Tough Love: Canada and Hong Kong’s strict crypto laws

Harsh regulations or no regulations at all? ⚖️

As the recent examples of Canada and Hong Kong show, for many crypto exchanges it is the former, even if compliance comes at a high cost.

New crypto rules in Canada

🍁 The Land of the Maple Leaf imposed a new set of crypto regulations in February, forcing the already operating crypto exchanges to either register with the Canadian Securities Administrators or leave.

The registration requires the companies to ensure segregation in crypto custody and to have a chief compliance officer on staff. It also prohibits leveraged trading and the use of stablecoins without prior consent from the regulators (which so far equals to a ban on stablecoins).

Many centralized exchanges have left: Binance, OKX, Bittrex, and most recently – Bybit. Decentralized exchanges like dYdX or Paxos have restricted access to Canadian residents.

However, the American firms Coinbase, Kraken, and Gemini, which are not easily frightened by regulatory hurdles, have stayed. 

Canadian exchanges BitBuy and Shakepay were among the first to file for registration.

New crypto license in Hong Kong

🌆 Since its rapprochement with China, Hong Kong was on the hostile side of the crypto spectrum.
However, it looks like it is now eager to revive its former financial glory by kicking off a new regulatory regime for cryptoassets, which went into effect today.

The new mandatory crypto exchanges license, given by the Securities and Futures Commission (SFC), introduces new rules for user onboarding, asset custody, security, due diligence on listed cryptos. The exchanges can only offer cryptoassets with large market capitalization and high liquidity and are prohibited from offering derivatives and stablecoins.

Despite the harsh rules, OKX and Huobi have already announced to be applying for the license. BitMEX, a crypto derivatives platform, will be rolling out a separate spot-only app for Hong Kong users, as will Gate. io.

Leveraged trading and the use of stablecoins are very important for most crypto exchanges, which will see surely see their profits dwindle if the activity reduces to mere crypto-fiat spot trading. Especially if the number of cryptos will be reduced to the top 10, or less.
However, having clear rules on crypto trading cannot be underestimated, especially in the context of the huge regulatory mess in the United States.