Hong Kong’s New National Security Law Threatens Freedom and Crypto Brokerages
Hong Kong could soon see a massive shortage of crypto settlement options, as the U.S. has imposed sanctions on the city-state that will prevent banks in the region from accessing the U.S. dollar system.
The sanctions came as a response to a law on the Maintenance of National Security that was passed at the 20th meeting of the 13th NPC Standing Committee. The State Council of Hong Kong and Macao described the law as a “milestone” in Hong Kong’s practice of the “one country, two systems” governance model. The law, passed swiftly on Jun. 30 by the Chinese government, criminalize “acts of secession, subversion of state power, terrorist activities and collusion with foreign or external forces to endanger national security.”
In an equally swift response, the U.S. government has passed an equally aggressive act that imposes sanctions on Hong Kong. According to the official act document, the U.S. government reserves the right to restrict foreign banks and subsidiaries of U.S. banks in Hong Kong from accessing the U.S. financial system.
This means that all banks operating in Hong Kong won’t be able to utilize the U.S. dollar. Without clear criteria that states which banks would be targeted by the sanctions, almost every bank in Hong Kong is at risk of being cut off from the dollar.
While Hong Kong’s broader economy is yet to see any serious consequences from the sanctions, crypto companies in the region have already begun feeling the immediate impact of the ban.
Crypto brokerage firms in Hong Kong and Macao are highly dependant on the U.S. dollar system, as they settle the biggest percentage of their transactions in the U.S. national currency. Some of the largest companies in the industry have offices in Hong Kong and service hundreds of thousands, if not millions of customers in the region—OKCoin and Huobi both have a meaningful presence there.
Leo Weese, the president and co-founder of the Bitcoin Association of Hong Kong, said that the most successful crypto companies in the region are highly dependant on the U.S. dollar system. If their access to the system is even slightly threatened “they are in trouble,” he said.
As the Hong Kong Securities and Futures Commission (SFC) began accepting licensing applications from digital asset trading companies last November, the number of crypto and brokerage companies in the city has significantly increased. Many hoped that the push to better police the space and introduce much-needed regulatory clarity would be good for business. This attracted international investments—OSL, one of the largest crypto brokerages and custodians in Hong Kong, secured a $14 million investment from Fidelity in February. Amber Group, a crypto trading and lending startup, received over $28 million in funding from Coinbase and Polychain the same month.
What caused panic among these companies is the fact that the sanctions act enables the U.S. to limit where Hong Kong companies could send money and limit the size of their transactions.