On December 17, 2024, the price of Bitcoin reached a record high of $107,000.
The direct reason is the change in the attitude of the US government. The newly elected U.S. President Trump recently stated publicly that the next U.S. government will be committed to creating a friendly regulatory agency for cryptocurrency. He has vowed to make the United States a "cryptocurrency capital."
Since Trump was elected, the price of Bitcoin has risen by more than 40% from US$60,000. The ups and downs of prices not only affect the nerves of investors, but are also reshaping the landscape of global financial supervision.
Unlike the Biden administration's crackdown on digital assets, Trump has publicly stated more than once that he wants to implement "friendly regulation" of cryptocurrencies.
Trump has recently nominated former Paypal COO David Sacks to serve as the White House head of artificial intelligence and cryptocurrency affairs, indicating his intention to promote the development of the encryption industry. At the same time, Atkins, a conservative lawyer and currency fan, was also nominated to head the US Securities Regulatory Commission.
The steady rise in cryptocurrency assets is related to the "catch-up" between financial regulations in various countries.
At the end of November 2024, ZA Bank, the first and largest digital bank in Hong Kong, announced that it had become the first bank in Asia to provide cryptocurrency trading services to retail users. The bank provides services to users by cooperating with Hashkey Exchange, a licensed virtual asset exchange in Hong Kong.
On December 6, 2024, the Hong Kong Special Administrative Region government published the "Stable Currency Bill" in the Gazette, intending to introduce a regulatory system for fiat currency stable currency issuers in Hong Kong. The Bill is scheduled to be submitted to the Legislative Council for its first reading on December 18. A stablecoin is a virtual asset that maintains a stable value with reference to some asset, usually a fiat currency.
Bitcoin ETF advertisement on Hong Kong tram. Visual China Map
“It is still not feasible for mainland residents to go to Hong Kong to buy currency.”
When a reporter from Southern Weekend opened the Zhongan Bank App, the home page prompted users to buy and sell cryptocurrencies directly in Hong Kong dollars and US dollars without switching to other apps or platforms.
According to the company announcement, after Hong Kong residents open an investment account with Zhongan Bank, they need to complete the risk assessment and other processes before they can buy and sell two currencies on the app. The entry fee is US$70 or HK$600 respectively, and the commission fee for each transaction is 1.99. US dollars or HK$15, and the platform fee is 1.5% of the transaction amount (the minimum fee per transaction is US$1.99 or HK$15). The bank will waive transaction commissions until the end of June 2025, and the platform fee will also be reduced to 0.8% of the transaction amount.
The company's CEO, Wu Zhonghao, told the media that Hong Kong will only provide retail investors with virtual currency trading services in 2023. The bank has been preparing for the service for nearly a year. In addition to compliance standards, the trading time is 24 hours. Due to the high risk level of the assets, marketing will also focus on user education.
Currently, the Hong Kong Securities and Futures Commission has launched 4 types of cryptocurrency assets for retail investors to buy and sell. Wu Zhonghao said that this time ZhongAn will launch Bitcoin and Ethereum transactions first, and will gradually add the remaining two virtual currencies in the future. At the same time, he also pointed out that ZhongAn turned a loss into a profit in a single month in July 2024. After deploying the virtual currency trading business, it hopes to increase fee income and attract new customers, which will play a positive role in turning a loss into a profit.
Xiao Sa, a senior partner at Beijing Dacheng Law Firm, explained to Southern Weekend reporters that according to the current relevant laws between the mainland and Hong Kong, it is still not feasible for mainland residents to go to Hong Kong to buy currency.
She explained that although ZhongAn Bank allows customers from all over the world to register on the mobile app, ZhongAn did not directly obtain the crypto asset exchange license itself, but cooperated with the licensed exchange HashKey to assist users in trading crypto assets through the platform. Therefore, it must comply with the relevant regulations of Hong Kong's licensed exchanges.
The requirements at least include holding a Hong Kong identity card, being able to provide proof of your address and phone number, and undergoing relevant financial risk assessments.
In addition, Zhongan Bank will limit the proportion of crypto assets held by users. According to Wu Zhonghao's statement, this proportion will be controlled within 20% of the customer's total investment assets.
In September 2021, the "Notice on Further Preventing and Dealing with Speculation Risks in Virtual Currency Transactions" jointly issued by the central bank and ten other departments clearly defined "carrying out virtual currency-related business activities such as legal currency and virtual currency exchange business, exchange business between virtual currencies, buying and selling virtual currencies as a central counterparty, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and virtual currency derivatives transactions" as illegal financial activities.
