Get a license or get out, Hong Kong tells crypto platforms

In Token Issue this week, we look at what the future of AI means for crypto and Hong Kong’s initiative debuting on June 1. [Read from your browser]( Token Issue Welcome to Token Issue! Delivered every Friday, this free newsletter breaks down the biggest stories in Asia’s crypto scene and beyond. View past issues [here]( or [sign up here]( to receive future newsletters. Written by Scott Shuey Crypto journalist Good news everybody. Despite the fact that Hong Kong-based crypto exchange Hotbit ceased operating this week, the lights are flashing green for Hong Kong's crypto debut on June 1. In anticipation of that, the city's Securities and Futures Commission released its consultation report on crypto trading platforms on Tuesday, which includes new rules and regulations. Many are hoping this will be a watershed moment for the crypto industry, which hasn't had much to celebrate over the last year. It’s been a rough ride through the bear market, with characters like FTX’s [Sam Bankman-Fried]( and [Caroline Ellison]( Terraform Labs’ [Do Kwon]( and Three Arrows Capital’s [Su Zhu and Kyle Davies]( making headlines for all the wrong reasons. The recent crypto crackdown by US SEC chairman [Gary Gensler]( certainly doesn’t help matters. In spite of all that, blockchain technology still has a future. That's the word from Tony Fadell, the former Apple executive known as the "father of the iPod," who gave Tech in Asia an exclusive interview this week to talk about AI. Spoiler alert: That future may not be in decentralized finance. You can check out our Deep Dive to see where Fadell thinks blockchain is heading. -- Scott --------------------------------------------------------------- 🤿 THE DEEP DIVE [AI to boost blockchain development]( The development of blockchain and AI technologies is not mutually exclusive, Tony Fadell tells Tech in Asia. In an interview with news editor Collin Furtado, he says blockchain is "real technology" that isn't going to go away. With the rise of creative AI and deepfake tech, the need for tools that can provide verification will become even more critical, he says. Fadell also talks about his experience building products for Southeast Asia, which stems from his time living in Indonesia. --------------------------------------------------------------- 👀 ALL EYES ON... What everyone’s talking about. 1️⃣ [Hong Kong issues new crypto report and rules]( No air drops. No stablecoins (for now). And retail investors can only trade Bitcoin and Ether. Those were but a few of the many rules dropped by Hong Kong's Securities and Futures Commission (SFC) on Tuesday. But the bottom line remains the same: Platforms looking to trade virtual assets can apply for licenses to do so from June 1. The agency also said that any virtual asset service provider (VASP) that does not plan to get a license should ["proceed to an orderly closure of their business in Hong Kong."]( Along with the rules on airdrops and stablecoins, the SFC also said tokens must have a 12-month track record before they will be allowed on exchanges. VASPs must also conduct due diligence on tokens before they are listed. As for exchanges, the new regulations say they must maintain a minimum of HK$5,000,000 (US$640,000) in capital and disclose their platform's available and required liquid capital. They must also report their outstanding bank loans, advances, and credit facilities, as well as a profit and loss analysis, to the SFC at the end of each month. Not surprisingly, the paper covers capital requirements for exchanges as well as rules on anti-money laundering and counter-financing of terrorism. These rules are the second major set of crypto regulations announced this year, following the [passage of MiCA]( in April. And like the European rules, they are as yet incomplete. Specifically, stablecoins will not be allowed on exchanges until additional regulations are approved. The new rules are the city's first steps in a broader plan to become a global virtual assets hub. Investors will also be watching Hong Kong for indications of China's willingness to engage with the wider crypto industry. Crypto is currently banned in mainland China. 2️⃣ [Hotbit's demise: no one wants to use CEXes anymore]( On Monday, Hong Kong-based Hotbit became the latest crypto exchange to shut operations, although it did so without having to declare bankruptcy. Instead, the five-year-old exchange with over 5 million users cited poor operating conditions and the diminished role of centralized exchanges (CEXes). It noted that the collapse of FTX and the US crises have caused investors to pull their funds from CEXes, including Hotbit. "The Hotbit team believes that centralized exchanges are becoming increasingly cumbersome, with highly complex and interconnected businesses that are difficult to comply with, whether for compliance or decentralization, and are unlikely to meet long-term trends," it said in an online statement. The company also noted that a [criminal investigation]( into a former team member in August 2022 hurt its business. Hotbit users have until June 21 to withdraw their funds. 