Bybit joins quest for VATP license in Hong Kong

In an effort to fortify the cryptocurrency market and safeguard investors' funds, the Hong Kong Securities and Futures Commission (SFC) has introduced a minimum insurance requirement of 50% for licensed cryptocurrency exchanges handling customers' assets.Photo by Simon Zhu on UnsplashGuarding against insolvency riskThe move came to light through a statement published recently by OSL, one of Hong Kong’s licensed virtual asset trading platforms. It’s aimed at enhancing security measures, protecting users from potential security breaches or insolvency. As part of that disclosure, OSL announced a two-year partnership with Canopius, an underwriter syndicate associated with Lloyd's of London. Under this collaboration, OSL will provide insurance coverage for an impressive 95% of its users' assets, surpassing the mandated 50%. OSL emphasized its commitment to safeguarding regulated assets under custody, irrespective of the regulatory guidelines permitting virtual asset service providers (VASPs) to reduce insurance coverage to 50%. Response to recent failuresThis decision is grounded in the acknowledgment of the volatile market conditions and the series of cryptocurrency firm collapses witnessed in recent years. 2022 saw a number of high-profile crypto platform collapses, such as the demise of FTX. HashKey Exchange, another licensed crypto exchange in Hong Kong, has also proactively secured its users' assets by entering into a crypto insurance agreement with Hong Kong headquartered fintech firm OneDegree back in September. The insurer entered the digital assets space last July, expanding into the Middle East last month. OneDegree’s arrangement with HashKey offers coverage ranging from $50 million to $400 million, extending beyond standard security breaches and insolvency to include server downtime, data back-up and load management incidents, ensuring comprehensive protection. Broader regulatory effortsThe minimum insurance requirement is part of the SFC's larger strategy to regulate the cryptocurrency industry in Hong Kong. While the Chinese autonomous territory enabled cryptocurrency trading for retail investors in August, only OSL and HashKey have obtained virtual asset trading licenses. Thirteen other entities are currently in the application process, undergoing rigorous due diligence checks, including comprehensive financial audits exceeding the scope beyond proof-of-reserve systems. This insurance mandate represents a significant step toward enhancing investor confidence in the cryptocurrency market. As digital assets gain popularity, ensuring the security of customers' funds has become paramount. The SFC's proactive approach seeks to strike a balance between fostering innovation and safeguarding investors. Products are also emerging that crypto users themselves can access. UK-based CryptoShield offers insurance protection directly to users that covers potential loss of funds on crypto platforms. The cryptocurrency landscape in Hong Kong is evolving rapidly, with the SFC playing a pivotal role in shaping the regulatory environment. Regulators aim to establish a robust framework addressing potential risks and protecting market participants while embracing digital innovation. As the regulatory landscape matures, more licensed crypto exchanges in Hong Kong may be required to meet the 50% minimum insurance requirement, further strengthening security measures and making the market a safer place for investors.  

Korean Supreme Court acquits Dunamu Chairman Song Chi-hyungThe Supreme Court of South Korea, in a significant ruling on Thursday (local time), acquitted Song Chi-hyung, chairman and principal stakeholder of Dunamu, of fraud and forgery charges, according to a report by local news agency Yonhap. This ruling is particularly noteworthy because Dunamu is the operator of the nation’s largest cryptocurrency exchange, Upbit.This decision, led by Justice Oh Kyung-mi, marks the culmination of a legal battle that began with Song’s indictment in Dec. 2018, and it extends to the acquittal of the company’s Chief Financial Officer (CFO) and the head of the Data Value Team, who were jointly indicted.Photo by Tingey Injury Law Firm on UnsplashBackground of the caseSong Chi-hyung and his colleagues were alleged to have fabricated an account on Upbit between September and November 2017. They had been accused of feigning the deposit of assets valued at KRW 122.1 billion and then employing these fictitious funds to enable transactions among actual members.The prosecution also leveled fraud charges against them, claiming that the fabricated account was utilized to sell 11,550 bitcoins to 26,000 members, thereby generating KRW 149.1 billion.The Seoul Southern District Court, acting as the court of first instance, found them not guilty. The court reasoned that the evidence presented by the prosecution was insufficient to establish that the defendants actually deposited the assets in the account.Issues with the prosecution’s evidence gatheringThe Seoul High Court, serving as the appellate court, identified problems with the evidence provided by the prosecution, determining that part of it lacked credibility due to improper collection methods. Notably, the court observed that the prosecution had directed Dunamu employees to access their Amazon cloud server to download the account’s transaction history. However, since this remote server was not included in the search and seizure warrant, the court highlighted the illegitimacy of the evidence.The appellate court also pointed out another issue with the evidence: documents stored on the CFO’s USB drive. The prosecution did not follow the legitimate search process, which requires them to extract only data related to the allegations. Moreover, the prosecutors did not present a warrant when confiscating the laptop of the Data Value Team’s lead, further undermining the credibility of their evidence.The court further stated that even if the remaining evidence provided by the prosecution was considered viable, it was still insufficient to substantiate the prosecution’s accusations.The prosecution, disagreeing with the decision of the appeals court, had escalated the case to the Supreme Court. However, the highest court in the nation sided with the ruling of the appeals court, effectively upholding the decision made at the appellate level.

