Perspective | Hong Kong keeps the currency and chain chains from decoupling, but working together

Source of this article: Sina Finance , original title "Shu Shi: Some Thoughts on China's Development of Digital Currency and Blockchain"

Author: Shu when (Hong Kong financial market experts, "dominating the global hedge fund managers to invest the China Road" author)

Blockchain and digital currency were originally two grasshoppers on a rope, but now they are facing the dilemma of their own development. Originally, the boundary between the currency circle and the chain circle was not clear, but now, in the public, people in the chain circle often consciously start to distance themselves from the former. This article believes that due to the existence of the capital market and a regulated compliance platform in Hong Kong, China, the "currency circle" and "chain circle" may not necessarily need to be separated and developed separately. The development of Hong Kong's capital market regulatory policies may also give the "Flood Beast" a compliant development space, which in turn can provide good financial support and trading platform support for global blockchain projects.

Currency Circle: From Passion to Insidiousness

Once upon a time, the currency circle and the chain circle were the two major theme circles of fintech. The digital currency represented by Bitcoin is based on the technical application of the blockchain, and the blockchain is also gradually promoted by the outside world with the help of digital currencies such as Bitcoin.

As the price of bitcoin hits record highs, the limelight of digital currencies has always overwhelmed the blockchain, becoming a darling of the fintech investment circle. Because of the decentralization, de-sovereignization, and openness of Bitcoin, people even gave this digital currency some specific meanings. Satoshi Nakamoto became a Hayek of fintech.

Feng Shui has taken turns. Since September 2017, a ban by the seven ministries and commissions has allowed China's currency circle to quickly cool down and enter a rather embarrassing situation.

Beginning in 2019, in the process of in-depth exchanges with some people in the currency industry, I sincerely felt that the birth of digital currencies has brought a huge shock to the investment community. At the same time, I felt the helplessness of the people in the currency circle.

Many senior players in the "currency circle" and "chain circle" used to think that young people in the mixed currency circle and chain circle were young people. Some are doing well, some are accidentally exhausting their previously accumulated credibility.

This is a very passionate group of people. Almost everyone talks about the currency circle and can quickly enter their role. They believe that the "decentralized" nature of blockchain can really bring financial change, subvert the business model of traditional financial institutions, and even the status of central banks in various countries, and ultimately bring inclusive finance. Many people are willing to be interviewed to introduce the blockchain and digital asset business they are engaged in. They talked passionately and considered themselves to be a waver in the field of fintech …

Deterrence of "9.4 Policy"

In mainland China, why are people in the circle so secretive about "digital currency"?

It should be pointed out that Chinese officials have never hesitated to support fintech policies. As early as a few years ago, China has written the development of blockchain technology into the State Council's "Thirteenth Five-Year Plan" National Informationization Plan. China's fintech is obvious to the world, and it is thanks to the government's attention.

Chinese companies also attach great importance to financial technology. For example, we have seen that companies like Huawei have already deployed talent globally.

However, the innovation and development of new technologies and models are often accompanied by chaos and risks. For example, during the development of digital currency, the initial coin offering (ICO) faced such a situation.

Because some people in the market deliberately or unintentionally confuse the development of blockchain technology, digital cryptocurrencies, and ICOs. The market has gradually evolved from "financing for technology" to "financing for financing", and in some cases, it has become a complete "fraud"-under their confusion, some have no financial or technological knowledge The aunt and grandfather only participated in the digital currency investment by relying on the three-inch tongue of the sales staff in the coat of "investor" or "team leader".

After listening to the complete two-hour digital currency ICO promotion conference, some people did n’t care what was sold or what digital currency was. They only asked the speaker who came down from the stage: when will the money I put in be turned over? Times? The results can be imagined.

In this context, in order to prevent the situation from expanding, on September 4, 2017, the seven major institutions, including the People's Bank of China, issued a timely announcement that required any organization and individual not to illegally engage in token issuance and financing activities, and various token issuance financing Activities should be stopped immediately, and organizations and individuals who have completed the issuance and financing of tokens should make arrangements such as withdrawal.

In the early game between market and regulation, two extremes often appeared: lax regulation eased the market to "crash up"; tighter regulation caused the market to "scattered". Some people describe this phenomenon as "disorder when you put it out and die when you put it out", which is a real image.

It should be emphasized that blockchain technology, digital cryptocurrency and ICO are not the same thing at all, although the three are closely related. There is no problem with ICO itself, but with the ICO model, there is a big problem with the unregulated digital currency sales and fundraising of certain blockchain technology projects to the public without the ability to judge risk.

After the "9.4 Policy", ICOs were completely cold in mainland China. Regulators have stifled risks in the bud, but many blockchain innovation companies have also lost a new financing channel.

Some respondents have issued and issued legal digital currency in overseas markets, but consciously put themselves out of the way. When they talk about digital currency, they use "tokens" or emphasize that they do not have the property of "security", which is quite a legal term. From this cautious attitude, the concerns of the interviewees can be seen, which can also reflect the deterrent power brought by the “9.4 Policy” to the industry from the side.

With the tightening of the "currency circle" policy, the words of "chain circle" people also began to be cautious. Some research teams that study how to make the blockchain land in the real economy have also become extremely furious when considering whether to accept interviews. After all, in the eyes of many people, the boundary between the currency circle and the chain circle is quite blurred.

