Asia a Frontrunner in Digital Assets, says HK Fintech Association Chairman

digital assets

Understanding HK’s digital assets regulatory framework, challenges in crypto fundraising, and the impact of COVID-19 on the crypto industry

On April 28, BrightTALK hosted ‘Digital Assets, Regulations and Opportunities in Hong Kong and Asia,’ the second-most attended webinar organized by Innovate Finance, an independent not-for-profit industry body representing the UK’s global fintech community.

The webinar was moderated by King Leung, Head of Fintech at Hong Kong’s government Foreign Direct Investment body InvestHK. Henri Arslanian, Chairman of FinTech Association of Hong Kong (FTAHK) and PwC Global Crypto Leader, and Clara Chiu, Director of Licensing and Head of Fintech unit at the Intermediaries Division at Securities and Futures Commission (SFC) of Hong Kong, spoke on the panel.

Arslanian noted that global cryptocurrency deals are moving to the east, as indicated by PwC’s Global Crypto M&A and Fundraising Report. Another noticeable trend is that crypto companies are progressively diversifying and consolidating: many big crypto players are acquiring ancillary service providers, in addition to acquiring smaller crypto players.

Additionally, the average investor ticket size in the crypto industry has gone up, which means that crypto transactions are moving from being seed transactions to Series A and higher, according to Arslanian.

Interestingly, High Net Worth Individuals (HNWIs) – generally known to be more risk-averse investors – are emerging as leading backers in crypto firms.

“One of the big takeaways of PwC’s 2nd Global Hedge Fund Reports (to be published in two weeks) is that over 40% of capital coming into crypto-hedge funds is coming from high net worth individuals,” said Arslanian.

He added that Asia is, in fact, about a year to a year and a half ahead of the rest of the world in terms of digital asset innovation.

“If you follow any crypto media, what you realize is, some of the most cutting edge stuff is generally coming from Asia, or is being driven from Asia,” he added.

According to Arslanian, one of the reasons behind Asia being the frontrunner in the crypto space is leading initiatives like the Digital Currency Electronic Payment (DCEP) launched by China, and the backbone of an active blockchain ecosystem. This is especially true in Hong Kong, where FTAHK released a best practices guide to token sales and a Hong Kong Blockchain Ecosystem Map last year.

Chiu, who is one of the architects behind recent digital assets trading platform regulations, explained the SFC’s Virtual Asset Regulatory Framework. Below are six key takeaways:

1. The SFC has no power to grant a license to or supervise a platform that only trades non-security virtual assets or tokens.

2. Key licensing conditions require that the platform operator may only offer its services to professional investors (PIs), must have stringent policies for prevention of market-manipulative and abusive activities, and must conduct in-depth due diligence of the digital assets before trading.

3. PIs include institutional bodies like banks, insurers and licensed intermediaries, corporate bodies that include high net worth companies with portfolios of HK$8 million (approx. US$ 1 million) or more, or total assets of at least HK$40 million (approx. US$5.1 million), and individual professionals such as HNWIs with portfolios of at least HK$8 million (approx. US$ 1 million).

4. The SFC requires a platform operator to ensure that it stores 98% of client digital assets in cold wallets (private keys which are kept offline), and limits its holdings of client digital assets in hot wallets (private keys kept online) to under 2%.

5. It also requires the VA trading platforms to ensure that an insurance policy covering the risks associated with custody of digital assets is in effect at all times. While hot wallets require 100% insurance coverage, cold wallets require substantial coverage of 95% or more.

6. The SFC has no jurisdiction to grant licenses to pure VA traders, since it only has jurisdiction over Securities and Futures. However, if a trading platform includes a security token along with cryptocurrencies in its platform, the SFC will supervise its whole business, including the trading of digital assets (cryptocurrencies) which are considered non-security tokens.

Major challenges in fundraising for crypto projects

Despite leaps and bounds in the digital asset space, there still remain a few crucial obstacles when it comes to fundraising for crypto startups.

