In early 2024, the cryptocurrency market continued to be lively, with the price of Bitcoin approaching $46,000. However, while the public's attention was focused on investing in cryptocurrencies, the Hong Kong government released a public consultation paper on December 27th, proposing legislative recommendations for regulating stablecoin issuers and seeking opinions. Some people pointed out that these measures could be aimed at restricting the activities of trading stablecoins such as USDT, which can still be traded over-the-counter. The consultation paper also mentioned that in the future, only licensed institutions, including licensed banks, would be able to purchase stablecoins.
Based on the author's reading of the legislative proposals, the main content can be divided into three aspects: firstly, the introduction of new regulations to implement an issuance system, requiring qualified fiat-backed stablecoin issuers to obtain a license issued by the Commissioner of Financial Management; secondly, stipulating that only specific licensed institutions can provide services for purchasing fiat-backed stablecoins, including licensed exchanges and licensed banks, which undoubtedly impacts unlicensed over-the-counter exchanges; finally, even licensed institutions can only sell fiat-backed stablecoins registered in Hong Kong to professional investors.
Clearly, the last point mentioned above indicates that unless Tether, the company behind USDT, successfully applies for a license, only professional investors with over 8 million HKD in liquid capital can purchase USDT on licensed exchanges in Hong Kong. This clearly implies that the Hong Kong government aims to weaken the position of USDT in the cryptocurrency market.
Furthermore, the government consultation paper also mentioned that in the future, only licensed institutions, including licensed banks, would be able to purchase stablecoins. These two measures lead the author to speculate that while the consultation paper is nominally about the issuance of fiat-backed stablecoins, it may actually be preparing for the introduction of a digital Hong Kong dollar or even planning to sell digital Renminbi within Hong Kong banks, to curtail the liquidity of USDT.
Frankly speaking, if the Hong Kong government ultimately implements regulatory measures based on the consultation paper, it will definitely hinder the development of cryptocurrencies in Hong Kong. On the surface, the participation of licensed institutions can provide more protection for investors, but in reality, it is a monopolistic means to restrict other companies from developing their own products that are not recognized by the market. It should be noted that cryptocurrency investors rely heavily on USDT because of its liquidity status in various investment areas, including centralized and decentralized exchanges, which cannot be replaced by legislation and regulation.
Regardless of whether the Hong Kong government's intention is to target unlicensed exchanges or to specifically target USDT, the author hopes that the government will listen to industry opinions and not act unilaterally. Otherwise, blindly pursuing regulatory actions may cause fiat-backed stablecoins to lose their original effectiveness and ultimately become a laughingstock in the cryptocurrency community, ending up as a crypto-monstrosity.