However, if you already hold cryptocurrency, it is not necessarily illegal to go to Hong Kong to withdraw the currency or exchange it for legal tender.
For example, Xiao Sa said that if you ask a friend who is a Hong Kong resident to provide help, and at the same time ensure that the source of the funds is clear, small, incidental, and based on friendship between the two parties, it is not an illegal act. However, if Hong Kong residents use their identities to act as "currency dealers" to conduct transactions with mainland residents and implement regulatory arbitrage, they will violate the above notice and pose a criminal risk.
Asia Cryptocurrency Hub
It is worth mentioning that Zhongan Bank’s partner HashKey is also a local “incubated” virtual asset trader in Hong Kong. HashKey provides Zhongan Bank with custody transaction and clearing support for user assets.
Public information shows that HashKey Exchange is affiliated with HashKey Group and is Hong Kong’s first compliant cryptocurrency exchange for retail investors.
Xiao Feng, chairman of the group, is also known in the industry as the godfather of domestic "blockchain". He once worked at the Shenzhen Branch of the People's Bank of China and the Shenzhen Securities Management Office. After joining Wanxiang Holdings, a private enterprise, as vice chairman, the Wanxiang Blockchain Laboratory he is responsible for has invested in many well-known projects in the industry, such as Ethereum, ConsenSys, MakerDAO, etc. Southern Weekend reporters sent an interview invitation to Xiao Feng himself, but did not receive a response as of press time.
In a public speech in October 2024, Xiao Feng said that looking back on the development of blockchain in the past ten years, the industry is actually building a new crypto financial market (Crypto Financial Market). Compared with traditional financial markets such as banks, it is obvious that these are two sets of financial market systems. "But these two sets of financial market systems are gradually beginning to become interconnected."
An important driving force for this kind of interconnection comes from the regulatory level’s active embrace of new business formats.
In October 2022, the Hong Kong SAR government issued the "Policy Declaration on the Development of Virtual Assets in Hong Kong", which pointed out the direction for the development of Hong Kong's virtual asset industry. In June 2023, Hong Kong’s virtual asset service provider licensing system will take effect.
Currently, three exchanges in Hong Kong are licensed by the Securities and Futures Commission (SFC). They are OSL, HashKey and the Hong Kong Virtual Asset Exchange (HKVAX), which was only approved in October 2024. The Hong Kong Securities and Futures Commission has previously stated that it may issue more licenses to cryptocurrency exchanges and digital asset companies operating in Hong Kong before the end of 2024.
"Hong Kong is an international financial center and has an open and inclusive attitude towards innovators from around the world engaged in the virtual asset business." This is the first sentence on the first page of the above-mentioned declaration.
Chen Haolin, deputy director of the Treasury Bureau of the Hong Kong SAR Government, said that the Hong Kong government plans to conduct public consultations on the over-the-counter trading of virtual assets and the licensing system for custody service providers in 2025 to promote the sustainable development of different sectors of the virtual asset market.
Starting from July 2024, the Hong Kong Financial Supervisory Authority has passed the regulatory "sandbox" and launched a pilot program for the issuance of stable coins. So far, stablecoins issued by three institutions including JD Coin Chain Technology (Hong Kong) Co., Ltd. (affiliated to JD.com Group), Yuanbi Innovation Technology Co., Ltd., and Standard Chartered Bank (Hong Kong) Co., Ltd. have been included in the pilot.
"This sandbox can be understood as a 'positive list model.'" Zhang Feng, a technology evaluation expert at the Shanghai Blockchain Technology Association and a partner at Wanshang Tianqin Law Firm, explained to Southern Weekend reporters that the purpose is to allow financial institutions to test and collect data and user opinions in a risk-controllable and smaller-scale environment before launching new services and products, thereby speeding up the launch of relevant products and services and ensuring that services and products comply with regulatory requirements.
Zhang Feng has communicated with Hong Kong's financial regulatory agencies. He described Hong Kong's financial regulatory agencies as a group of industry managers at the forefront of the world. "Currently, Hong Kong has begun pilot projects or layouts in almost all financial fields involved, such as exchanges, stablecoins, asset management, funds, etc."
At the same time, the Hong Kong Securities and Futures Commission is also accelerating the license applications for 15 virtual asset trading platforms under review and is expected to issue licenses to several qualified operators within this year.
