Exchange sites in China and Hong Kong are about to be under regulatory pressure with government officials planning to implement stricter crypto laws.
Investors in Hong Kong recently pulled out a lot of assets from Singapore-based exchange site Huobi. The exchange site with an office in Hong Kong reported massive Bitcoin and Tether withdrawals on November 2, prompting a 3% decline in Bitcoin’s price. This is rumoured to be caused by the stronger regulatory pressure exchange sites are about to face in the near future.
A few days after, business news source Reuters reported that Hong Kong regulators are planning to propose all exchange sites need to be regulated. This change will require them to apply for a license at the Securities and Futures Commission before they can operate.
This poses a stricter limitation for exchange sites since under the current laws, any platform can operate without being regulated as long as the crypto assets traded in their sites are not within the legal definition of a security. Now, whether they are determined to be a security asset or not, all crypto exchanges will have to apply for a license.
This limits their movement and will ultimately slow down operations. Just recently in October, Chinese authorities questioned Mingxing ‘Stars’ Xu, the founder of exchange site OKEx, as reported by the Chinese news agency Caixin. As a result, OKEx suspended withdrawals. The nature of the investigation is still undisclosed but some crypto enthusiasts are viewing it as the start of the government’s stricter approach to crypto.
In relation to the launch of China’s Digital Currency Electronic Payment system
Coincidentally, this huge change comes right after the pilot launch of China’s Digital Currency Electronic Payment system. The People’s Republic Bank of China started distributing their ‘red envelopes’ with digital yuan to selected people as part of their pilot run in October. Since then, China’s central bank has reportedly processed more than four million transactions totalling to over 2 billion yuan or 299 million US dollars.
But a partner from Spartan Group, an Asia-based cryptocurrency investment firm said this was no coincidence. ‘The PRC government is sending a strong message about its stance on cryptocurrencies other than the DCEP,’ said Kelvin Koh.
China has been working on its digital yuan program since 2014 to protect its central bank from unregulated cryptocurrencies. Due to the growing need for digital and contactless payment solutions during the coronavirus pandemic, there is no better time to begin its launch.
Since the beginning of the coronavirus pandemic, demand for digital and contactless payment solutions has grown over time, said Yi Gang, the governor of the People’s Bank of China. They have responded to the people’s need with the launch of digital yuan.