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Authors: Louie Lee (Ravenscroft & Schmierer) & Joshua Chu (Coinllectibles™️)
“All my best investments were in networks that everyone needed, no one could stop, and few understood. Bitcoin is the monetary network.” – Michael J. Saylor, Co-founder of MicroStrategy
Introduction
For most crypto-investors, 2021 was undoubtedly a wild ride. Bitcoin surging to all-time highs before retracing at the beginning of 2022. Driven by increased institutional interest, the rise of different trends within the cryptocurrency space, and increased attention from retail during the COVID-19 pandemic, cryptocurrency adaptation around the world surged despite bans being imposed by some countries.
Crypto Markets Review of 2021
The following are four (4) noteworthy developments in the crypto markets across the globe in 2021:
1) Worldwide developments: Many jurisdictions have had noteworthy developments in relation to their regulations on cryptocurrencies, also known as Virtual Assets (“VA”) and exchanges. A few key developments in 2021 include:
(i) El Salvador made Bitcoin Legal Tender in September 2021. El Salvador became the first country to make a VA legal tender, allowing its people to pay for goods, services, and tax contributions with Bitcoin.
(ii) South Korea’s Financial Services Commission introduced several rules regarding VA. South Korea’s banks will be required to treat VA exchanges as “high risk” for AML purposes. Virtual Asset Service Providers will also be required to register with the appropriate regulators.
(iii) People’s Republic of China (“PRC”) banned VA transactions. VA related business activities have been declared to be illegal financial activities by the People’s Bank of China.
(iv) The United States’ 117th Congress introduced 35 bills surrounding VA regulation, applications of blockchain technology, and central bank digital currency.
(v) The Basel Committee on Banking Supervision set out a new proposal that would apply a 1250% risk weight to VA held by banks, putting VA in the highest category of risk to banks.
(vi) According to a United Nations brief, North Korean cyber-attacks stole more than US$50Million worth of digital assets between 2020 to 2021.
2) Non-Fungible Tokens (“NFTs”), regarded as unique digital certificates stored on the Blockchain, received record high interest in 2021. Thus far, the most expensive NFTs sold include Beeple’s “Everydays: The First 5000 Days”, which sold for $69.3 million USD and Pak’s “The Merge”, which sold for $91.8 million USD.
3) The growth in the Metaverse sector accelerated in 2021. The term “Metaverse” gained traction in 2021 and attracted lots of interest. Buying land in the Metaverse became a popular trend, with international brands such as Samsung, Adidas, and PricewaterhouseCoopers purchasing land in Metaverse projects such as The Sandbox and Decentraland.
4) Continuation of mass adaptation from institutions. Soon after Bitcoin surpassed $1 trillion USD in market value for the first time in February 2021, it was revealed that Tesla had started to purchase Bitcoin with its balance sheet. The first U.S. futures-based Bitcoin ETF was also launched in October 2021 on the New York Stock Exchange under the ticker “BITO”.
Crypto Markets Outlook for 2022
“You have El Salvador taking it on and you have India and China getting rid of it. And you have the United States talking about how to regulate it and it could still be controlled.” – Ray Dalio, founder of Bridgewater Associates
With VA becoming more mainstream, interventions from regulators are to be expected. The following is a quick outlook of VA markets for 2022:
The Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority (“HKMA”) issued a joint circular to intermediaries regarding VA related activities in early 2022. Essentially, the circular outlines the requirements that intermediaries are required to comply with if they wish to conduct any VA related activities falling within the following categories: (i) distribution of VA related products, (ii) provision of VA dealing services, and (iii) provision of VA advisory services. It is likely that the clarity provided by the circular will aid intermediaries in their application to the SFC for licenses to conduct VA related businesses as well as clarify the regulators’ stance on VA.
During the Crypto Regulation Asia Summit 2022, Elizabeth Wong, currently the head of the Financial Technology Department of the SFC hinted that the SFC is working with the government to potentially amend the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) with the aim of introducing a new VA licensing regime that focuses on the principle of “same business, same risk, same rules”. It is anticipated that Hong Kong regulators will issue more updates and guidance with regards to VA related activities conducted in Hong Kong this year.
Conclusion
Regulations for VA are still in their infancy stage. With the continued increase in adaptation of VA by retail as well as institutions, it is expected that regulators around the globe will continue to refine, develop, and issue regulations for VA in 2022.
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Ravenscroft & Schmierer does not claim or own this article. This article was originally published by The Hong Kong Lawyer, owned by Thomson Reuters Company. All rights belong to Thomson Reuters. Read the original article here.