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The strength of the regulation is too tight to hinder development.


Consultation on investment limit industry has counter-proposals

Hong Kong is setting up a new regulatory regime for virtual asset retailing. The SFC earlier suggested that trading platform operators should assess the suitability of retail clients to participate in virtual asset trading, and set a cap on the investment amount for each client, which should be reviewed regularly. Some industry players and academics interviewed by Hong Kong Wen Wei Po worry that setting investment caps for retail investors will suppress the liquidity and scale of the market, which is not conducive to the development of the virtual asset industry, and that virtual assets can be graded according to the risk level by making reference to the investment grade of bonds, so that investors can invest according to their tolerance. Some countries such as Canada and Thailand have also imposed a certain degree of restriction on retail investors, reflecting the balanced attitude of global regulators towards virtual assets and their efforts to protect the safety of retail investors while developing the industry.

As to whether there should be investment limits for retail investors in virtual assets, UD founder and veteran cryptocurrency investor Zhang Tao believes that this approach is not very meaningful, as the stricter the regulation, the more resistant investors will be, "The more money people have, the more options they want, and the better chance they have to invest elsewhere. He pointed out that traditional financial products have risk levels, the future of virtual asset products can be used in the current classification system, with trading platforms to KYC (know your customer), disclose the risk to customers, and assess their risk-taking ability, etc., sufficient to protect retail investors.

Regulation focuses on education to increase investor knowledge

Zhang Tao stressed that the focus of regulating the retail sale of foreign exchange is "education", "regulators cannot say on the one hand that foreign exchange is 'all evil' and on the other hand allow investors to participate. He believes that regulators should educate the public about blockchain, including related technologies and practices, as well as crypto assets and their risks, and so on. In the past few years, the government has been actively reminding the public about the risks of virtual assets. When the public is educated, only then will the availability of virtual funds become widespread, just like the development of the stock market in the 1970s and 1980s, when financial products and investments became widespread, can Hong Kong develop into an international financial center.

Liu Jia, head of HashKey's legal department, believes that regulators should differentiate between retail and professional investors, and that investment categories can be different; however, she has a different view on whether the income percentage should be used as a cap. For example, it depends on whether the cryptocurrency is a "new" or "old" token, or whether it is a token that has been issued for months or even years and has a Track Record, so that the past performance of the token can be checked to see if it is stable. For example, whether the token has been issued for a long enough time, whether the price is stable, and how big the market capitalization is, etc. are all conditions that make the market or retail investors feel comfortable to invest.

Liu Jia pointed out that usually assets with larger market capitalization and relatively stable operation are more suitable for retail customers. On the contrary, from the regulatory point of view, there will be more worries for newly issued tokens, and regulators may need to conduct more scrutiny and ask questions to the platforms offering such tokens for trading, or set additional thresholds for platforms to answer. However, she stressed that licensed exchanges certainly want to allow retail investors to participate in as many cryptocurrencies as possible in order to make a big push for the industry to thrive.

Investment caps should not be one-size-fits-all and should depend on the nature of the investment

Rather, it should depend on the nature of the cryptocurrency that retail investors are allowed to invest in, the nature and security of the asset, and the KYC of the exchange. In order to ensure that retail investors have sufficient net worth, sophisticated investment experience and knowledge, and are capable of taking risks, the "Eligible Crypto Investor" and "Accredited Crypto Investor", as well as the "Quoted Investment" and "Unquoted Investment" are established. Investment" and "Unquoted Investment" are the investment categories.

 

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