Hong Kong protests and Digital Currency
As protests surge, so does the demand for crypto currency. As protest broke out aroundSince mid-June, bitcoin traded at about a USD 160 premium on TideBit, a Hong Kong-based exchange. As protests have worn on, that premium persists, with the latest price of Bitcoin on TideBit at USD 11477.34, about USD 80 higher than the current rate on Coinmarketcap. Crypto currencies were built to address several of the most pressing points in the Hong Kong protests, which are at the forefront of what it means to protest against a state equipped with all of the sophisticated technologies of the 1st century and the unrestrained ability to weaponries those capabilities against its citizenry.
Protests result in elevated deposit rates as some clients may opt to open accounts elsewhere as a precaution.
Protests in Hong Kong also resulted in the mistrust of government. Together with its great flexibility, Digital Currency is also now on a rising trend for most Hong Kong citizens.
Understanding Digital Currency
Digital currencies have all intrinsic properties like physical currency, and they allow for instantaneous transactions that are low-cost.
Digital currency can exist in unregulated form. When a central bank of a country issues digital currency in a controlled manner, it is called the “Central Bank Digital Currency (CBDC).
Strengths of Digital Currency
- Because of its centralized structure, transaction mistakes can be reversed upon a request made to the company.
- They are instantaneous and low-cost.
- They are not restricted to physical locations like banks or clearing houses.
- Without having to physically meet, businesses can still carry out transactions.
- Using certain digital currency for business transactions, there are no bank requirements or prerequisites needed to be met.(e.g. Bitcoin and other cryptocurrencies)
Weaknesses of Digital Currency
They require a client’s confidential information during a transaction; thus, there is no anonymity.
The data could fall into the wrong hands, be hacked, or be sent to law enforcement agencies (upon request).
Regulations associated with digital currency in Hong Kong
Crypto currencies and blockchain technology (Distributed Ledger Technology) have created a new economy which opened a market of new opportunities. The first of such is the Bitcoin, followed by Ethereum, all of which have resulted in the growth of the economy as private, and public enterprises have formed in Hong Kong to take advantage of the opportunities created by these technologies and Hong Kong’s unique position in business technology and law.
The Basic Law of Hong Kong enshrines various free-market principles safeguarding its position as an international financial center. However, enforcement actions are being taken under the existing legislation and new regulatory regimes being introduced to protect investors’ interest.
HKMA stated in 2015 that Bitcoin and other similar currencies were not legal tenders but “virtual commodities,” and because Bitcoin has no backing-in physical form or by the issuers-it cannot be qualified as a means of payment or electronic money. However, the SFC (Securities and Futures Commission) statements later gave a glimpse that the government may take an improved stand on this issue in the future.
The offering of the security tokens is (is to be) conducted in compliance with the SFO and in a similar manner as the offering of traditional securities products, including but not limited to the requirement of dealing through intermediaries that are licensed with the SFC and the requirement of publishing an offering memorandum.
The applicable legislation and regulations on the trading of crypto currencies will depend on each crypto currency’s actual features. Where a firm only manages a “portfolio,” which invests solely in Non-SF Virtual Assets, it is not required to be licensed or registered for Type9 regulated activities, but where a firm manages a fund of funds, the firm is required to be registered for Type9 license.
There are no capital gains tax payable from the sale of financial instruments in Hong Kong. Thus, any Hong Kong-sourced income from frequent crypto currency trading in the ordinary course of business may be treated as income in the case of individual clients. And profits in case of a corporation, and subject to income tax and profits tax respective regardless of whether the trading is made in exclusive crypto currency or fiat –to crypto currency exchanges.
As of now, no specific regulations are governing the mining of crypto currencies. And there are no requirements to report crypto currency transactions of any amount.
As the HKMA has classified Bitcoin as a virtual commodity, it does not fall within the definition of CBNI (Currency or bearing Negotiable Instruments), border restrictions, and declarations to disclose and declare such movement to CED does not apply to it.
If you are interested in crypto currency and require assistance in the regulation surrounding it, write in to our consultants in Paul Hype Page, and we will be happy to help you in any way we can.