More than a month ago, the Hong Kong Exchange also launched the Hong Kong Exchange Virtual Asset Index Series to provide reliable benchmark prices for virtual assets, a rapidly emerging asset class, and support Hong Kong's development into Asia's leading digital asset center.
According to an investor survey conducted by the Hong Kong Investment Funds Association in July 2024, 75% of local respondents in Hong Kong are interested in investing in cryptocurrencies, of which 41% prefer to invest through spot/futures cryptocurrency exchange-traded funds (ETFs) listed in Hong Kong, while 39% choose products from locally licensed and regulated virtual asset trading platform operators.
High-roller gambling regulation shifts
Chen Zhifeng admitted to Southern Weekend reporters that an important reason for Hong Kong's rapid development in the field of virtual assets in the past two years is to seize the "empty window" in the United States. Chen Zhifeng serves as a senior executive at a global virtual currency trading platform.
In 2021, U.S. President Biden appointed Gary Gensler as the new chairman of the U.S. Securities and Exchange Commission (SEC). After taking office, he began to implement a radical reform initiative, focusing on combating violations in the cryptocurrency field.
Geisler sent Changpeng Zhao, the founder of Binance, the world's largest virtual currency trading platform, to prison, and also handled the largest financial fraud case in U.S. history – the case of Sam Bankman-Fried, the founder of the former cryptocurrency trading platform FTX.
Just as FTX collapsed and the cryptocurrency industry was deeply under the shadow of SEC regulation, in January 2024, the Hong Kong Financial Supervisory Authority released the "Conclusions of the Discussion Paper on Crypto-Assets and Stablecoins", clarifying the general regulatory plan for the future, deciding to give priority to the supervision of crypto-stable coins, and giving a detailed introduction to regulatory activities, target implementation time, licenses, regulatory principles, etc.
Hong Kong remains committed to its goal of becoming Asia’s cryptocurrency hub, a stance that has attracted some cryptocurrency companies.
"Gessler is notoriously unfriendly to the virtual currency industry. There are still some gray areas in this industry, and the scale has become so large that regulation cannot be ignored." Chen Zhifeng said.
According to statistics from a report released by consulting firm Henley & Partners, as of the first half of 2024, the number of global cryptocurrency users has reached 560 million, a year-on-year increase of 32%. The total market value of crypto assets exceeded US$2.3 trillion, a year-on-year increase of 89%. Cryptoassets are becoming increasingly important in the global wealth landscape.
In order to give the industry room to survive, industry companies such as Coinbase, Circle and a16z invested US$78 million in the lobbying platform Fairshake Pac in December 2023 to use it for "supporting cryptocurrency leadership" in the 2024 election. Trump eventually became a staunch supporter of this group.
On December 5, 2024, Trump nominated Paul Atkins to lead the U.S. Securities and Exchange Commission. Atkins, a former SEC commissioner, had a much more relaxed approach to financial markets than his predecessor.
After Trump announced his appointment, the price of Bitcoin surged to $103,853. This is the first time that the price of Bitcoin has exceeded the $100,000 mark, and investors are betting that the Trump administration's policies will shift towards promoting the growth of cryptocurrencies.
The inventor of Bitcoin, who goes by the pseudonym Satoshi Nakamoto, proposed the concept of Bitcoin in 2008 as a payment method that did not rely on the traditional financial system. As a result, many of Bitcoin's early fans were libertarians.
"It is indeed a bit ironic. Bitcoin, which originally wanted to subvert the traditional financial industry, now only wants to embrace regulation, and even proposed to make money by receiving government subsidies." Chen Zhifeng said.
As of December 16, 2024, the price of Bitcoin has increased by nearly 140% in 2024, and it mainly occurred in the past two months. Zhao Wei, a senior researcher at OKX Research Institute, analyzed to Southern Weekend reporters that Trump's election as President of the United States and his adoption of a cryptocurrency-friendly stance, as well as the nomination of a Bitcoin supporter as SEC Chairman, have injected more optimism into the market.
But there are also other objective reasons, such as the technical “halving” mechanism. At the end of April 2024, Bitcoin completed its fourth halving, and the mining reward dropped to 3.125 Bitcoins per block. Judging from historical experience, each halving will trigger a supply shock, and the ensuing "ripple effect" will cause the Bitcoin price to rise in the following months.
• (At the request of the interviewee, Chen Zhifeng is a pseudonym)
