Could ignoring cryptocurrency entirely be the best way to regulate it?
Around the world, governments have been eager to either support or reject cryptocurrencies -- with the exception of Hong Kong. Hong Kong has done nothing. Yet the city’s inactivity has not harmed its status as an attractive place to raise funds and trade crypto.
Bitcoin first blipped onto the radar of Hong Kong regulators on December 1, 2013, when the Bitcoin price had shot up five-fold to over US$1,000 in the span of a month. Then Financial Secretary John Tsang wrote a blog post explaining its basic functionality and encouraging young people to code more. Two weeks later in the Legislative Council, the city’s de facto parliament, Bitcoin was defined as a virtual commodity, and the government appears to be happy enough with that definition that it has done virtually nothing since.
To date, there have been no attempts to redefine Bitcoin as money or impose restrictions on its trade in Hong Kong. While know your customer (KYC) and anti-money laundering requirements also apply to commodities trading, the Hong Kong police have not gone after any single Bitcoin trader as part of an anti-money laundering investigation.
In its Money Laundering and Terrorist Financing Risk Assessment Report, released April 2018, the Hong Kong Financial Services and Treasury Department identifies the threat from Bitcoin (conspicuously now called a virtual currency, rather than a virtual commodity) as "low." The Hong Kong Police Force notes that they see “no apparent sign of organized crime or ML/TF concerning trading of cryptocurrencies” outside of pretexts for Ponzi schemes.
No license is needed to operate a cryptocurrency exchange, act as a broker, or administer a Bitcoin ATM in Hong Kong. About 30 such machines are currently running in roughly 20 locations. The number of exchanges is more difficult to measure, as different kinds of exchanges have different relationships with the jurisdiction.
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