The focus of Web3 financial transactions shifts eastwards, and Hong Kong’s new policy leads to a new round of crypto competition

The year-on-year regional supply changes of Bitcoin show that Bitcoin is beginning to shift from the United States to Asian wallets. What changes are happening in the crypto market? Behind the US regulation and the new Hong Kong policy, how will the Web3 world develop in the future, and what huge development opportunities will it usher in? This article will discuss these issues.

Bitcoin supply trend changes, eastward shift is hard to stop

Since the United States tightened its crypto market regulation this year, crypto tokens have also seen some significant changes, with Bitcoin previously located in the United States continuing to move to wallets located in Asia. Glassnode recently released a set of Bitcoin year-on-year regional supply change charts, from which we can observe the changes in the supply of BTC held during US and Asian trading hours. In this chart, we can notice that the supply changes are almost equal but opposite, which indicates that tokens previously located in the United States continue to move to wallets located in Asia. (US year-on-year supply change: -7.5%; Asia year-on-year supply change: +6.9%).

Ark Invest analyst Yassine Elmandjra wrote in a report on Monday that the United States is at risk of losing its leading position in the global crypto ecosystem to countries such as the United Arab Emirates, South Korea, Australia and Switzerland. The report pointed out that the liquidity of cryptocurrencies in the United States has dropped significantly. The U.S. cryptocurrency ecosystem, once occupied by mature and reliable institutions, now faces a gap, which may temporarily put the interest of other institutional investors on hold. For example, trading companies Jane Street and Jump Trading have reduced their participation in the domestic U.S. market. CoinMetrics data shows that the country's Bitcoin trading volume has dropped from $20 billion a day in March to around $4 billion last week, a drop of 75%. In the United States, regulatory uncertainty appears to be hindering existing companies and new entrants in the crypto field.

US crypto regulation tightens, Hong Kong government's new policy draws market attention

Crypto regulation in the United States has become increasingly strict in recent times, while the Hong Kong government's new crypto policy has attracted much attention. The most affected are crypto exchanges, among which Binance.US is the most representative. According to Bitpush, the U.S. CFTC sued Binance in late March, accusing it of violating trading and derivatives rules. Subsequently, Binance announced its decision to terminate its asset purchase agreement with Voyager Digital, citing "the hostile and uncertain regulatory environment in the United States." Kaiko tweeted on May 17 that Binance.US's market share in U.S. exchanges has been halved in recent weeks, with ETH trading volume falling particularly sharply. @LMAX and @Bitstamp have each doubled their market share since the beginning of the year.

According to a Bernstein research report, as part of a potential settlement, the U.S. Commodity Futures Trading Commission ( CFTC ) may require Binance to stop operating in the United States. The report said that Binance US is a small part of Binance's entire business, accounting for less than 5% of the exchange's global business. The report said that this latest enforcement does not "have a significant impact on the entire crypto market" like Binance. The U.S. business is not important, and the company does not expect the news to trigger a large-scale market sell-off because the "regulatory narrative" has shifted from the United States to the expected flow of funds from Hong Kong and mainland China.

The United States' regulatory tentacles are not limited to the country, but also extend overseas. According to Bitpush, in the United States, the IRS warned that a crypto crackdown is coming when it comes to digital assets and tax avoidance measures; the IRS is expected to update tax regulations under Sections 6045 and 6045A, both of which cover brokers reporting digital asset information. In addition, the Internal Revenue Service (IRS) will send commissioners to Singapore and other countries to conduct investigations related to crypto taxation and financial crimes; and plans to set up a pilot in June to strengthen supervision of "taxation and financial crimes using cryptocurrencies, DeFi , peer-to-peer payments, and mixing services."

Overall, the United States continues to increase its domestic regulatory efforts, forcing many crypto exchanges to choose to withdraw from the U.S. market. In addition, the United States' long-arm jurisdiction has made many institutions in the crypto market more willing to comply with regulations. This has also become the main reason why the crypto financial market has begun to move eastward. From the current perspective, this trend will accelerate in June.

Hong Kong's new crypto policy will be implemented on June 1, and major exchanges are eagerly waiting

According to Bitpush, in February this year, the Hong Kong Securities and Futures Commission launched a consultation on the proposed regulations applicable to operators of virtual asset trading platforms. The latest news on the official website of the Hong Kong Securities and Futures Commission stated that the consultation period on the proposed regulatory provisions applicable to operators of virtual asset trading platforms licensed by the Securities and Futures Commission ended on March 31, 2023, and respondents generally supported the proposed regulatory provisions applicable to licensed virtual asset trading platforms. The revised proposed regulatory provisions will take effect on June 1, 2023. The Hong Kong Securities and Futures Commission stated that the Commission has noted that respondents have expressed strong support for allowing licensed virtual asset trading platforms to provide services to retail investors. The Commission will implement the proposal to allow licensed virtual asset trading platforms to provide services to retail investors.

Behind this news, the most eye-catching thing is that "the Commission will implement the proposal to allow licensed virtual asset trading platforms to provide services to retail investors." The crypto market was affected by this, and the bulls finally took the advantage and got out of the short-term decline. Some big Vs even expressed optimism about the coming bull market. According to Bitpush, Binance founder Zhao Changpeng (CZ) said on social media that CCTV mentioned that Hong Kong accepted applications from virtual asset platforms, which caused a strong response in the Chinese crypto community. "Historically, such reports may trigger a bull market."

In response to the new policy of the Hong Kong government, major exchanges are also gearing up and looking forward to it. BitMEX stated that from May 29, 2023, Hong Kong users will not be able to access the BitMEX website or API, and all account balances will be transferred to the BitMEX Hong Kong account. Users need to access these services through the new BitMEX Hong Kong mobile app. In addition, from May 29, 2023, the existing BitMEX trading platform will no longer accept any new Hong Kong users, and Hong Kong users will only be able to open accounts through the dedicated BitMEX Hong Kong mobile app. On May 26, according to Huobi’s official Twitter, Huobi will officially launch Huobi Hong Kong Station Huobi HK and is ready to provide users with a variety of cryptocurrency trading services. It is reported that from June 1, users can buy, sell and hold mainstream cryptocurrencies including BTC, ETH, and other major cryptocurrencies listed in independent indices through Huobi HK. Others like OKX and Binance have also made positive moves, and a new crypto competition is coming.

Outlook

In addition to the new regulations on June 1, the most important thing this year is that the Hong Kong Monetary Authority publicly launched the Digital Hong Kong Dollar Pilot Program. 16 financial leaders from the financial, payment and technology sectors will conduct the first round of trials this year to conduct in-depth research on the potential use cases of the "Digital Hong Kong Dollar" in six areas, covering comprehensive payment, programmable payment, offline payment, tokenized deposits, third-generation Internet (Web3) transaction statistics and tokenized asset statistics. If the digital Hong Kong dollar is promoted smoothly, it is very likely to revive Hong Kong's status as an international financial center and attract a large number of Web3 talents, projects and landing RWA, etc.; blockchain technology will therefore achieve a wider range of use cases, and the crypto market may then achieve real prosperity.