Hong Kong, rule of law and the free market

In general, Hong Kong has a reputation as a reliable and predictable non-interventionist regulator. Most rules are clearly laid out and easy to comprehend and follow for people with little legal training (like me).

Rules rarely contradict each other and while government agencies do not closely coordinate with each other or share common goals, there are few power plays and power grabs between different agencies and departments.

However, some license regimes are restrictive and tied to control over real estate, which makes them only accessible to an oligopolistic cartel of property developers. Other licenses are no longer given out and have to be bought from existing license holders.

The result of this means that while Rule of Law and Free Market Principles prevail in Hong Kong, markets are highly duopolized and uncompetitive.

While Bitcoin in general is not specifically regulated other existing regulations might apply and the above mentioned realities shape Bitcoin markets and businesses in Hong Kong. It is important to understand the political and economical limitations and obscurities of Hong Kong to understand how Bitcoin fits in. Sadly this greatly exceeds the scope of this article.

Hong Kong Bitcoin Regulation

Bitcoin did not get onto the radar of the Hong Kong regulators until late 2013. Until then there was little Bitcoin activity in Hong Kong. Bitfinex was likely the first exchange to open bank accounts in Hong Kong and offering exchange and trading services largely to international customers in 2012.

ANX and Bitcashout followed in 2013, and Bitcoin prices continued to rally throughout November 2013, reaching a high of US$1153.27 on European exchange Bitstamp on December 4, 2013.

The then Financial Secretary John Tsang 曾俊華 mentioned Bitcoin for the first time in a blog post on December 1, 2013 (referenced here). In this article Tsang gives a good summary of how Bitcoin works and warns about its volatile nature and the lack of support from a state or issuer. He warns of a bubble bursting and sees many opportunities for software developers.

On December 4, 2014 the issue was picked up by Hong Kong’s parliament, the Legislative Council.

Legislator Christopher Cheung 張華峰, representing the financial services asks: “Will the Government state its position on the Bitcoin clearly and openly, so that the industry can have something to go by?”

John Tsang ultimately defines Bitcoin as “a commodity generated in the cyber world” and “neither electronic money nor a stored value payment facility.”

This policy, likely developed in coordination with Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC), Financial Treasuries Bureau (FTB), the Customs and Excise Department (C&ED) in consultation with their Mainland Chinese counterparts, has become the cornerstone of Hong Kong’s Bitcoin regulation and is unlikely to change.

The stance was repeated in a meeting of the Legislative Council on January 2014 (Press Release from January 8, 2013), adding “We have branded bitcoins as a highly speculative product and we call upon the public to be very careful.” bitcoin.org.hk

Hong Kong, rule of law and the free market
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