In response to the recent article, “11 crypto exchanges in Hong Kong ‘deemed to be licensed’, paving way for first approvals since 2022” (June 3), I must express my deep concerns about the continued operation of cryptocurrency exchanges in Hong Kong. While tightening regulations and requiring licenses for these exchanges is a step in the right direction, it is crucial to recognize the inherent risks that still plague cryptocurrency trading.
Cryptocurrency exchanges are evolving to resemble traditional banks, handling large deposits and offering trading and custodial services. However, unlike banks, these exchanges do not adhere to the same stringent regulatory standards nor do they provide deposit insurance schemes to safeguard customers. This discrepancy poses significant risks to investors.
The recent incident involving Japan’s cryptocurrency exchange, DMM Bitcoin, where an “unauthorized leak” led to the loss of over US$300 million in bitcoin, starkly highlights the dangers associated with these platforms. Cryptocurrency exchanges are notorious targets for hackers and cybercriminals. Despite their growing prominence, many lack robust security measures, making them vulnerable to repeated breaches and substantial financial losses. The DMM Bitcoin case is just one example among many.
In stark contrast, the traditional banking sector benefits from a well-established regulatory framework and a comprehensive deposit protection mechanism. Banks operate under the watchful eyes of governmental and central bank authorities, ensuring that even in the event of theft or financial loss, depositors are shielded by deposit insurance schemes. This safety net is crucial for maintaining public confidence in the financial system.
While the Hong Kong Securities and Futures Commission (SFC) is now issuing licenses to cryptocurrency exchanges, the level of regulatory scrutiny these entities will face remains significantly lower than that imposed on banks. This regulatory gap raises a critical question: in the event of a security breach similar to the DMM Bitcoin incident, can the majority of investors expect adequate protection?
David Chan of Yau Ma Tei argues that regulatory authorities should heed the lessons from numerous cryptocurrency-related losses and consider banning trading activities altogether, following the example set by mainland China. The mainland has taken a firm stance against cryptocurrency trading, recognizing the potential risks and acting decisively to protect its financial markets and investors.
As Hong Kong moves forward with licensing cryptocurrency exchanges, it is imperative to weigh the potential benefits against the substantial risks. The current regulatory approach may not be sufficient to prevent significant financial losses and protect investors from the volatile and often perilous world of cryptocurrency trading. A more prudent course of action might be to prohibit such trading activities entirely, thereby safeguarding the financial well-being of Hong Kong’s residents.
The discussion surrounding cryptocurrency regulation is complex and multifaceted. However, the paramount concern should always be the protection of investors and the stability of the financial system. In this light, a ban on cryptocurrency exchanges, rather than mere licensing, may be the most effective way to mitigate the risks and ensure a secure financial environment in Hong Kong.
