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Politician Responds as Buterin Questions Hong Kong’s Crypto CredentialsIn a measured response on Friday, Johnny Ng, a member of Hong Kong’s Legislative Council, addressed the comments made by Ethereum co-founder Vitalik Buterin concerning Hong Kong’s future stance on cryptocurrencies.Photo by Florian Wehde on UnsplashInvitation extendedNg extended an invitation to Buterin to visit Hong Kong, allowing him to gain a more nuanced understanding of the region’s dynamics. Ng also expressed his intent to collaborate with relevant institutions and enterprises to provide Buterin with insights into Hong Kong’s current situation.Vitalik Buterin had voiced his concerns at the Web3 Transition Summit in Singapore on Thursday. Buterin stated:“If any crypto project wants to make Hong Kong their home, they would want to have some confidence — not just that it’s friendly now but that it will continue to be friendly years from now when all kinds of unknown, regulatory and political and other kinds of events are going to happen.”He acknowledged that he did not possess an in-depth understanding of Hong Kong’s intricacies, particularly in light of recent developments in its relationship with mainland China. Buterin emphasized the need for crypto projects to have confidence not only in Hong Kong’s current crypto-friendliness but also in its ability to maintain this stance amidst unforeseen regulatory, political, and other events.In response to Buterin’s remarks, Ng reassured him that Hong Kong’s crypto-related policies were not prone to sudden changes. He highlighted that these policies had been formulated with broad social consensus and underwent comprehensive procedural assessments. Ng asserted: “Therefore, I can tell Mr. Vitalik that Hong Kong’s policies are very stable.”He further elaborated on Hong Kong’s legislative process, emphasizing the stages of government policy drafting, public consultation, discussions within multiple committees of the Legislative Council, and the General Assembly’s review.Best-prepared crypto jurisdictionIn a separate development, Hong Kong has maintained its position as the best-prepared jurisdiction for widespread cryptocurrency adoption in 2023, according to a recently published study. The Chinese autonomous territory secured the top rank for the second consecutive year.This recognition is based on a crypto readiness score (CRS) that takes into account factors such as the presence of crypto ATMs, the regulatory environment, accessibility, and legality.In contrast, the United States slipped to third place, experiencing a 6.5% drop in its CRS score from the previous year. Switzerland emerged as the second-best-prepared jurisdiction, with its CRS score surging by over 9%.The Dutch demonstrated the highest per capita interest in crypto, while Hong Kong stood out for having the most crypto ATMs per square foot due to its smaller landmass. Within the United States, New York became the most crypto-ready state, boasting a CRS of 9.80, owing to a robust legislative environment and a thriving crypto and blockchain industry.Chainalysis crypto adoption reportMeanwhile, India emerged as the global leader in crypto adoption in 2023, according to a recently compiled Chainalysis report. The report also highlighted other lower middle-income nations, such as Nigeria and Thailand, ranking prominently in crypto adoption. India’s crypto market has surged to become the second-largest globally by raw estimated transaction volume.Johnny Ng’s response to Vitalik Buterin’s comments is indicative of the measured and informed approach of Hong Kong’s leadership regarding cryptocurrencies. With a stable and consensus-driven regulatory framework, Hong Kong remains a key player in the evolving landscape of digital currencies.

