Virtual assets what the future holds

Regulation dilemma

"Virtual assets are not legal tender and are not generally accepted as a means of payment in Hong Kong," a spokesman for Financial Services and the Treasury Bureau said, adding that the bureau had repeatedly warned the public of the risks of trading in virtual assets. Hong Kong has been enforcing a robust anti-money laundering and counter-terrorist financing regime, he said.

Wang Shibin, co-founder of Hong Kong Digital Asset Ex Ltd, a digital asset exchange based in the city, said, "Hong Kong's regulations governing digital currencies have become more systematic and foremost in the world.

"Our financial services regulator wants to find the essence of the blockchain-related concept among existing laws. They are not finding new ways, but just putting everything into the existing laws and framework to try to resolve the blockchain issues under the current legal framework," Wang told China Daily.

He warned that traditional financial institutions and professional investors eyeing the market may suffer because of the complex guidelines. "If trading in virtual assets is seen as a form of security, they must be regulated by the SFC and abide by many guidelines on how to trade and what services a platform can provide," Wang said.

"It's still a good thing," he added, saying that Hong Kong's guiding role in trading virtual assets is self-evident although supervision has yet to be strengthened. "Through its policies, Hong Kong has become the world's most mature and regulated virtual assets trading market," he said.

"But it's still inadequate. I think to create a concise and operable system in the early stages of the market's development, we will have to clear up some rumors because people always think that virtual assets are an evil thing. Setting clearer guidelines will help dispel misunderstandings."

Wang said that with more comprehensive rules, trading in digital assets, backed by blockchain technology, will be an inevitable trend. "In the long term, there will be more channels for trading in financial products, such as Grayscale Bitcoin Trust and PayPal, which will definitely lower the entry barriers for investors," he said.

Tong agreed that digital assets will have good prospects in Hong Kong in the next five years despite its technical and environmental shortcomings. "The technical issue shouldn't be a very important issue," he said, referring to the notably slow verification period for cryptocurrencies, such as Bitcoin.

"People are working on this. It's not a big problem as the theory is developing much faster," Tong said, adding that making payments can be easier and faster by using cryptocurrencies. "Moving into the digital era, trading in cryptocurrencies is inevitable," he said, adding it could help Hong Kong develop from a global financial center into a digital financial hub.

Hong Kong could also benefit from the spillover effect after regulators on the mainland clamped down on cryptocurrencies. "The mainland is very strong in regulating trading in digital currencies for good reasons," Tong said. "Because of this, Hong Kong could actually develop its crypto space as a bridge or sandbox to try out new development ideas and initiatives."