1. Lack of Education: Nobody will invest in something they do not understand. A lack of education and awareness among investors is one of the key challenges faced while fundraising for crypto projects.

2. Competition with other industries: Investors are flooded with traditional business options that are simpler to understand, and therefore more attractive, to investors who lack knowledge of digital assets.

3. Slow-moving institutionalization and regulation: Currently, the crypto industry is becoming more and more institutionalized, with regulatory clarity and best practices, which will provide comfort to investors and make them more amenable to investments in the crypto space in the future. However, this process is a lengthy one, and still remains a roadblock.

COVID-19 will act as a catalyst for the Crypto industry

“Make no mistake, the coronavirus will have an impact on the crypto industry,” Arslanian warned. He expects crypto players will experience some short-term pains, but also suggests that COVID-19 will act as a catalyst for the industry, for two main reasons:

1. Cash Aversion: Digital payments are replacing cash as the preferred mode of transaction, with many people believing that paper money is a carrier of the virus. China’s central bank has been quarantining money to reduce contagion risks, with many countries, including South Korea, following suit.

“We may see less usage of cash way faster than we anticipated before COVID-19,” said Arslanian, thereby catalyzing the usage of digital assets.

2. Central Bank Digital Currencies (CBDCs): China is already testing its pilot CBDCs, and Arslanian expects more countries to launch CBDCs and qualitatively ease monetary policies, thereby spurring the crypto industry forward.

Header Image by Pete Linforth on Pixabay


Share on facebook
Share on twitter
Share on linkedin
Share on email


Microsoft-backed Secures Over US$250 Million in Series D Funding

Microsoft-backed Secures Over US$250 Million in Series D Funding

London-based artificial intelligence (AI)-powered composable software platform has raised a significant investment of over US$250 million in Series D funding. Led by Qatar Investment Authority (QIA), the funding round brings the total amount raised by the company to over US$450 million, resulting in a valuation increase of up to 1.8x.

Essential Gaming Slang Terms for True Gamers

Essential Gaming Slang Terms for True Gamers

Gaming is not just a hobby; it’s a culture with its own unique language. Understanding slang and jargon is crucial for having an immersive experience and connecting with fellow gamers. From the acronyms that define player roles to the phrases that capture epic moments, mastering these slang terms is a must for every true gamer.

LinkedIn Launches Tools to Boost Job Seekers' Safety and Confidence

LinkedIn Launches Tools to Boost Job Seekers’ Safety and Confidence

Networking platform LinkedIn has introduced a range of tools to empower job seekers to confidently navigate their job search process while ensuring their safety and security. The latest updates include the implementation of verifications on job posts, enabling the display of verified information about job posters or their companies.

A Step-by-Step Guide

The Power of a Wikipedia Page for Your Business: A Step-by-Step Guide

The one thing that builds trust between your company and its potential customers is having its own Wikipedia page. It is the first thing that shows up when someone looks up your company (besides your website of course!) and gives potential customers all the information they might need about your business.

Top 5 Unique Pet Care Startups to Watch

From Diagnostics to Play Dates: Top 5 Unique Pet Care Startups to Watch

All pet owners out there understand the feeling of wanting to do whatever it takes to make their furry companions’ lives just a little bit more comfortable. It is perhaps that exact feeling that has made the average pet owner spend over US$1,300 on pet care a year. According to a 2021 survey conducted by the market research firm OnePoll, 52% of Americans spend more on their pets than they do on themselves each year.

Course5 Intelligence Gains US$55 Million Funding Boost

Course5 Intelligence Gains US$55 Million Funding Boost; Closes First Round Successfully with 360 ONE Asset’s Tech Fund

Analytics and artificial intelligence (AI) solutions company Course5 Intelligence has recently announced its plans to raise a funding round of USD 55 million. The initial closing of the funding round was achieved through the participation of 360 ONE Asset Management Limited’s Tech Fund, which specializes in investing in promising technology companies. Leading the round, 360 ONE Asset invested US$28 million in Course5.