Japan’s Financial Services Agency (FSA) is advancing proposals to authorize exchange-traded funds (ETFs) backed by specific cryptocurrencies, a move that fleshes out previously reported plans to apply a flat 20% separate tax to crypto gains. According to agency materials released on Dec. 26 and reported by CoinPost, the regulator has now clarified that crypto-linked ETFs and derivatives will be integrated into this new tax framework.Photo by Jakub Żerdzicki on UnsplashThe materials, part of the tax reform framework for the fiscal year 2026, indicate that the regulator intends to align the tax treatment of crypto-linked ETFs with that of stocks and foreign exchange trading. Under the current system, cryptocurrency gains in Japan are classified as miscellaneous income, subjecting investors to progressive tax rates that can reach approximately 55% when local levies are included. The proposed reforms aim to integrate crypto assets into the Financial Instruments and Exchange Act (FIEA), a legislative package slated for debate during the 2026 Diet session. Derivatives also subject to separate taxBeyond ETFs, the regulator plans to adjust the taxation of derivative products based on certain crypto assets. While these derivatives would remain classified as miscellaneous income—similar to conventional futures—the method of taxation would shift from comprehensive taxation to a separate self-assessment model. Despite the outlined tax reductions, market observers anticipate that full implementation may be delayed until 2028 due to the time required to amend the relevant laws and government ordinances. FSA restructures to better oversee cryptoIn parallel with regulatory updates, the FSA is restructuring its internal operations to better address digital finance. Nikkei reported that the agency has decided to elevate its Crypto-Assets and Blockchain Innovation Office to the status of a division beginning in the administrative fiscal year starting July 2026. This restructuring follows an August proposal in which the FSA cited the need to bolster its capacity to handle financial services transformed by financial technology, crypto trading, and generative artificial intelligence (AI). The agency noted that it faces accumulating challenges, including fraud prevention and the government's broader goal of positioning Japan as a leading asset management nation. Additionally, the establishment of a new Asset Management and Insurance Supervision Bureau is expected as part of the reorganization. The regulatory shifts coincide with broader efforts to integrate blockchain technology into Japan's financial infrastructure. A separate Nikkei report last week stated that policymakers have agreed to prepare for the issuance of local government bonds as blockchain-based security tokens. The government plans to submit the necessary legislation during the next ordinary Diet session, aiming to streamline settlement processes and enable real-time monitoring of investor data. Corporate crypto strategies persist despite concernsIn the private sector, Tokyo Stock Exchange-listed Metaplanet is proceeding with a corporate strategy focused on Bitcoin accumulation. Dylan LeClair, the company's Director of Bitcoin Strategy, said on X that shareholders at an extraordinary meeting approved proposals to raise capital for additional Bitcoin purchases, including the issuance of Class B preferred shares to overseas institutional investors. Earlier this year, Metaplanet shareholders authorized a long-term plan to acquire more than 210,000 Bitcoin by 2027, representing roughly 1% of the total supply. However, analysts warn that corporate models based primarily on asset accumulation face structural risks. According to Cointelegraph, industry figures such as MoreMarkets CEO Altan Tutar and Solv Protocol co-founder Ryan Chow have cautioned that companies relying solely on digital asset holdings may struggle to maintain valuations without developing operational businesses that generate consistent returns.