South China Morning Post article: Why can’t the JPEX incident shake Hong Kong’s cryptocurrency vision?

Author: Lily Z. King Cobo COO

Editor's note: The South China Morning Post website published an article by Cobo COO Lily Z. King on October 5, discussing the impact of the JPEX incident on the Hong Kong cryptocurrency industry.

• **It is worth mentioning that Hong Kong’s licensing system can solve the regulatory problems exposed by JPEX, thereby making retail investors safer. **
• **This incident also highlights that the encryption industry is maturing and is not just limited to speculation. The growing interest of enterprises and institutions is expected to lead to a more stable digital economy. **

Hong Kong’s determination to become a global digital asset center has always been clear. The government’s ongoing efforts to create a conducive ecosystem for digital assets underpin its broader vision to remain financially competitive on the international stage. But the recent debacle of Hong Kong-based cryptocurrency exchange JPEX has roiled the rapidly growing Hong Kong cryptocurrency industry.

In mid-September, JPEX set sky-high currency withdrawal fees, which in disguise restricted users’ currency withdrawals. The incident affected thousands of people and caused economic losses estimated at more than HK$1 billion (US$127 million). Not only was it opened for police investigation, but it also seriously damaged the public's perception of cryptocurrency.

The JPEX scandal has undoubtedly cast a pall over Hong Kong’s cryptocurrency vision. The incident is likely to cast doubt on other government Web3 initiatives.

We even heard one institutional investor say "Hong Kong's gamblers already have horse racing, why do they need Web3?"

On the other side of the coin, Hong Kong has the potential to enhance the safety and security of retail investors by addressing the regulatory challenges exposed by the JPEX incident. This once again proves the necessity for Hong Kong to implement a licensing system for virtual asset trading platforms.

Given the current volatility, security risks and technical barriers in the cryptocurrency market, we predict that it will be difficult for retail investment to experience significant growth in the short term. However, we are seeing encouraging signs of institutional adoption of digital assets and blockchain technology.

The institutional community has recognized the potential of cryptocurrencies, no longer just as a channel for speculation, but as a revolutionary future financial infrastructure. In particular, the Hong Kong government is continuing to promote the tokenization of real-world assets.

Cai Fengyi, a member of the Hong Kong Securities and Futures Commission and executive director of the investment products department, said at the recent "2023 Bloomberg Buyer Forum" that the Securities and Futures Commission is currently formulating more detailed guidance on the tokenization of authorized investment products.

The Hong Kong Monetary Authority is expanding its first global tokenized green bond pilot project and in a recent report outlined possible next steps towards tokenizing Hong Kong’s bond market.

Blockchain technology is also being adopted by more and more mainstream companies. Grab, the Southeast Asian "super app" with 180 million users, is a typical example. The company recently launched a Web3 wallet for its Singaporean users. This Polygon-powered wallet demonstrates the real-world applications of digital currencies, facilitating payments in new currency stablecoins.

Admittedly, the road to mass adoption of digital assets is rocky. But the progress institutional forces are making in bridging the gap between traditional and cryptocurrency finance is worth watching.

Institutions have strict requirements for stability, security and customizability. As a result, cryptocurrency infrastructure companies are developing advanced custody and wallet solutions to reduce counterparty risk and increase transparency and user control, such as MPC (multi-party computation) wallets and smart contracts that allow multiple parties to jointly manage and control funds within a wallet. wallet.

During the last speculative bubble, digital asset markets were largely driven by the desire to get rich quick, attracting retail investors, of which JPEX was a part.

However, we are at a new critical moment where the cryptocurrency industry must prove it can have a real impact on real-world economies. It seems that the reason why many organizations are quickly jumping on the bandwagon of the artificial intelligence (AI) revolution is because AI can actually improve productivity.

While the JPEX incident poses a challenge to Hong Kong’s cryptocurrency resolve, it also shows that the cryptocurrency industry is maturing beyond mere speculation. Currently, significant progress is being made in the areas of stablecoins, payments, and real-world assets. Rapidly growing institutional adoption promises to bring a more stable and revolutionary digital economy to Hong Kong and Asia as a whole.

This article refers to the English translation and is for reference only. Click the "original link" at the bottom of the article to read the original English text.