Lessons from Hong Kong: New York's Crypto Regulation
New York's position as a global financial hub is facing a decline as Web3 companies are leaving the city due to Washington D.C.'s restrictive approach to regulating the crypto industry. However, there are valuable lessons to be learned from China and Hong Kong, which have taken a different path towards regulation, fostering innovation and growth. Omer Ozden, Chairman of RockTree Capital and a former U.S. securities attorney practicing in Hong Kong and New York, highlights the contrasting approaches and the potential consequences for New York. China and the United States have diverged in their regulatory approaches over the past 100 days. China initially took a harsh stance by imposing bans and restrictions on the crypto industry, causing significant disruptions. However, Chinese authorities realized the damaging impact of their approach and changed course in late 2022. Beijing supported Hong Kong's aspirations to become a global cryptocurrency hub, leading to the approval of a robust regulatory framework for Web3. Hong Kong's recovery has been swift, attracting entrepreneurs, investors, and exchanges. In contrast, New York is experiencing the exodus of the Web3 industry as U.S. regulators adopt a similar restrictive approach to what China implemented two years ago. Mayor Eric Adams of New York City has been supportive of Web3, embracing cryptocurrencies and advocating for their benefits. However, unelected regulators in Washington D.C. are disregarding the desires of New York's leadership and stifling innovation. The cautionary tale of Hong Kong offers important insights for New York. The proactive support for financial innovation by Beijing and Hong Kong's authorities has created an environment where the Web3 industry can flourish. On the other hand, U.S. regulators, particularly the Securities and Exchange Commission (SEC), have taken a regulatory approach that hinders innovation and creates uncertainty. The SEC's regulation by enforcement and its classification of stablecoins as securities have created significant challenges for innovators, investors, and skilled workers. Hong Kong's response to bring crypto back has been notable. Regulators have developed a stablecoin issuance playbook and are exploring the development of a Hong Kong Dollar-based stablecoin. Meanwhile, major banking institutions in Hong Kong are being encouraged to accept crypto clients. In contrast, the SEC's actions have led to market uncertainty and a decline in confidence, as evidenced by the decreasing market cap of USDC. The author emphasizes the importance of developing permissive and intelligent laws to foster innovation and growth. New York and federal legislators should shift their focus from solely defining securities to considering how to promote innovation and economic growth. Mayor Adams has been advocating for this approach, aligning with the path taken by Hong Kong's leadership. In response to the challenges posed by SEC regulations, Congress has introduced the SEC Stabilization Act to overhaul the SEC and address concerns of power abuses. New York must learn from Hong Kong's experience and take action to prevent the loss of money and freedom. By embracing blockchain technology and adopting supportive regulations, New York can retain its position as a leading financial center and benefit from the growth and innovation of the Web3 industry. The contrasting approaches of China, Hong Kong, and the United States serve as a clear warning that New York's crypto regulation needs to evolve to foster a thriving ecosystem. Failure to do so risks losing the economic opportunities and freedom that come with embracing the crypto revolution.