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Victor Dawes

Much has been written about cryptocurrencies in the past few weeks as a result of the Genius Act and the market trend.
Share prices of listed companies in related businesses have appreciated very significantly in both the US and Hong Kong. The trend appears unstoppable.
US Treasury Secretary Scott Bessent expects the stablecoin market alone to grow tenfold over the next few years from US$200 billion to US$2 trillion.
While cryptocurrencies present new opportunities for investors, it is generally recognised that they also present increased risks.
Cryptocurrencies have attracted scrutiny due to the association of virtual assets with fraud, security breaches and market manipulation. Bitcoin has been nearly four times as volatile as major indices since 2020.
The virtual asset market in Hong Kong is expected to continue to develop, and having proper regulation is important.
Since 2018, the Securities and Futures Commission (SFC) has developed a comprehensive and evolving regulatory regime for virtual assets with a strong focus on investor protection, market integrity and risk management.
Earlier this year, the SFC integrated its core regulatory principles into a structured road map with five key pillars – Access, Safeguards, Products, Infrastructure and Relationships (A-S-P-I-Re).
On the other hand, disputes regarding cryptocurrencies have already crept into our courts and arbitration. Litigation offers the possibility of remedies after things go wrong for investors.
The judgment of Madam Justice Linda Chan in “Re Gatecoin Limited” in 2023 offered clarity on the approach of our courts in confirming that cryptocurrency amounted to “property” in the legal sense.
This is significant not only because the usual rights and remedies which Hong Kong law attaches to property will apply, but also because cryptocurrencies can now be subject to the usual preservation orders including proprietary and Mareva injunctions.
Moreover, in the insolvency context, cryptocurrencies are also capable of being held for distribution to creditors.
As an international arbitration centre, there is also a growing number of arbitrations involving crypto disputes administered by the Hong Kong International Arbitration Centre.
The subject matters involved are wide-ranging, including, for example, contractual disputes with crypto platforms, disputes over ownership and intellectual property rights of non-fungible tokens (NFTs), and technical disputes over decentralised finance (DeFi) protocols and smart contracts.

On the legislative front, the Stablecoins Bill is set to take effect on Friday. The bill requires stablecoin issuers in the city to obtain a licence from the Hong Kong Monetary Authority and also confers on the authority the power to revoke and suspend licences.
The bill also draws a distinction between retail investors and professional investors: whereas stablecoins can only be offered to retail investors by licensed offerors, those issued by non-licensed offerors may only be offered to professional investors.
The rationale of the distinction is to provide protection and decrease risk for retail investors. In addition, duties are imposed on licensees, including the duty to display the licence number and to report changes in circumstances.
Failure to comply with the new legislative framework will result in criminal sanctions.
The legislative overhaul represents a significant step in the right direction.
On the one hand, it sought to balance the management of systemic risks to the integrity of the financial system by imposing eligibility requirements for obtaining a licence and regulating the scope of activities by licensees.
On the other hand, it also strengthens the position of Hong Kong as a global digital asset hub by offering a sound regulatory environment.
The legislative overhaul puts forward a balanced regulatory approach that supports growth, mitigates vulnerabilities and solidifies Hong Kong’s position as a hub for virtual asset liquidity.
Victor Dawes SC is the former chairman of the Hong Kong Bar Association and a commercial litigator.
Legal Tales is a new weekly column by senior members of the Hong Kong Bar Association presenting their perspectives on current affairs.


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New framework strengthens Hong Kong’s position as a global digital asset hub by offering a sound regulatory environment


New framework strengthens Hong Kong’s position as a global digital asset hub by offering a sound regulatory environment.


Cryptocurrency

Bitcoin

Financial regulation

Regulation

Banking & finance

Hong Kong Monetary Authority (HKMA)

Hong Kong economy

Fintech

Hong Kong Basic Law

Technology

Stablecoins

United States

China

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

.css-1m2rp1p{color:#34b8b5;}Legal Tales | The crypto frenzy and the legal response in Hong Kong

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}New framework strengthens Hong Kong’s position as a global digital asset hub by offering a sound regulatory environment

Legal Tales | The crypto frenzy and the legal response in Hong Kong

New framework strengthens Hong Kong’s position as a global digital asset hub by offering a sound regulatory environment