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Hong Kong begins discussions to introduce stablecoin regulatory framework

Hong Kong’s central banking institution, the Hong Kong Monetary Authority (HKMA), released a questionnaire to gauge public opinion on regulations for crypto-assets and stablecoins. The state-backed regulator intends to establish a regulatory framework by 2023-24.HKMA’s “Discussion Paper on Crypto-assets and Stablecoins” highlights the explosive growth of the stablecoin market in terms of market capitalization since 2020 and the concurrent regulatory recommendations put forth by international regulators including the United States’ Financial Action Task Force (FATF), the Financial Stability Board (FSB) and The Basel Committee on Banking Supervision (BCBS).Market Capitalization of Crypto-assets. Source: HKMAAccording to the HKMA, the current size and trading activity of crypto-assets may not pose an immediate threat to the stability of the global financial system from a systemic point of view. However, the discussion paper warned:“The growing exposure of institutional investors to such assets as an alternative to or to complement traditional asset classes for trading, lending and borrowing […] indicate growing interconnectedness with the mainstream financial system.”Market Capitalization of Major Stablecoins. Source: HKMA.Based on the above figure, HKMA’s paper shows that the global market capitalization stood at about $150 billion in December 2021, “representing about 5% of the overall crypto-asset market.” The regulator has also shared a list of eight questions to seek policy-related recommendations citing five possible regulatory outcomes — no action, opt-in regime, risk-based regime, catch-all regime and blanket ban:Possible policy options for regulating crypto-assets. Source: HKMA.HKMA expects stakeholders to submit their responses by 31st March 2022, and aims “to introduce the new regime no later than 2023/24.”Major jurisdictions’ regulatory stance towards stablecoins. Source: HKMA.On an end note, the regulator stated that payment-related stablecoins have a higher potential for being incorporated into the mainstream financial system or even day-to-day commercial and economic activities. As a result, the HKMA considers expanding the scope of the Payment Systems and Stored Value Facilities Ordinance (PSSVFO), a law that determines the legality of financial products. Related: Hong Kong real estate giant leads $90M raise for crypto bank SygnumComplementing the local government’s pro-crypto intentions, one of Hong Kong’s largest property developers Sun Hung Kai invested $90 million in Sygnum, a Swiss bank dedicated to digital asset holding. As Cointelegraph reported, the Series B funding round brings Sygnum’s post-money valuation to $800 million, marking a tenfold surge in consolidated revenues from 2021.

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Hong Kong Monetary Authority aims to oversee stablecoin reserves

Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), wants to supervise stablecoin issuance and reserves management.HKMA published a discussion paper on Jan. 12 regarding cryptocurrencies and stablecoins, in which it provided its views on how the industry should be regulated in Hong Kong.In the 34-page long consultation document, the HKMA paid special attention to “payment-related stablecoins,” pointing out that the market capitalization of all stablecoins hit $150 billion in December, accounting for 5% of the entire crypto market. The regulator added that all existing stablecoins are “mostly asset-linked and predominantly pegged” to the United States dollar, including stablecoins like Tether (USDT) and USD Coin (USDC).“The rapid development of crypto-assets, particularly stablecoins, is a topic of keen attention in the international regulatory community as it presents possible risks regarding monetary and financial stability,” HKMA said.In order to effectively handle associated risks, HKMA laid out eight major policy directions, proposing to become a single regulator to supervise entities involved in both regulating and running operations like issuing stablecoins and managing their reserves. The authority also wants to regulate stablecoin transactions’ validation processes, private key storage management and executing transactions.“We encourage current or prospective players in the stablecoins ecosystem to respond to this paper and submit relevant views to us, so that we could take the feedback into account when formulating the regulatory framework,” HKMA wrote. The regulator expects to finalize its next steps as soon as possible and introduce new regulations by 2023 or 2024.Related: Hong Kong-based Coinsuper allegedly blocks customers’ withdrawalsHKMA is not the only financial regulator concerned about stablecoin risks and planning steps to regulate the growing industry. In November 2021, the U.S. President’s Working Group on Financial Markets issued a report on possible “stablecoin runs” and “payment system risks.” The U.S. Treasury subsequently hinted at new stablecoin-focused laws in December.

