Recent Market Developments

RECENT MARKET DEVELOPMENTS

PayPal

PayPal recently launched services allowing US users to buy, sell and hold cryptocurrencies directly through their PayPal accounts. By way of an update, it has been forecast that PayPal’s overall revenue will increase by 20%, with earnings of approximately US$2 billion from its bitcoin business alone by 2023.[140] Interesting, and demonstrative of the scale of interest in PayPal’s newest feature, is that bitcoin traders have been found to be using the PayPal app three times as much as non-bitcoin users, with the former having significantly higher cash balances in their PayPal digital wallets compared to other users.[141]

Hong Kong’s most recent development (the proposed retail ban) is very much at odds with PayPal’s latest move. The recent licensing of crypto exchange a OSL Digital Securities (a platform which will be restricted under the terms of its licence to serving institutions and professional investors) is a case in point. Regulation is causing Hong Kong’s crypto market to shift away from the retail market and this will only increase when the FSTB’s proposed regime for licensing exchanges which trade virtual assets that are not securities comes into force. The benefit of regulation is that it can give institutional investors the comfort they need to enter the crypto market.

DBS Digital Exchange

Southeast Asia’s largest lender (DBS) announced on 10 December 2020 that it would be setting up the DBS Digital Exchange (the first digital exchange for trading fiat money and cryptocurrencies with backing from a traditional bank). The announcement followed its receipt of in-principle approval by the Monetary Authority of Singapore (MAS) recognising the DBS Digital Exchange as a Recognised Market Operator.[142] The DBS Digital Exchange will provide a regulated platform for the issuance and trading of digital tokens back by financial assets; cryptocurrency trading and exchange services between four fiat currencies (including HKD) and four of the “most established” cryptocurrencies (bitcoin, ether, bitcoin cash and XRP) and digital custody services.[143] The DBS Digital Exchange will only offer services to institutional investors and accredited investors. The entry of traditional banks and payment services platforms into the crypto sphere is an indication that traditional players are recognising the potential of cryptocurrencies. This is also evident when looking at the surging levels of institutional interest, with institutional investors injecting around US$429 million into crypto funds and projects for the week ending 7 December 2020 (the second highest record to date).[144] DBS’ move is also an indication that regulators in the Asia Pacific region are becoming increasingly confident handling crypto and crypto-related trading.[145]

DBS’ announcement came just before Hong Kong’s licensing of OSL Digital Securities which has reportedly also applied for a digital asset licence with the Monetary Authority of Singapore under the Payment Services Act.[146]

Bitcoin Funds and Institutional Investment

In a further suggestion that institutional interest in crypto is on the rise, BlackRock, the world’s largest asset manager (with around US$7.8 trillion in AUM) is reported to be looking at giving two funds the “go-ahead” to invest in bitcoin futures (according to prospectus documents filed with the US SEC on 20 January 2021).[147] This would be BlackRock’s first step into the crypto market, however there have been indications that the move was under consideration. In November 2020, BlackRock’s CIO for Fixed Income stated that crypto was “here to stay” and could even replace gold to a large extent. This sentiment was echoed by BlackRock’s CEO, Larry Fink, who, in 2020, acknowledged the potential for bitcoin to turn into a global market asset.[148] According to a recent report (published on 21 January 2021) by trading platform eToro, which quizzed 25 big institutions in the third quarter of 2020, more and more asset managers (even the most-risk averse, such as pension funds and endowments) are looking at crypto as an asset class, with many suggesting that the crypto market had matured considerably over the past two years, with the time now being right to get involved.[149]

This trend is somewhat recognisable in Hong Kong too, where we have seen OSL receive its licence and the first approved crypto fund, Arrano, launch in April 2020 targeting institutional investors. Whether we will see more institutional investors move into the crypto space in Hong Kong remains to be seen, however we are most certainly entering a “new era of growth”.[150]

This note is provided for information purposes only and does not constitute legal advice. Charltons is qualified to advise on Hong Kong law only and the information contained in this note in relation to jurisdictions outside Hong Kong is based on our understanding of the position in those jurisdictions. Specific advice should be sought in relation to any particular situation. This note has been prepared based on the laws and regulations in force at the date of this note which may be subsequently amended, modified, re-enacted, restated or replaced.

Recent Market Developments

CH-018974 (Webpage Portal)

2021-04-23 (Published)

2021-06-29 (Updated)

DM#127544

Bitcoin Funds and Institutional Investment

The proposed retail ban

Southeast Asia’s largest lender (DBS)

Creation of a digital exchange DBS

Regulated platform for issuing digital tokens

Regulators in the Asia-Pacific region

Investing in bitcoin futures

Crypto space of Hong Kong