Nearly four months after Hong Kong’s securities watchdog banned licensed platforms from offering stablecoins to retail investors, a government official has stressed that retail stablecoin trading is still illegal. To trade stablecoins, retail investors might have to wait until the end of next year.
Speaking at an online committee meeting on Friday, Christian Hui, Hong Kong’s Secretary for Financial Services and the Treasury, said retail stablecoin trading will see the light of day once it is officially regulated, which is unlikely to happen before the end of 2024, per a local media report.
The curious case of stablecoins
Stablecoins like Tether or USD Coin are blockchain-based digital currencies that claim to be backed by safe reserves—fiat currencies like dollar or pound, or other assets like bonds or metals. While stablecoins promise price stability, one of the reasons investors find it desirable, regulators across the globe have been raising alarm bells over the risks associated with stablecoins.
Hong Kong’s Secretary for Financial Services and the Treasury echoed similar concerns, highlighting that some stablecoins have faced serious volatility issues or even collapsed in the past, triggering financial stability risks. The official also pointed out that the reserve management of stablecoins impacts the investors’ rights to redeem fiat currencies.
Hui’s apprehension about stablecoins is not out of line. The crypto community is still reeling from the collapse of Terra’s UST stablecoin and governance token LUNA. Last May, Terra’s UST dropped to 13 cents while LUNA lost almost all of its value. Little wonder that the Terra classic community has voted against minting and re-minting of USTC tokens.
In light of these risks, the retail trading of stablecoins will not be permitted in Hong Kong, at least not until the end of next year. With crypto scams in Hong Kong and elsewhere on the rise, there is an urgent need for higher supervision of the cryptocurrency market, the official said, referring to the JPEX scandal.
JPEX scandal exacerbates worries over stablecoins
Last month, Hong Kong police said it had received more than 2,300 complaints related to JPEX, which allegedly defrauded victims out of nearly $180 million. The JPEX incident came less than a month after Hong Kong regulators officially allowed retail investors to trade cryptocurrencies such as Bitcoin.
In the wake of concerns over and risks associated with stablecoins, several countries have come up with plans to regulate the digital assets. Leaders in the United States have issued a clarion call on the need to regulate stablecoins. The Monetary Authority of Singapore has designed a regulatory framework to ensure stablecoin value stability. Meanwhile, Hong Kong’s regulator is planning to introduce regulatory guidelines for the stablecoin market by the end of next year.
In other news, a Canadian regulatory body has issued clarification that it may soon allow trading of what it calls value-referenced crypto assets, which includes stablecoins. The move comes months after the country banned trading platforms from allowing customers to buy or deposit stablecoins without prior written consent.