:max_bytes(150000):strip_icc()/GettyImages-1338478806-5117c535082d4221b24c70c50638958a.jpg "One country, two cryptosystems. Hong Kong has ambitions as a crypto hub despite pressure from China")
- The crypto industry has had a rough year, with digital currency markets collapsing and businesses around the world collapsing. Despite the confusion, Hong Kong is striving to become a virtual center of wealth.
- This is in stark contrast to China's ban on cryptocurrency transactions, but analysts who spoke to CNBC expect mainland Hong Kong to benefit from the cryptocurrency ledger.
© Provided by CNBC Bitcoin logo on smartphone with Hong Kong flag in backgroundThe crypto industry has had a rough year, with digital currency markets collapsing and businesses around the world collapsing.
Despite the turmoil, Hong Kong is striving to become a virtual center of wealth.
The city's surge in digital assets is in stark contrast to mainland China, where Beijing has banned trading and cracked down on crypto-related activity.
Hong Kong will introduce new rules in June that will require cryptocurrency trading platforms to obtain approval from the Securities and Futures Commission. The regulator has already launched a consultation on proposals to regulate virtual asset trading platforms.
Compass for China.
Companies that spoke to CNBC said they expect the central government to be able to monitor crypto movements in Hong Kong.
"If anything, China may be paying attention to the impact on Hong Kong of complying with these regulations, launching new crypto-related products or blockchain-based solutions, and restarting business," said Justin D'Anethan, the company's director of sales. In the amber group.
Dan Chao, CEO of Hashkey Capital, echoed similar sentiments and said the potential legalization of crypto in Hong Kong could serve as a compass for China.
"In the future, this could serve as a model for policymaking in other regions [in China] if successful," he told CNBC in an email, adding that Web3 and crypto companies may eventually adopt a more relevant approach. for their daily activities.
Web3 refers to the next generation of the Internet. Supporters say it would further centralize and reduce the power of big tech companies. Some developers say cryptocurrency will be an essential part of Web3.
In December, Huang Yiping, a former member of China's central bank's monetary policy committee, called on Beijing to reconsider its blanket ban on cryptocurrencies.
Huang noted that opportunities for the development of digital technologies may be lost if crypto transactions are closed for a long time.
However, there are cautions about whether Hong Kong could eventually become China's northern crypto star.
" While there is talk that China may soften its stance on crypto, so far we don't see anything to indicate that," D'Anethan said.
Also, it won't be easy for retail investors looking to jump on the crypto bandwagon in Hong Kong.
© CNBC Bitcoin ATMs operated by Coinhero in Hong Kong, China on Wednesday, December 21, 2022."Hong Kong will introduce stricter rules for crypto-trading platforms," said Yuya Hasegawa, market analyst at Japanese crypto exchange Bitbank.
"This means it will not be easy for newcomers to join us and set up a business," he said, adding that he was unsure whether the government's plan to allow retail businesses to trade virtual assets would necessarily generate much growth. Art and as a core.
Although Hong Kong has crypto ambitions and a relatively low corporate tax policy, the city can still face competition from other crypto hubs.
"Regulation is certainly necessary for healthy growth, but to compete with crypto sites, crypto projects must also have attractive tax policies," Hasegawa said.
He noted that Hong Kong has a relatively low corporate tax policy. the corporate tax rate on the first HK$2 million ($254,930) of taxable profit is 8.25%, and any profit above that amount is 16.5%.
But compared to other crypto hubs like Dubai, which charges a flat rate of 9%, and Switzerland, which has a corporate rate of -8.5%, "it's still not competitive," he noted.
Countries support the global positioning of cryptos
Other players that previously sought to become digital asset hubs have recently introduced legislation to regulate the industry. Observers say regulation is needed to create certainty for the crypto industry and increase consumer adoption.
Last month, the UK government laid out a roadmap to regulate the cryptocurrency industry in line with traditional financial institutions.
Last year, the European Union published the Crypto-Asset Markets Act, which requires stablecoins to hold sufficient reserves to meet reserve requirements in the event of large withdrawals.
Other jurisdictions, such as Dubai in the United Arab Emirates, are seeking to establish themselves as crypto-friendly business locations.
However, some countries, notably the United States, have taken a hard line against the cryptocurrency industry, especially after the collapse of a major cryptocurrency exchange and the arrest of its founder, Sam Bankman-Fried.
Paralyzed crypto-climate
The recent collapse of crypto banks, including Silvergate Capital, Signature Bank and major lender Silicon Valley Bank, is part of a long line of problems the industry has faced over the past decade.
All three were major lenders to crypto companies, further highlighting the stablecoin's volatility.
On March 10, Bitcoin fell below $20,000 for the first time since January.
However, the recent drop in bitcoin prices has not dampened corporate hopes that crypto adoption will grow.
"For long-term investors, regulators should highlight the green light that crypto is gaining popularity because of the temporary price fluctuations or volatility of this new asset class," said Amber Group's D'Anethan.
The crypto market has been on the rise lately, even as Bitcoin fell below $20,000 by the end of 2022. Bitcoin was trading at $27,834 as of 9:30 p.m. Sunday, according to Coinbase. Up to $68,990 in November 2021 still 60% off.
“Although virtual assets are relatively new, retail investors already have some knowledge and experience of the market after this year's research. As the weather improves, interest is likely to increase,” Deng told Hash.
— CNBC's Arjun Kharpal contributed to this report.