In a significant development for the cryptocurrency industry in Hong Kong, HashKey, the first licensed virtual asset provider in the region, is set to open its doors for retail trading on August 28th. However, there are certain restrictions in place to ensure investor protection. According to local news reports, individuals will only be allowed to invest up to 30% of their net worth into cryptocurrencies when using the platform. If the limit is exceeded, a risk control warning will be displayed. It is worth noting that the exchange cannot validate users’ net worth and relies on self-verification of assets. Additionally, HashKey will assess users’ investment background based on information submitted during know-your-customer verification. As a result, beginners may have limitations on what they can purchase initially. At launch, only Bitcoin (BTC) and Ether (ETH) will be available for trading on HashKey Hong Kong, as the Hong Kong Securities and Futures Commission has not yet allowed margin trading of crypto products or derivatives on regulated exchanges.

China is actively targeting private blockchain firms operating within its borders due to concerns over the use of crypto as a means of capital flight during economic downturns. Reports suggest that there are bounties placed on the heads of blockchain projects in the country. Third-party tracking firms tip off the police regarding undercover crypto projects, leading to arrests and asset forfeitures. The tracking firms stand to make substantial commissions if their reports result in successful law enforcement actions. After arrest, crypto executives are reportedly coerced into handing over private keys and server access. The police then allegedly use third-party payment processors to sell the seized coins and tokens for Chinese Yuan. The executives are charged with operating schemes such as multi-level marketing, pyramid schemes, or money laundering, which can result in the seizure of all protocol-related assets by the state. This approach has led to the termination of several protocols, leaving non-Chinese users with funds stuck on these platforms. In response, Chinese Web3 founders are emigrating, and overseas law enforcement agencies are attempting to recover the frozen funds.

Despite the crackdown on private crypto activities, government-led blockchain efforts in China are prospering. Recently, the Bank of Ningbo facilitated the issuance of the first digital yuan central bank digital currency (e-CNY CBDC) green bond. The bond, with a principal amount of 100 million Chinese Yuan ($14 million), aims to finance the expansion of solar panel facilities. The e-CNY CBDC has been championed as a means of stimulating domestic spending amid a financial crisis in the country. Transaction volumes in the City of Tianjin alone have surpassed $17.5 billion in the first half of 2023, with over 302,000 merchants accepting the CBDC as a means of payment.

The U.S. Federal Bureau of Investigation (FBI) recently announced the identification of 1,580 BTC ($41 million) stolen by North Korean hackers from various projects. The stolen funds include those from high-profile hacks such as the Alphapo, CoinsPaid, and Atomic Wallet incidents. The FBI has urged private sector entities to be vigilant in guarding against transactions involving the identified addresses. The agency believes that North Korea will attempt to cash out the stolen funds. Ongoing criminal investigations are also exploring North Korean hackers’ involvement in previous exploits. The exposure of these illicit activities aims to disrupt the revenue-generating efforts of the regime.

In a separate case, a former vice chairman of the Jiangxi Provincial Political Consultative Conference Party Group, Yi Xiao, received a life sentence for corruption and abuse of power related to a Bitcoin mining enterprise. Xiao operated a Bitcoin mining business, Jiumu Group Genesis Technology, from 2017 to 2021, amassing over 160,000 Bitcoin miners, despite the ban on cryptocurrencies in China. He used his position to secure subsidies, capital, and electricity supply for the mining operation. Xiao also fabricated statistical reports to conceal the true nature of the business.

The crackdown on private crypto activities in China has had far-reaching implications. While it has resulted in the termination of protocols and the emigration of Web3 founders, government-led blockchain efforts continue to thrive. The launch of HashKey’s licensed crypto exchange in Hong Kong provides a regulated trading platform for investors to access Bitcoin and Ether. The identification of stolen cryptocurrency by the FBI highlights the ongoing threat of North Korean hackers, and efforts to disrupt their revenue generation. Additionally, the sentencing of Yi Xiao underscores the severe consequences faced by individuals involved in illicit crypto activities. As the landscape evolves, it will be essential to monitor how these developments shape the future of cryptocurrencies and blockchain technology in China.

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