Article/Carl
"The industry has been shaken, and the number of active cryptocurrency users in Hong Kong has decreased."
"Due to the JPEX incident, government officials in Hong Kong have become very cautious when attending Web3.0 events."
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Over the past month, the JPEX case has continued to impact Hong Kong's Web3.0 industry, casting a lingering negative sentiment over industry practitioners.
On the other hand, the positive impact of the JPEX case is gradually emerging. The Securities and Futures Commission has introduced a series of optimization measures, and the Hong Kong government has stated its commitment to the unwavering development of Web3.0. Compliant exchanges are gaining greater development space, and HashKey and OSL are exploring the next stage of development opportunities.
The history of cryptocurrency is a mix of wealth myths and frequent accidents. Fortunately, each accident has failed to kill the industry but has instead propelled its further development. Since the birth of Bitcoin 14 years ago, it has been declared dead hundreds of times, yet it remains resilient. Blockchain has been accepted by governments worldwide, and the cryptocurrency industry and Web3.0 have become objects embraced and pursued by many countries and regions.
Looking to the future, 2023 is the inaugural year for compliant exchanges, and the JPEX incident marks the true starting point for Hong Kong's compliant Web3.0.
1. Police Arrest 26 People, Including CEO of JPEX
On September 5, the Hong Kong police arrested 6 more individuals involved in the JPEX case, including "Sir Dragon" Chen Xiaolong, the CEO of over-the-counter (OTC) cryptocurrency platform CryptoLeopard.
As of now, the amount involved in the JPEX case has exceeded HK$1.5 billion, with a total of 26 arrests. The case is still under investigation, and more individuals may be apprehended.
However, the actual person in charge of JPEX remains unknown. On September 29, the Hong Kong and Macau police announced the arrest of four individuals "relatively close to the core" of JPEX, one of whom attempted to destroy evidence using a paper shredder and bleach.
Industry analysts told Techub News that due to the impact of the JPEX case, there is a prevailing negative sentiment in the industry. "It was already a bear market, and now cryptocurrency users have become even fewer and less active."
At the EDGE Global AI & Web3 Investment Summit held at the end of September, a staff member told Techub News that due to the impact of the JPEX case, Hong Kong government officials attending Web3.0 events have become very cautious, and many government officials invited to the event did not show up.
Currently, the JPEX case is driving the Hong Kong government to further optimize compliance measures related to virtual assets to mitigate the negative impact of this event on the cryptocurrency industry.
On October 4, the Securities and Futures Commission announced the establishment of a joint working group with the Police Force to strengthen cooperation in supervising and investigating illegal activities related to virtual asset trading platforms.
To provide the public with a better understanding of the compliance status of various virtual asset trading platforms, the Securities and Futures Commission released multiple lists of virtual asset trading platforms, including licensed platforms, applicants, closed platforms, and platforms identified as having obtained licenses.
Hong Kong Chief Executive Carrie Lam and other important officials have expressed a high level of concern about the JPEX case.
On September 19, the day after the arrest of KOL Lin Zuo and Chen Yi and 6 others by the Hong Kong police, Carrie Lam told the media that she is very concerned about the JPEX case and requested a meeting in the afternoon with the Securities and Futures Commission and the police. The JPEX incident reflects the importance of regulation, the importance of investing in regulated and licensed trading platforms, and the importance of individuals' understanding of and risk associated with virtual assets.
Ashley Alder, CEO of the Securities and Futures Commission, emphasized that the direction of developing the Web3 ecosystem in Hong Kong will not change because of the JPEX incident.
On September 25, at a press conference, Ashley Alder stated that the JPEX incident further underscores the importance of regulation, and virtual asset trading is an important part of the Web3 ecosystem. The underlying technology used in digital finance and virtual asset activities can benefit the financial market.
2. Good Money Drives Out Bad Money
Compliance is fundamental to the development of Web3.0 in Hong Kong. Since October last year, Hong Kong has been committed to promoting the healthy and benign development of the Web3.0 ecosystem, with virtual asset exchanges being an important part of the ecosystem.
On June 1 this year, the "Guidelines for Operators of Virtual Asset Trading Platforms" and the "Anti-Money Laundering Guidelines" officially came into effect, and the Securities and Futures Commission began accepting applications for licenses from operators of virtual asset trading platforms. This means that the Commission has the authority to regulate virtual asset exchanges, either by issuing licenses or cracking down on non-compliant platforms.
