Category Archives: Hong Kong

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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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Unresolved Crypto Legal Cases Mount in China Due to Unclear Regulations

Courts in China are struggling to clear cases relating to cryptocurrency due to a lack of clear regulation despite the current ban.

Reportedly, many of the cases which relate to crypto, which now stand at 270 at the last count, have arisen due to Bitcoin’s falling price. Coupled with contrasting interpretations of the law at the local level, this has caused a backlog in the courts.

Cryptocurrencies are officially banned in China since mainland residents were restricted from trading in cryptocurrencies on exchanges late last year and ICOs were outlawed. Nonetheless, crypto related disputes are increasing in both frequency and volume. However, it appears this state law is applied at the local level often without an official government mandate.

The current problem has arisen because courts often can’t ascertain exactly how illegal many of the activities that come before them are, due to a lack of regulatory clarity. Reports indicate that many local areas had no official statement from the State regarding the ban and how to implement it.

In the first week of August, out of the 274 pending crypto cases, 126 related to criminal activity relating to property and economic crime and another 107 related to breach of contract, with two administrative issues.

Such cases as this one relating to crypto exchange Coinice are quite typical. The exchange sent a client BTC 5 in error during a system upgrade. The client quickly sold this, refusing to return the funds when the error had been spotted. His argument was that as Bitcoin trading was an illegal activity in China, the exchange had in fact committed the illegal offense.

The result, having been ruled as a civil case by a Beijing court, maintained that the client had initially agreed to Coinice’s service conditions and thereby was instructed to return the funds. The client appealed, taking the case to an appeals court, the Second Intermediate People’s Court of Beijing, which upheld the lower court decision. It maintained that the illegality of the exchange’s operations didn’t affect the requirement of the defendant to return the funds.

Many Chinese companies have moved their operations to Hong Kong, Singapore, South Korea, Japan, the United States and the EU in order to escape the ban and continue trading.

 

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China Aerospace Industry Turns to Blockchain for Invoicing Issues

The Chinese State Aerospace Industry is looking to utilizing blockchain technology to update some of its electronic invoicing.

According to a government announcement posted by State Administration of Science, Technology and Industry for National Defence, China Aerospace Science and Industry Corporation Ltd will be fulfilling state plans for using blockchain for invoicing for tax purposes.

The government website article reportedly suggested that 1.31 billion electronic invoices were circulating its system in 2017 and forecast that this would rise to 54.55 billion by 2020. The article claims that the government has issued some 2.5 billion such invoices to date which cover such services as delivery, filing, inspection and tax reimbursement.

With a system which appears to be severely overburdened, it appears to be also suffering from other issues such as over-reporting along with false reports and traceability problems. China Aerospace’s blockchain system for electronic invoices is designed to overcome some of these administrative hurdles and what it has called “pain points” and streamline tax data sharing making it more efficient and cost-effective.

In May, the State Administration of Taxation in China’s fourth-largest city Shenzhen teamed up with tech giant Tencent to deal with a similar issue relating to tax loopholes and accountability. That blockchain system targets efficient circulation and issuance of tax invoices and protects the authenticity of legal documents.

In other news from China, Ripple has suggested that it is targeting the country with a DLT solution to speed up cross-border payments. Jeremy Light, vice president of European Union strategic accounts at Ripple confirmed:

“China is definitely of interest, it is definitely a target… China is definitely a country and region of interest.”

Ripple’s interest in the region is no secret after it struck a deal earlier this year with Hong Kong-based financial services firm LianLian International targeting cross-border transactions.

 

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First Crypto Company Listed on the London Stock Exchange is Now Active

Crypto mining firm, UK-based Argo Mining — first cryptocurrency company to be listed on the London Stock Exchange (LSE) is now active.

Argo, which provides “accessible” crypto mining via a subscription service has raised £25 million (about $32.5 million) through an Initial Public Offering (IPO) on the LSE, exceeding its fundraising target by £5 million (about $6.5 million).

Company documents have stated that the newcomer began its life on the LSE with roughly 156 million shares priced at 16p, bringing Argo’s evaluation to £47 million pounds (about $61.2 million). Its website offers three packages covering three levels of mining power provisions, which has all been sold out. The company supports BTG, ETH, ZEC, and ETC.

London-headquartered firm Argo works on a subscription-based model, with its cryptocurrency mining operations based in Quebec, Canada, active since last year. This has become a popular location for mining farms due to optimal climate and energy cost conditions. Argo has plans to expand operations to Iceland and China, both of which benefit from cheap electricity costs and a cold climate.

Executive Chairman Jonathan Bixby stated that:

“Argo’s admission to the London main market is a major step in the company’s development and will put us in a strong position to execute our long-term growth strategy” adding, “We are delighted with the strong response from investors which will enable us to grow our business in multiple jurisdictions.”

Bixby suggests that he would like to see the company become the “the Amazon Web Services of crypto.” Argo had released its crypto mining subscription service in June after gaining the necessary approval to list on the stock exchange in May.

The Chairman referred to the fact that industrial-scale elites have 90% of the crypto mining sector covered due to its technical requirements, adding “It is incredibly expensive to buy, up front, the hardware you need at $5,000 a machine.”

Bitcoin News reported yesterday that Canaan Creative applied for an IPO earlier this year in Hong Kong with the hope of raining in a significant starter fund. At present, Canaan needs to keep one eye on its competitor Bitmain which at present has a huge 70% of the global Bitcoin mining device market.

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