3️⃣ [Malaysia says Huobi is unregistered, orders them out of the country]( While Hong Kong is getting ready to launch its crypto initiative, Malaysia is cracking down on what it sees as illegal crypto trading. The Securities Commission Malaysia has ordered [Huobi]( to disable its platform in the country. It has labeled the exchange's operations in Malaysia as "illegal." According to [a public reprimand]( issued by the regulator against Huobi and its CEO Leon Li, the firm is operating without proper registration. There has been no official comment from Huobi but as of Wednesday, most of the site's features were inaccessible from Malaysia. The closure came just one day after Malaysian police in the state of Melaka [busted an alleged criminal syndicate]( offering "non-existent cryptocurrency investment schemes." --------------------------------------------------------------- ⭐ TO THE STARS Impactful developments and projects in Web3. 1️⃣ [SNARKy technology will be as big as blockchain, Ethereum founder says]( Vitalik Buterin, the founder of Ethereum, believes zk-SNARKs are the next big thing. "Zk-SNARKs are going to be as important as Blockchains in the next 10 years," he said, according to a tweet from EDCON, which hosted the event he was speaking at. [According to The Motley Fool]( zk-SNARK stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge. It is a “zero-knowledge proof protocol” that hides the information in cryptocurrency transactions. The Fool, wisely, did not comment on whether zk-SNARKs would rule afoul of know-your-customer or anti-money laundering regulations. 2️⃣ [Dubai plans the Crypto Tower]( Dubai is certainly known for its skyline and unusual architecture, which includes everything from the [Burj Al Arab]( the [Burj Khalifa]( and the [Museum of the Future](. The emirate will soon be home to the world's first “Bitcoin tower.” Its developer says the 40-story, art deco-styled building will be located in Jumeirah Lake Towers on the southern side of the city. It will combine the “digital and physical world in a community-centric, vertical structure” and include residential, commercial, and retail spaces. There will even be an “NFT gallery.” Since this is Dubai, the tower will also have an exotic supercar dealership and a precious metal storage vault. According to the developer’s website, the tower will be “entirely built using a smart contract.” Investors can purchase NFTs that represent one square foot of the building’s 150,000 square feet area. NFT holders will receive a proportional share of the building’s quarterly revenues and can also take part in the building’s DAO. The tower is designed by Salvatore Leggiero and backed by Metaverse Investments. --------------------------------------------------------------- MORE TO CHEW ON Stuff that’s good to know. 1️⃣ [Spouses be warned: divorce attorneys increasingly looking for hidden virtual assets]( Hunting for hidden crypto assets isn't just for federal prosecutors anymore. A report from CNBC shows that attorneys are becoming more crypto-aware and asking about digital wallets. If the spouse doesn't admit to having them, attorneys are turning to forensic accountants to hunt them down. In 2021, one divorce attorney found 12 bitcoins hidden in a wallet by the husband of a New York housewife. The stash was valued at over US$500,000 back then. 2️⃣ [Gemini working to avoid default by Genesis on $630m loan]( Crypto exchange Gemini says it is working with Digital Currency Group (DCG), the parent company of Genesis Global Capital, to avoid a default by Genesis on a US$630 million loan. Gemini says the loan was due last week. It is currently working with other creditors and is considering whether to offer a forbearance, which would give Genesis more time to pay. The forbearance will be considered only if DCG engages in good faith negotiations, Gemini said. A second suit, this one by bankrupt exchange FTX, is complicating the case. The firm is seeking about US$3.9 billion in cash and cryptocurrencies from Genesis. 3️⃣ [Biden says he won't protect crypto traders in debt negotiations]( On Sunday, the final day of the G7 summit, US President Joe Biden spoke about his current battle with congressional Republicans over lifting the country's debt ceiling. Unless Republicans and Democrats reach a deal that allows the government to borrow more money, the US could default on its debt in early June. "I'm not going to agree to a deal that protects wealthy tax cheats and crypto traders while putting food assistants at risk," Biden said. The deal that the president was referring to, according to [The Washington Post]( is a loophole called [tax-loss harvesting](. It is a strategy where investors sell an asset at a loss and then quickly repurchase it. Democrats are proposing to close the loophole but have faced rejection from Republicans. 4️⃣ [Do Kwon heads back to jail after bail revoked]( A court in Montenegro revoked the bail of former Terraform Labs CEO Do Kwon on Wednesday. The judge agreed with prosecutors that the bond worth 800,000 euros (US$859,000) posted by Kwon was not enough to ensure he and Chang-joon Han, Terraform Labs' former finance officer, would not “run away once they are released from detention,” Reuters reported. Kwon is wanted in South Korea and the US for his involvement in the collapse of the TerraUSD stablecoin. He will remain in pre-trial detention. He and Han were arrested when they allegedly tried to fly to Dubai using forged documents. --------------------------------------------------------------- That’s all for this issue - we hope you liked it. WAGMI! P.S. Don't miss out on the biggest tech news and analysis. Add newsletter@techinasia.com to your address book, contacts, or safe sender list. 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