China’s New Financial Report  Signals Crypto Policy Shifts Inspired by Hong Kong’s Success

As the calendar turns to the final day of 2024, the People’s Bank of China (PBoC) unveiled its China’s Financial Stability Report- 2024, revealing critical insights into the shifting landscape of cryptocurrency regulation spurred by Hong Kong’s pioneering successes. 

Global Crypto Regulation Trends

The ongoing global efforts to enhance oversight of the cryptocurrency sector have gained momentum, particularly after the market’s volatility experienced in 2022.

Following a recovery, the total market capitalization of crypto assets rose to $1.55 trillion in 2023, reflecting a 10.71% increase compared to the previous year. However, regulators are cautious, highlighting the need for vigilance due to inherent systemic risks associated with cryptocurrencies.

Currently, over 51 countries and regions have imposed bans on cryptocurrency assets. In contrast, major economies such as the United States, European Union, United Kingdom, Singapore, and Japan have introduced various regulatory measures to supervise different market segments.

Notably, the U.S. Securities and Exchange Commission (SEC) has taken an active stance, rejecting more than 20 spot Bitcoin ETF applications from 2018 to 2023, ultimately approving one in early 2024. Simultaneously, the European Union is preparing to launch the Crypto-Asset Market Regulation Act (MiCA) by the end of 2024.

Hong Kong’s Pattern Could Trigger China’s Stance

The report highlights Hong Kong’s significant role as a pioneer in cryptocurrency regulation. The city has established a dual licensing system for virtual asset operators, distinguishing between securitized and non-securitized digital assets.

In this framework, “security tokens” are governed by the Securities and Futures Ordinance, while “non-security tokens” are managed under the Anti-Money Laundering Ordinance. To operate legally, firms involved in virtual asset activities must acquire the relevant licenses.

Additionally, Hong Kong mandates that major financial institutions, including HSBC and Standard Chartered Bank, oversee crypto exchanges to ensure adherence to regulatory standards.

Macroprudential Concerns and Global Cooperation

Concerns about the complexities surrounding crypto assets and their implications for financial stability have been raised. While cryptocurrencies show limited correlation with major financial institutions, their increasing use for payments and investments could pose risks.

Organizations like the Financial Stability Board (FSB) and the International Monetary Fund (IMF) advocate for global cooperation to address these challenges.

The FSB has proposed an international regulatory framework promoting a unified approach to crypto asset regulation, emphasizing the principle of “same business, same risk, same regulation.”