is more favorable towards crypto than China, it is still a territory of China. China has banned trading of its native currency, the CNY, to crypto. More recently, it has blacklisted practically every crypto exchange website.

It is not disclosed if this office in Hong Kong will be BitMEX’s headquarters. Right now BitMEX is incorporated in the Seychelles.

 

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Hong Kong Unis Scoop Grant of $20 Million for Blockchain Research

Hong Kong universities are set to receive a USD 20 million grant through government funding for research and development projects in blockchain and fintech.

In an effort to drive blockchain into administrative and financial sectors, Hong Kong is asking its universities to delve deep and come up with answers. The major beneficiaries of this round of specific funding are Hong Kong University of Science and Technology (HKUST), along with the Chinese University of Hong Kong (CUHK), and the City University of Hong Kong (CityU).

Through the project, along with research and development tasks, the universities are also required to report on Hong Kong’s current progress in becoming a fintech regional hub. Professor Tan Jiayin, known for his previous research work entitled ‘Strengthening Hong Kong’s Strategic Position as a Regional and International Business Center’, is to head up the multi-university research project.

Hong Kong’s blockchain push is an attempt to catch up with some of the more fintech proactive countries in the region such as Singapore and Japan. Updating aspects of the financial sector have recently become a focus for private companies and government bodies, who are beginning to regard blockchain technology as a way of modernizing record keeping and speeding up payments, in what is often described as an overly paper-driven industry, particularly given the technologies available today.

Work such as professor Jiayin’s which has already explored blockchain technology, network security, and artificial intelligence learning, as it relates to the current economic climate, will be a boost to the shared university partnership. Jiayin has asked Hong Kong’s banking community to participate in the research as part of the grant relates to the creation of digital currencies, although these have been looked on unfavourably by HK banks in the past, discounting the idea of a CBDC. In an announcement on 30 May, the Hong Kong Monetary Authority (HKMA) decided against the idea.

However, the HKMA announced the launch of a blockchain trade finance solution in partnership with 21 regional banks last month. Also, seven banks including Hong Kong’s banking regulator are to launch a trade finance platform this September using blockchain, including HSBC and Standard Chartered. Notably, HSBC’s Monex digital currency concept in 1998 was reportedly the professor’s brainchild.

The push towards integrating blockchain into Hong Kong’s administrative and financial sectors is not the first after a government plan was released in 2017 to produce a blockchain-based trade financing system to increase settlement efficiency and reduce fraud. This after a heightened level of concern around the cryptocurrency space due to high levels of fraud.

Research recently revealed that the percentage of financial crime involving cryptocurrencies was in fact comparatively low, when compared to other methods of, largely organized, crime in the city.

 

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