KuCoin Dismisses Notion of a Layoff Plan

VCs Say US Crypto Crackdown Opportunity for AsiaA couple of Hong Kong-based venture capitalists told Bloomberg TV in an interview that aired on Tuesday that the current crypto crackdown in the United States is a boon for Asia and particularly for Hong Kong in establishing itself as a global crypto hub.© Pexels/lalesh aldarwishMartin Baumann, Managing Partner and Co-Founder of CMCC Global, one of Asia’s first VC funds focused purely on blockchain and crypto, said that “Hong Kong has always been a financial capital of Asia and we believe in this location.”Golden opportunityWhile the fund has a global mandate, it believes that investor focus is shifting away from North America towards Asia. Baumann’s colleague, CMCC Global Managing Partner and Co-Founder Charlie Morris said that “the US has been quite negative from the regulatory perspective and it really seems to us that the US is shooting itself in the foot with a machine gun.”Morris elaborated, stating that the US crypto crackdown is handing a golden opportunity to other world regions to lead on blockchain and crypto. Baumann chimed in to clarify that one third of all blockchain equity deals are currently being done in Asia. He maintains that most of the investment community in the West doesn’t appreciate the extent to which capital is being committed into the space by Asian entities.Morris expanded further: “We see places like Hong Kong having a real opportunity at this point in time to bring those firms and entrepreneurs to the city.”Launching $100M blockchain fundAgainst that backdrop CMCC Global is launching a $100 million fund, where funding will be allocated to blockchain projects. Specifically the duo are targeting crypto and blockchain firms at Series A and Series B funding stages. Baumann believes that in tandem with the fact that there’s a lot of innovation emerging in Asia, “there’s plenty of capital sitting on the sidelines waiting for the right entry valuations to pull the trigger.”While Baumann and Morris are majority stakeholders in CMCC Global, the Winklevoss twins (Cameron and Tyler Winklevoss) also have an equity stake in the business. Founders of the Gemini crypto exchange platform, they are investors alongside Hong Kong based Richard Li, who has a net worth estimated to be in the region of $4.6 billion.VC investment into crypto slowed down considerably since the onset of the most recent crypto winter. However, that activity has still been ongoing, something that is entirely different to the 2018 bear market when investment came to a complete standstill. In April, CMCC partnered with Switzerland-based Syz Group with the objective of establishing a funding vehicle with a minimum $50 million fund earmarked for crypto-centric hedge fund investment.Meanwhile, in speculating on the prospects of bitcoin, the CMCC duo expressed the view that double digit gains are well within reach. Morris envisages a Bitcoin unit price of $40,000 in 2023. From a long term perspective the CMCC co-founder suggested that “I can easily see us breaking all time highs and easily breaking $100,000 for bitcoin.”

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.

Hong Kong’s Bricks-and-Mortar Crypto Shops Attract Chinese VisitorsHong Kong has become a thriving destination for cryptocurrency enthusiasts, particularly mainland Chinese visitors, due to the ambiguity surrounding the regulatory status of these crypto shops.Despite the illegality of cryptocurrency transactions on the mainland and the ban on overseas exchanges serving onshore clients, Hong Kong allows legal crypto trading, and according to a recent report published by the Financial Times, the autonomous Chinese territory is being accessed by residents of the Chinese mainland for the purpose of trading crypto.Photo by Chapman Chow on UnsplashSurging demandBricks-and-mortar crypto shops, lightly regulated and scattered across the city’s popular tourism and shopping districts, have flourished thanks to the surging demand from mainland Chinese visitors. These stores offer customers the convenience of purchasing digital assets with cash, often without the need to disclose the source of funds or personal information.In contrast to the strict licensing requirements imposed on online exchanges in Hong Kong’s push to become a virtual assets trading hub, these over-the-counter (OTC) crypto stores provide customers with the opportunity to buy large volumes of cryptocurrencies with minimal or no verification checks.Before the border between China and Hong Kong reopened fully in February, mainland Chinese customers accounted for less than 5% of customers at Crypto HK, an OTC crypto outfit with two branches in the city. However, this figure has now increased significantly, making up around half of their customer base.Similarly, One Satoshi, a crypto store with nine branches in Hong Kong, reported trading volumes between January and May 2023 that were 20–25% higher than the same period the previous year. They anticipate a 35–40% increase in trading for the entire year.While some store owners, like Roger Li of One Satoshi, currently decline mainland Chinese customers due to Beijing’s crypto ban, they remain optimistic that restrictions will ease. This belief is prevalent among the crypto community in Hong Kong following the city’s announcement to become a virtual assets hub in October.Regulatory anomalyHong Kong introduced a new regulatory framework for cryptocurrency exchanges in June, requiring all online platforms operating in the city to apply for a license. However, most OTC stores still operate outside the purview of Hong Kong’s Securities and Futures Commission (SFC), presenting an area of further consideration for the government.OTC stores primarily serve as a simple way for users to convert money to and from unlicensed online exchanges, according to Carlton Lai, head of blockchain research at Daiwa Capital Markets. Hong Kong’s lenient regulations and ease of starting such businesses, as long as there is sufficient capital, contribute to the higher number of OTC stores compared to other locations.While some shops welcome increased regulation in the sector, others do not require customers to provide identification, promoting quick and anonymous transactions. However, this falls short of the investor protection measures mandated for online platforms seeking licenses to trade cryptocurrencies to retail clients.The lack of scrutiny faced by Hong Kong’s OTC shops, coupled with their proximity to mainland China — a market that ranked fourth globally for crypto trading in 2022 — makes them appealing to Chinese citizens still interested in the asset class.