Cryptocurrency: Is Hong Kong Emerging as a Safe Haven?
With several countries seeking to build guardrails, there is a clear shift towards Hong Kong
Did you know that Pakistan was ahead of India among crypto-friendly nations, making it to the top 10 and edging us out to the 11th spot? Feeling bad? Well, there’s no need to as India is part of a global move to rein in cryptocurrencies. And, the result seems to be a major shift among start-ups and founders to Hong Kong.
What’s quite intriguing is that some sections of the media seem to be taking Pakistan’s leg up over India in the crypto-friendly list as a failure of our IT innovators. Nothing could be farther from the truth. Just look at who else in on this list. Argentina, Columbia, Ukraine, Vietnam, and Turkey – countries that are facing Economic issues in one form or another.
Of course, there are others like the United States, Canada, Singapore, and the UAE who happen to be in various stages of wanting to bring cryptocurrencies under their sovereign laws by bringing in transparency. Already, we’ve seen Japan, the UK and Australia join the others to introduce guardrails around the crypto world.
India is taking a measured stance on crypto
From India’s perspective, there are clear indications that the RBI and the Union Government would like to ring fence itself and the Rupee against such trade where the buyer and seller decide the transaction values without any benchmarked currency. The G20 declaration made from New Delhi is serving as a good starting point for India’s response to crypto trades.
From being antagonistic to crypto assets, New Delhi has shifted to a position that accepts it as a financial asset, albeit only when tied to a sovereign currency. This is seen from the government’s decision to impose a 1% tax deduction at source and 30% on capital gains with no provision for offsetting losses on crypto trades.
This wouldn’t have been a non-trivial income for the government. Last year, we had a report stating that up to five million crypto traders had shifted to offshore platforms, moving a whopping 3.8 billion dollars of trading volumes out of domestic exchanges. Looks like one such destination could be Hong Kong, given that the erstwhile British colony now with China, is doing everything it can to restore its status as a global financial hub.
Meanwhile, Hong Kong is emerging as a hub
Last month witnessed the region’s annual Web3 Festival where participants from the Western hemisphere made up a large chunk of the 50,000 attendees who flocked in. Now, compare the scale and size of the same event in 2022 when most of the attendees were seeking safety outside China’s restrictive crypto policies.
The event garnered some interest also due to the presence of Vitalik Buterin, the founder of Ethereum as well as billionaire founder of Ark Invest Cathie Wood who delivered a video address to the delegates. It was as late as June last year that Hong Kong had legalized crypto trade among investors. So, the excitement was palpable among those who felt that many of the large economies weren’t biting into the crypto idea.
Of course, it isn’t as though Hong Kong presents a free-for-all market in crypto. The city has taken several regulatory steps such as sandboxing ‘stablecoin’ issuance and licensing for crypto exchange operators. Last month, they joined the US In listing out some crypto exchange-traded funds too.
What does it mean for the US and China?
All of this comes at a time when the US government is taking a tough stance on crypto, Canada doing a wait-and-watch, and more recently Australia initiating a tax crackdown on crypto exchanges by seeking client data from them. However, most agree that there is still a lack of clarity around what markets Hong Kong would be able to service.
For starters, China appears to be off-limits and some of the start-up founders at the event weren’t quite sure how much of the city’s regulations would result in higher compliance costs that hit at the very heart of crypto trades – decentralization being the buzzword. However, one clear thing that stands out is Hong Kong’s commitment to cryptocurrencies.
This brings us to Pakistan’s emergence as a crypto-favoured geography. Its proximity to China for its economic survival and growth makes us feel that Hong Kong could potentially become a gateway to the mainland. Though China has barred its people from trading in crypto, they can certainly use trading in Hong Kong as a means to shift funds to its southern neighbor Shenzhen – home to some of the largest Chinese conglomerates like Huawei and Tencent.
In case, you’re wondering how Pakistan could gain from the crypto-trade, remember that the country is a key destination in the global drug route. Need we say more?
