Regulatory clarity spurs traditional brokerages’ interest in Hong Kong

China's highest judicial authorities, the Supreme People's Court and the Supreme People's Procuratorate, have released a judicial interpretation that includes the use of virtual assets to transfer illicit funds as a recognized method of money laundering. This move aims to strengthen the legal basis for investigating and prosecuting cases linked to cryptocurrency and money laundering activities.Photo by Vidar Nordli-Mathisen on UnsplashClarifying the legal status of crypto transactionsThe new judicial interpretation classifies virtual asset trading as a potential channel for money laundering. It specifies that using virtual-asset transactions or financial-asset exchanges to transfer or convert the proceeds of crime falls under the act of “disguising or concealing the source and nature of criminal proceeds and their gains by other means” as outlined in the country’s criminal law. Liu Honglin, founder of the Shanghai-based Man Kun law firm, clarified in a social media post that the interpretation does not equate all cryptocurrency trading with money laundering. According to Liu, the directive is not intended to criminalize the possession or trading of cryptocurrencies domestically but to provide clear legal guidelines for prosecuting specific illegal activities linked to crypto transactions. Impact on crypto trading and enforcementShao Shiwei, a fintech lawyer based in Shanghai, suggested that this interpretation could pose challenges for stablecoin merchants and increase legal risks for those involved in receiving illicit funds through crypto trading. The interpretation is part of broader efforts to regulate the virtual asset space, following the comprehensive ban on crypto trading activities by the People’s Bank of China and other authorities in September 2021. Despite the ban, many investors have continued to find ways to engage in crypto trading, sometimes circumventing capital control measures. For example, in May, Chinese police dismantled an underground bank that utilized the USDT stablecoin for foreign currency exchanges involving over 13.8 billion yuan ($1.9 billion). This incident underscores the ongoing challenges in enforcing existing regulations against the backdrop of innovative methods to bypass legal restrictions. 

On Monday, Hong Kong's spot Bitcoin exchange-traded funds (ETFs) marked their first cumulative daily Bitcoin outflows, with the sole occurrence arising from China Asset Management's (ChinaAMC) ETF. ChinaAMC's spot Bitcoin ETF witnessed an outflow of 75.36 Bitcoin, while the other two ETFs reported zero inflows. This development comes after these ETFs debuted on the Hong Kong Stock Exchange on April 30.Photo by Kanchanara on UnsplashInsights into daily trading dynamics and metricsOn their inaugural trading day, the three funds garnered an inflow of 3,910 BTC, as per data from SoSo Value. However, it's important to note that shares acquired through in-kind subscriptions of physical Bitcoin are not counted as U.S. dollar-based cash flows in SoSo Value's daily net inflow statistics. Instead, SoSo Value employs the Bitcoin-inflow metric, measuring the actual flow of Bitcoin into or out of all ETFs on a given trading day. As of Monday, the combined holdings of the three ETFs stood at approximately 4,150 Bitcoin, with total net assets reaching $266.8 million from $247.7 million on the debut day, according to SoSo Value data. Farside Investors' data corroborated similar findings, indicating an outflow of $4.9 million from ChinaAMC's spot Bitcoin ETF on Monday, while the other two ETFs saw no inflows. Trading volume and market activityDespite the outflows, the total trading volume for the three ETFs surged to $8.6 million on Monday, up from $8.01 million the previous Friday, according to SoSo Value data. Meanwhile, in contrast, spot Bitcoin ETFs in the United States witnessed a net inflow of $217.06 million on the same day, with Grayscale's GBTC fund registering its second consecutive daily net inflow.

Solomon Islands partners with Soramitsu on CBDC pilotCentral bank digital currency (CBDC) development has been ongoing globally at a brisk pace in 2023 and smaller nations, like the Solomon Islands with a population of over 700,000, are no exception when it comes to that process with the introduction of Bokolo Cash.Photo by Gilly Tanabose on UnsplashIntroducing Bokolo CashSolomon Islands Central Bank (CBSI) has officially unveiled the proof-of-concept for its CBDC named Bokolo Cash, with support from Japanese blockchain firm Soramitsu. Bokolo Cash is pegged to the value of one Solomon Islands dollar.The proof-of-concept pilot was launched on Tuesday by way of a keynote speech given by Manasseh Sogavare, the prime minister of the archipelago. In that speech, Sogavare highlighted that the CBDC would lead to reduced transaction costs for citizens and businesses. Users can rely on transactions to be both secure and transparent, given that the network will be blockchain-based.The prime minister also articulated that the CBDC pilot project would be a catalyst for financial inclusion relative to the Island nation’s remotest communities.Pilot scheme use casesParticipants in the project will have the opportunity to use it in various scenarios. From retail transactions in the capital city, Honiara, to person-to-person transfers, the CBDC aims to demonstrate its versatility. The proof-of-concept will also assess wholesale transfers between commercial banks, simulate cross-border payments and examine remittances. To ensure security and compliance, users will undergo a “two-step” Know Your Customer (KYC) verification process, as outlined by Soramitsu.Operating on a customized blockchain based on Hyperledger’s Iroha, Bokolo Cash is designed for local use. However, it will also integrate with Soramitsu’s public Sora blockchain. This connectivity will enable users to engage in transfers using QR codes and the self-custody Fearless Wallet, a creation of Soramitsu.Legislative changeAlthough the project commenced at the beginning of November, the official announcement was made earlier this week. The legislation required to enable the CBSI to issue the CBDC — CBSI (Amendment) Act 2023 — was enacted on Nov. 3.The Solomon Islands, a collection of over 900 islands situated west of Papua New Guinea, now joins a group of island nations, including the Marshall Islands and Mauritius, actively experimenting with CBDC. Palau collaborated with Ripple Labs back in July to introduce the Palau Stablecoin (PSC). Interestingly, Tonga has contemplated adopting Bitcoin as legal tender, while Vanuatu hosts Satoshi Island, known for its Bitcoin-friendly environment. Meanwhile, Eastern Caribbean countries have already implemented an official CBDC called DCash.Soramitsu has been active in collaborating with central banks relative to the introduction of CBDCs, particularly in Asia. It has played a key role in facilitating the issuance of the Cambodian Bakong and the Lao DLak in Laos. Furthermore, it has initiated a project for regional cross-border payments using the Bakong and a stablecoin.In 2022, Soramitsu completed CBDC-related feasibility studies in conjunction with the relevant authorities in Vietnam and the Philippines. The Japanese fintech company has also participated with the Asian Development Bank and Tokyo-based global information technology solutions firm Fujitsu on a Web3 development project.