Public Consultation on Legislative Proposals
On 3 November 2020, the Hong Kong Securities and Futures Commission (SFC) together with the Financial Services and the Treasury Bureau (FSTB) announced a proposal to establish a mandatory licensing regime for cryptocurrency exchanges, and to prevent non-institutional investors from buying or selling Bitcoin.
I encourage you all to take part in this consultation as a matter of public record. You can find the response from the Bitcoin Association here, as well as my personal response below:
To whom it may concern,
Bitcoin is the most important innovation in finance since double-entry accounting, more important to banking than the invention of the computer or the internet. It allows for seamless and cheap commerce and will greatly accelerate how societies create, share and transfer value.
Much how the internet allows billions of people to freely transfer information, Bitcoin will allow humanity to freely transfer value, spawning an online economy more vivid and prosperous than any of us can imagine. In such a market, human collaboration will generate the scientific research and productivity necessary to allow for interplanetary travel, the end of all disease and artificial intelligence.
Although there will be societies rejecting technological progress, and with it Bitcoin, most of us will learn to quickly embrace the new possibilities of the virtual economy as its products bring us wealth, pleasure, comfort and longevity. Those at the forefront of this new gilded age will be able to reap a big portion of the newly found riches, much like those embracing the internet, computers or combustion engine in previous cycles.
Although Distributed Ledgers, Blockchain, Virtual Assets or, Security Tokens capture much of your attention, they do not bring anything new to the table and ultimately do not matter. As much as Bitcoin’s code base and terminology has been copied, it’s core innovation — solving the double-spend problem — has never been successfully replicated. It is here that we find a unique and irreproducible new application for an old problem: money.
Around 2011, Hong Kong was an early adopter of Bitcoin. Countless exchanges have been founded here, some of the first Bitcoin ATMs were installed in the city and startups were funded to build on top of the world’s first open monetary network. Today, many of these inventors and investors have left the city as rival economies have been able to create more welcoming and legally certain environments.
The Hong Kong Dollar is typically found among the top ten most traded fiat currencies. Yet the 24h volume of the BTC/HKD trading pair rarely accounts for more than HK$10 million of trades over a 24h period. Only two exchanges offer this financial product, one of which based in Japan.
For comparison, according to market data supplied by Coingecko, the top five BTC/USD spot trading pairs came to US$2.8 billion daily dollar turnover, BTC/JPY accounted for US$680 million and the BTC/EUR pair for US$500 billion of trades. Even the polish zloty trades about US$60 million daily against Bitcoin.
Hong Kongers are largely left out of being able to conveniently convert their Bitcoin back into Hong Kong dollars. Unlike in other developed markets, there are no apps or online platforms where users can safely sell their Bitcoin. They have to either go through questionable brokers and risk fraud and robbery, or go through foreign intermediaries, which too often exploit being out of reach from Hong Kong courts.
Pushing the local Bitcoin trade to cash and anonymous overseas platforms not only endangers the participants of this economy, it makes it all too easy to launder the proceeds of crime. A sensible approach would try to create an incentive for market players to join regulated platforms and make it safe and easy for people to sell their BTC, rather than drive traders underground.
Bitcoin is not a security, it is not a futures contract and it doesn’t resemble almost any of the “Virtual Assets” it is being grouped with in your proposal. I believe that denying Hong Kongers access to the most exciting and relevant economic shift of the 21st century is a grave mistake.
Hong Kong cannot compete as an international financial center without easy access to Bitcoin.
To institutional investors Bitcoin is useless. Institutions already have access to all of Bitcoin’s functionalities. They nonetheless speculate on its success due to Bitcoin’s potential to prove valuable for regular, everyday individuals. To allow institutional investors to engage with Bitcoin while denying everyone else access is similar to allowing the mass production of automobiles while banning them from public roads.
For these reasons, I object to the proposed legislation.
Leonhard A. Weese
