Hong Kong has moved to regulate cryptocurrency mining, the computing process that generates cryptocurrencies such as Bitcoin, with regulators attracted to the industry by the massive amounts of money it has generated.
The sale of mining equipment and any other products and equipment necessary to mine for virtual assets should be regulated under the Trade Descriptions Ordinance (TDO), according to a written response published by Secretary for Financial Services and the Treasury James Lau on April 3.
The TDO says that such activities could be considered as “unfair practices” subject to a fine of HK$500,000 or five years in prison.
Earlier this year, three Hong Kong citizens were arrested for convincing 20 people to invest more than HK$3.7 million (around $471,400) in crypto-related equipment and services.
The move in Hong Kong parallels comments by China’s National Development Reform Commission (NDRC), the country’s top economic planner, which said on April 9 that crypto-mining is among a plethora of industries it plans to eliminate because they “seriously wasted resources.”
Moving to ban
The NDRC is now seeking public feedback on its new guidelines. The ban could take effect as soon as May.
The whole cryptocurrency sector has been under heavy scrutiny in China since 2017 when regulators shut down multiple local cryptocurrency exchanges.
“The move could be the final nail in the coffin for this popular but yet unstable activity in the country,” said Reginald Alvin Chin, executive director at Yunfeng Financial Group.
Lau’s written response added to concerns that the environment for virtual assets investment is also becoming more difficult in Hong Kong.
Last month, Bitmain Technologies Ltd., the world’s biggest producer of cryptocurrency mining chips, decided to let its application for a Hong Kong initial public offering lapse.
The listing application, which was initially filed in September, expired on March 26, according to the Hong Kong stock exchange’s website.
“We do recognize that despite the huge potential of the cryptocurrency and blockchain industry, it remains a relatively young industry which is proving its value,” Bitmain said in a statement. “We hope regulatory authorities, media and the general public can be more inclusive to this young industry.”
Chin, from Yufeng, said a slump in the price of Bitcoin and other major cryptocurrencies over the past year has made it very difficult for the industry to attract investors.
“In addition, the price volatility of these virtual currencies made such investment very dangerous. There is just too much risks involved,” he said.
“I do not think HKEX is too keen in becoming the first exchange to allow a crypto-mining company to be listed,” he added.
Citing unidentified sources, the South China Morning Post also said in late December that the HKEX and the city’s regulators consider IPOs by cryptocurrency firms to be “premature” at the moment.
Bitmain is the not the only crypto hardware firm to give up a listing in Hong Kong.
Canaan Inc., a smaller rival to Bitmain, also saw its Hong Kong IPO application expire and is now reportedly considering selling shares in the U.S. instead.