Wu Wenqian, founder of Mura and a lawyer, told Techub News that many people attribute the JPEX incident to the lack of government or regulatory oversight. However, prior to June 1, the Securities and Futures Commission did not have the authority to regulate or investigate JPEX. Before that date, the Commission's only action was to list JPEX as a potentially unlicensed website. In contrast, the U.S. Securities and Exchange Commission has been vigorously enforcing laws dating back over 80 years, taking strict enforcement actions against various exchanges and project parties.
According to the Commission's announcement, it has been closely monitoring JPEX and conducting an investigation. However, JPEX has been uncooperative and has not provided a substantive response. Therefore, in July 2022, the Commission listed JPEX as an unlicensed company and a suspicious website.
Recently, Wu Wenqian has attended numerous online and offline events, discussions, media interviews, and visits by KOLs related to the JPEX incident.
From his observations, JPEX does not represent the entire cryptocurrency industry. Its operation model differs significantly from the cryptocurrency industry, targeting retail investors with little to no experience in virtual currency investment, and relying on over-the-counter storefronts set up by KOLs.
Zhang Junyong, Honorary Chairman of the Hong Kong Blockchain Association, told Techub News that in the course of industry development, there will always be good and bad companies, and JPEX is simply a company that deceives its clients from start to finish.
The Securities and Futures Commission aims to promote the compliant development of exchanges, and while formulating rules is one aspect, the more important aspect is to implement policies and crack down on non-compliant platforms. Otherwise, it would be "bad money driving out good," which is highly detrimental to compliant exchanges.
An industry analyst stated, "The JPEX incident is an inevitable part of Hong Kong's push for Web3.0 development, it's just a matter of time and which specific company it targets."
Zhao Wei, CEO of TokenInsight, told Techub News that in the short term, the JPEX incident has caused significant damage to Hong Kong and has shaken the confidence of many individuals and industries. Security has become a primary concern for many. However, in the long run, if Hong Kong can withstand this damage, the future will be brighter.
"It's hard to say that JPEX has driven the industry's development. Although in the long run, it has indeed promoted progress, the cost is too high, and the sacrifices are too many," Zhao Wei said.
According to data released by the Hong Kong police, nearly 2,500 people have reported the JPEX incident, with the amount involved exceeding HK$1.5 billion. However, industry insiders believe that the number of individuals and funds involved far exceeds these figures.
3. HashKey Plans Local Promotion, OSL Parent Company's Stock Price Soars
In fact, the positive impact of the JPEX incident on the industry is beginning to emerge, and after cracking down on JPEX, opportunities for compliant exchanges are gradually emerging.
According to a representative from HashKey, the JPEX incident has had a certain negative impact on over-the-counter investors, but the platform has seen a significant increase in new user visits, mainly from experienced virtual asset investors. This indicates that most seasoned users still have confidence in the industry.
Next, HashKey will take measures to rebuild investors' trust in the industry, including fully cooperating with regulatory investigations and enhancing user education to improve their risk identification capabilities.
Recently, HashKey has accelerated the implementation of investor education initiatives, calling on the industry and relevant institutions to enhance knowledge dissemination in finance, blockchain, and other areas, and to increase investment in investor education to raise awareness among more citizens and investors to guard against false trading platforms.
Another HashKey staff member told Techub News, "In the long run, the Commission's actions have provided excellent publicity for compliant exchanges. It's hard to imagine that Hong Kong users will continue to engage with platforms like JPEX."
According to this staff member, HashKey is preparing to launch a local promotion plan targeting Hong Kong residents, including grassroots initiatives.
After the JPEX incident, collaborations between celebrities, KOLs, and related enterprises and virtual asset exchanges will become more cautious, and compliance will become the basic threshold for collaboration, with HashKey Exchange and OSL being the preferred partners.
Another compliant exchange, OSL, has also shown strong development momentum.
As of October 6, the parent company of OSL, BC Technology Group, had a stock price of HK$3.9, up 9.6%. Over the past two months, BC Technology Group's stock price has risen by over 150%.
Hu Zhenbang, CFO of BC Technology, told Techub News that after the JPEX fraud case was exposed, the market has generally demanded more rigorous regulation of the digital asset market, including calls to ban illegal exchanges and OTC storefronts. This is a favorable factor for the compliant business development of BC Technology.
"The JPEX incident has highlighted the need for Hong Kong to close legal gray areas and enforce the law to protect investors, which is crucial for Hong Kong to become an international center for digital asset trading," Hu Zhenbang said.
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