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Kevin O'Leary says his crypto holdings could reach 20% of portfolio

Shark Tank celebrity Kevin O’Leary, also known as Mr. Wonderful, says he would be ready to increase his crypto allocations up to 20% as soon as there are clearer regulations around stablecoins. O’Leary, a former Bitcoin (BTC) skeptic, is now a vocal advocate of cryptocurrency, which currently makes up over 10% of his investment portfolio. Mr. Wonderful is particularly focused on U.S. dollar-pegged stablecoins, which he sees as an effective hedge against rising levels of inflation. By staking stablecoins, he pointed out, he can make up to 6% returns. He explained to Cointelegraph: ​”When inflation is 6%, you’re buying power 12 months from now is 6% less. And that’s all lot […] I’m a huge advocate for solving this problem with stablecoin.”A clear regulatory framework would allow O’Leary to convert large cash positions into stablecoins. Currently, however, he cannot invest beyond 5% into stablecoins because of regulatory constrains. “My own compliance department consider stablecoins as an equity no different than a stock,” he said. According to O’Leary, his excitement around stablecoins is shared by many institutional investors, who are “working quietly in the background” and waiting for regulators to make their move. In addition to stablecoins, Mr. Wonderful is also an investor in Bitcoin, Ether (ETH), and other cryptocurrencies. However, due to their underlying volatility, these cryptos are unlikely to make up a large portion of an institutional investor’s portfolio, he claimed. “You’re not going to get there to a 20, 30% in Bitcoin in an institutional or sovereign mandate, you’re just not. Stablecoins have that potential,” he explained.Watch the full interview on our YouTube channel and don’t forget to subscribe! 

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House memo details Congress' priorities ahead of crypto CEO hearing

The United States House Committee on Financial Services released a memorandum detailing the points of discussion during the hybrid hearing on digital assets, to be held today at 10:00 a.m. ET.Addressing the members of the Financial Services Committee, the memo confirmed that the hearing will dedicate one panel to six executives from the crypto community as witnesses. The list includes Circle’s Jeremy Allaire, FTX’s Samuel Bankman-Fried, Bitfury Group’s Brian Brooks, Paxos’ Charles Cascarilla, Stellar’s Denelle Dixon and Coinbase’s Alesia Jeanne Haas.The hearing, entitled “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States,” seeks to discuss four key aspects related to crypto exchanges: stablecoin offerings, regulatory concerns in digital assets and federal regulatory responses.The brief reads, “This hearing will examine some of the new products and services offered by major digital assets market participants, the role of cryptocurrency market exchanges in facilitating investments in cryptocurrency and related transactions, the growth of stablecoins and other digital assets, and the current regulatory landscape governing these new products and services.”BREAKING ‼️Chairwoman @RepMaxineWaters Announces #Cryptocurrency CEOs to Testify at Full Committee Hearing | https://t.co/6IBi6jGNAC pic.twitter.com/r4kJqjmhqu— U.S. House Committee on Financial Services (@FSCDems) December 1, 2021While the memo highlights the role of exchanges in serving as an entry point for crypto investors, the hearing will also discuss decentralized finance, given its potential to “replicate and replace conventional delivery of financial services such as loans, asset trading, insurance, and other services.”The document also talks about the differences in operational structures and reserve compositions of stablecoins as compared to fiat currency, adding:“Cryptocurrency markets have no overarching and centralized regulatory framework, leaving investments in the digital assets space vulnerable to fraud, manipulation, and abuse. Digital assets and related service providers can present money laundering, terrorist financing, sanctions evasion, kleptocracy, and other illicit finance risks.”Acknowledging the rise in cryptocurrencies, Congress hopes to develop a clear stance on central bank digital currencies (CBDC) based on the ongoing study conducted by the Federal Reserve to “examine the potential benefits and risks of CBDCs and its impact on the U.S. domestic payments system.”Just yesterday, Circle CEO Jeremy Allaire released statements ahead of the hearing, stating:“In a world where money becomes a core feature of the internet, the U.S. should aggressively promote the use of the dollar as the primary currency of the internet, and leverage that as a source of national economic competitiveness, security and a major upgrade needed for more efficient and inclusive financial services.”Allaire’s firm Circle is the sole issuer of dollar-backed stablecoin USD Coin (USDC). He suggested that the U.S. government can make mainstream use of the stablecoin via dollar-denominated reserves. “Policy frameworks need to support an open and competitive playing field, and allow new technologies to flourish,” he added.

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