With all the recent hype and drama on cryptocurrencies, we have yet another brewing event. On 21 May 2021, Hong Kong government published proposals to restrict cryptocurrency trading. The new law – if passed, mandate cryptocurrency exchanges to only service professional investors. This further exacerbate the drop in cryptocurrency prices as I have shared here.
Definition of professional investors in Hong Kong
Accordingly to Hong Kong law, an individual must have a portfolio of HK$8 million to qualify as a professional investor. This means you need to have upwards of US$1mil to invest. The proposal is effectively writing off majority of the retail investors and preventing them from using cryptocurrency exchanges.
What drives Hong Kong to restrict cryptocurrency trading
The proposal comes as Hong Kong tries to rein in cryptocurrencies to protect citizens from cryptocurrency speculation. Stopping money laundering is another key reason. This is an issue that is not unique to Hong Kong. Governments and financial regulators around the world have been trying to grabble with how to regulate the cryptocurrency industry. Hong Kong has simply taken a step forward.
Cryptocurrency exchanges in Hong Kong
Major cryptocurrency exchanges are currently operating in Hong Kong. One of which is Kucoin, where daily trading volume exceeds $1 billion. Another popular exchange is Bitfinex, a Hong Kong-based cryptocurrency exchange. Like Kucoin, daily trading volume at Bitfinex exceeds $1 billion. XT.com is yet another major exchange based in Hong Kong.
What this means for non-professional investors
Hong Kong government will likely pass the latest proposal into law, as early as end of 2021. Once passed into law, retail investors may not be able to sign up for new services with cryptocurrency exchanges. It is uncertain how this applies to retail investors who already have accounts and on-going trades/holdings with the exchanges. It remains to be seen if this uncertainty will lead to a rush to cash out from affected exchanges, or transfer the cryptocurrency holdings into another exchange based out of Hong Kong.
Considerations from the Hong Kong cryptocurrency proposal
Diversifying not just across cryptocurrencies, but also across cryptocurrency exchanges.
While you may not put all your investment into one sole cryptocurrency, it may also be worthwhile considering to spread your cryptocurrency holdings across several exchanges. Ideally, these exchanges are based in different countries as well.
Exchanges headquartered out of Hong Kong includes Coinbase, Kraken and Gemini (both based in the US), Bitstamp (Luxembourg), Binance (Cayman Islands or China). We have seen how the collapse of Mt Gox in 2014 led to losses for “retail” and “professional” investors alike. In the event when news of a new regulation or simply a network issue shuts down one major exchange (even if it’s temporarily), you do not end up losing access to all your cryptocurrency holdings.
Learn how to transfer between wallets
It may be good idea to learn how to transfer your holdings across different exchanges. You will have a faster response time to move your holdings to a “safer haven”. PLEASE BE VERY CAREFUL WHEN DOING THIS AND SEEK PROFESSIONAL HELP IF YOU ARE UNSURE HOW THIS CAN BE DONE. YOU MAY END UP LOSING ALL YOUR HOLDINGS IF THIS IS DONE WRONGLY.