HashKey Enhances User Security with Exchange Insurance PartnershipHong Kong-based cryptocurrency exchange HashKey has taken a step towards bolstering its users’ security by signing a memorandum of understanding (MOU) with fintech firm OneDegree to provide insurance coverage for digital assets held on the platform.Photo by Manson Yim on UnsplashIndustry-wide significanceThat’s according to a report in local news media on Wednesday. The move represents a positive development not only for HashKey users, as it extends protection to both hot wallets and cold storage addresses, but for the overall crypto space.After the trail of destruction left by a series of high-profile crypto collapses in 2022, the overarching crypto space has been crying out for adequate solutions that reassure crypto market participants that their funds are safe when placed on centralized crypto platforms. In the traditional banking world, in most jurisdictions there are insurance-based schemes that guarantee a certain percentage or level of depositors funds. In many cases, these schemes are backed by the central government.Asian crypto market participants have been hit harder than most due to these collapses having nothing in place in terms of deposit safeguards. In Singapore, crypto lenders Vauld and Hodlnaut failed, leaving deposit shortfalls. The city-state’s residents were particularly hard hit when it came to FTX as many Singaporeans had opted to use the exchange given that the authorities had banned Binance from trading there.Xiaoqi Weng, the Chief Operating Officer of HashKey, emphasized the company’s commitment to fortifying its financial, technical, and service infrastructure to offer customers comprehensive protection. The goal is not only to enhance user security but also to contribute to the overall development of Hong Kong’s digital asset ecosystem.Mitigating riskYanlin Guo, Co-founder of OneDegree, underscored the importance of establishing a robust framework for cryptocurrencies that includes insurance to identify and mitigate potential risks effectively. This collaboration between HashKey and OneDegree aims to provide added peace of mind to cryptocurrency investors who entrust their assets to the exchange.HashKey achieved a significant milestone on August 3 when it became the first cryptocurrency exchange to receive regulatory licensing from the Hong Kong Securities and Futures Commission, enabling it to offer services to retail investors. Subsequently, on August 28, the exchange launched its trading services, albeit with relatively low trading volumes.Currently, HashKey Hong Kong supports the trading of Bitcoin and Ethereum, with no options for margin trading or cryptocurrency derivatives. Nevertheless, the exchange accepts fiat deposits in both US dollars and Hong Kong dollars from authorized financial institutions worldwide.The issue of user insurance has been a contentious topic in the cryptocurrency industry, with various exchanges offering different levels of protection. Some exchanges provide no insurance beyond a contractual claim to users’ assets in the event of bankruptcy. Others offer insurance solely for fiat deposits, while a select few, such as Binance and Bitget, extend coverage to crypto-related incidents.HashKey has answered a market need by integrating this insurance product into its trading service. It’s likely that other platforms will follow suit in the not-too-distant future.

Hong Kong Deems Crypto as PropertyIn dealing with a case involving defunct Hong Kong-based cryptocurrency exchange Gatecoin, a Hong Kong judge has determined cryptocurrency as being property “capable of being held in trust.” Presiding over the case, Justice Linda Chan stated recently that Hong Kong takes a broad definition of what constitutes property.©Pexels/mitbg000Digital assets held in trustHaving expended efforts to try and recover funds from a former payments service provider that the company had partnered with, Gatecoin announced that it would shut down the business and commence the liquidation of the business in 2019. With bankruptcy proceedings being notoriously slow, that process continues today, resulting in Justice Chan’s recent determination.The notion of property held in trust is a common theme that has been explored in a number of cryptocurrency business bankruptcy processes recently, including the BlockFi, Celsius and FTX processes.Gatecoin has not proven to be any different in this regard. Liquidators had turned to the Hong Kong courts for direction as to how creditors’ digital assets, as held on the platform, should be defined. If property is deemed to have been held “in trust”, then that determination has implications for the owner of those assets relative to the bankruptcy proceedings.In the case of BlockFi, a determination was made in a US court that those who had simply custodied digital assets with the platform without earning any yield were property owners and that they should have their assets returned.The importance of Terms of Service (ToS)Alex Mashinsky, the founder and CEO of failed crypto lending competitor Celsius outlined to service users on a number of occasions that the assets remained their property even though his company used customer assets for various trading activities. The bankruptcy judge reached a different determination based on the terms of service. Service users had acknowledged in signing off on Celsius’ terms of service that assets held on the platform that accessed yield-bearing products became the property of Celsius when deposited within those products on the Celsius platform.Although it has not been dealt with yet, 1.4 million creditors relative to the bankruptcy process of failed cryptocurrency exchange FTX are likely to discover later this year if they can claim “in trust” property rights. An ad hoc group of creditors has taken legal action for the return of their digital assets on the basis of an assertion that the assets remained their property when transferred onto the platform.ImplicationsWhilst a seemingly uninteresting determination to anyone less informed about such bankruptcy proceedings, such decisions can have profound consequences. In a bankruptcy process, there is a hierarchy of creditors, with some having greater rights than others when it comes to the distribution of bankruptcy estate funds. Recognition of assets being held in trust as property would likely take those property owners out of the bankruptcy process, allowing the return of their funds (where available) while others who are classified as creditors get a distribution of whatever funds are left in the bankruptcy estate thereafter.Additional complexityGatecoin’s case was further complicated by the existence of various sets of terms of service. In two of the three instances, the court found that no trust language existed. There is one subset of creditors who may have the ability to claim their digital assets as property. The liquidators have agreed to identify them and contact them in that regard.While the process may be proving to be a minefield for Gatecoin’s creditors, it has served a broader purpose in crypto more generally as it has provided yet another opportunity for another jurisdiction, in this instance Hong Kong, to provide some more clarity with regard to the legal status and standing of cryptocurrency.