People in the circle said that the currency circle and the chain circle are essentially different. But the problem is, if you consider digital currency as a beast, many laymen will think: what is the blockchain?

This question reflects the deep-seated worries of people in the circle: In the case of the extremely low popularity of blockchain knowledge, some front-line supervisors may not be able to distinguish the difference between digital currency and blockchain at all. In order to avoid responsibility, one more thing It's not as good as one thing. Often, blockchain projects will be suspended or restricted.

Can Hong Kong give way to the "currency circle"?

Fortunately, there is no end to the road. In Hong Kong, a special administrative region of China, digital currencies continue to be a hot spot in the field of fintech investment.

In October 2019, the Hong Kong Securities Regulatory Commission announced that it will include token-based virtual asset management, fund distribution, and exchange business in the regulatory scope and prepare to grant a license. As of November 6, 2019, the Securities Regulatory Commission further released the "Position Letter", stating that it will set up a new license: a virtual asset trading platform.

In just one month or so, two favorable policies were introduced intensively, which undoubtedly brought unexpected surprises to people in the "currency circle" and "chain".

I still remember that around 2016, Hong Kong, China, as an international financial center, many financial practitioners still openly asked the Hong Kong government on different occasions: why Hong Kong is known as a financial center. In the era of mobile Internet so popular, Hong Kong has an average of 2.7 per person Device, but no convenient financial tools like Alipay and WeChat payment? Why is there even a cross-bank transaction fee of nearly 200 Hong Kong dollars for even a small amount of inter-bank transfer?

But in 2019, not only Alipay and WeChat Pay will all settle in Hong Kong, but also international mobile payment tools such as Paypal will be added, and Hong Kong people can realize mobile payment in the global market. The HKMA has completely changed the charging history of cross-bank transfers by introducing the "Fast Transfer" system, and the transfer amount far exceeds the mainland's Alipay and WeChat payment.

In terms of blockchain and distributed ledger technology (DLT), Hong Kong has made progress in trade financing, digital identity management, digital currency issuance by the central bank, and mortgage valuation through DLT. The HKMA has also issued several virtual banking licenses, allowing technology companies to enter the traditional banking space.

Hong Kong's strategy for fintech can be seen in the 2016 blog of the Hong Kong Monetary Authority's President Chen Delin, that is, to adopt the "risk-based supervision" and "technology-neutral" principles.

This principle means that when developing and implementing regulatory frameworks and regulations, it will only be based on the nature of financial activities or transactions and the risks derived, and will not make unreasonable exemptions or requirements for the use of different technologies. This enables market participants to operate in an environment conducive to innovation and fair competition, and users do not need to take unnecessary or excessive risks.

From a capital market perspective, this is actually a regulatory principle that is beneficial to both the financier and the investor.

It is under this principle that even the Hong Kong Securities and Futures Commission, which has often been criticized by the Hong Kong investment community for "cold feeling" and "inaction" on new things, has also actively participated in the wave of fintech and took the initiative to attack, which has been beneficial. The introduction of two major policies of the currency circle and the chain circle.

Outlook: Chain and currency circles are expected to work together healthily

The inclusion of virtual asset management business represented by digital currencies in the scope of regulation in Hong Kong does not mean eliminating or reducing risks-sandbox regulation is a risk prevention measure in itself. As an investor, we still need to be in awe of investment risks! However, this approach adopted by Hong Kong regulators will undoubtedly make international capital more confident and active in investing in China's blockchain projects and digital currency projects.

It is conceivable that under the strong supervision of the Hong Kong Securities Regulatory Commission and the regulatory sandbox policy of the Hong Kong Monetary Authority, virtual asset management will soon become a new category in Hong Kong. Global capital will have compliant and legal channels to enter the field of virtual assets. The financing and investment behavior of these capital markets will become more sunny and rational, which is a kind of "real money" support for the industry.

Across the Xiangjiang River, the chain situation is also quietly changing.

On the afternoon of October 24, 2019, the Political Bureau of the CPC Central Committee conducted the eighteenth collective study on the development status and trends of blockchain technology. The General Secretary of the CPC Central Committee Xi Jinping emphasized that the integrated application of blockchain technology plays an important role in new technological innovation and industrial transformation.

"We need to take blockchain as an important breakthrough in independent innovation of core technologies, clarify the main attack direction, increase investment, focus on overcoming a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation." The leaders said in a voice.

It can be seen from this speech that the Chinese government's emphasis on blockchain will increase with each passing day. It can also be foreseen that the "chain circle" will pay more attention to the integration and development of the blockchain and the real economy. Blockchain, as a basic technology, will gradually infiltrate and spread from fintech to the wider industrial field.

It is true that in mainland China, the "9.4 Policy" has not been lifted, and "digital currency" is still a secret, but the spring of the blockchain has arrived, and the capital side expects that it will enter the harvest period as soon as possible.

Due to the existence of the Hong Kong capital market and a regulated compliance platform, the "currency circle" and "chain circle" may not necessarily need to be separated and developed separately. The development of Hong Kong's capital market regulatory policy may also give the "Flood Beast" a compliant development space, which in turn can provide good funding support and trading platform support for global blockchain projects.

Therefore, the most likely outcome in the future is: Because Hong Kong, the currency circle and the chain circle do not need to be decoupled, but work together hand in hand.