The Crypto Compass Issue #44

Hello to our dear readers!

In a wave of crypto integration, HSBC has launched a gold tokenization platform, while Hong Kong bolsters its Web3 vision with regulatory enhancements. Coinbase expands its consumer reach with nano bitcoin futures in the U.S., and PayPal secures a crypto service registration with the U.K.'s Financial Conduct Authority, marking significant advancements in the cryptocurrency domain's infrastructure and regulatory framework.

HSBC Ventures into Gold Tokenization with DLT-based Platform

HSBC has launched a new tokenization service, enabling the representation of physical gold holdings through tokens on its digital assets platform. One token is equal to 0.001 troy ounce of gold stored in HSBC's London vault. Aimed at institutional investors, this service operates on the HSBC Evolve platform and is part of a broader initiative by HSBC, which includes past blockchain ventures and the proposed HSBC Orion for digital bonds issuance.

As the demand for tokenized assets with real-world applications grows, HSBC's move taps into the market trend where gold, second only to USD in tokenization market cap, is increasingly sought-after due to macroeconomic conditions favoring stable investments. The bank’s strategy, aligning with a wider trend of traditional finance merging with decentralized finance, represents a push towards a comprehensive digital asset infrastructure which could see significant implementation within the next couple of years.

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Hong Kong to Enhance Web3 Policy Framework Amid Crypto Innovation Drive

Hong Kong is poised to intensify its efforts to become a leading Web3 hub in Asia, with imminent policy updates on tokenized assets, stablecoins, and cryptocurrency trading. Despite the recent crackdown on the JPEX exchange, Christopher Hui, Secretary for Hong Kong's Financial Services and the Treasury, affirmed the government's commitment to Web3 innovation. Regulatory bodies such as the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) are expected to release new guidelines for tokenized securities and explore broader oversight of virtual asset transactions.

Additionally, the city has already taken practical steps in tokenization, with the HKMA aiding in the launch of the world's first tokenized government green bond. However, with new opportunities come new risks; the SFC is preparing circulars to address due diligence and safeguard expectations for intermediaries dealing with this nascent technology, focusing on secure asset custody and accurate ownership records. These steps underscore Hong Kong's balanced approach to fostering technological innovation while mitigating associated risks.

Coinbase Launches Nano Bitcoin Futures for Retail Traders in the U.S.

Coinbase has officially rolled out its crypto futures trading service for retail traders in the United States through its Coinbase Financial Markets (CFM) division. This development comes after gaining approval to operate as a futures commission merchant from the National Futures Association. The service offers "nano" futures contracts, enabling retail traders to trade fractions of Bitcoin and Ethereum with leverage.

While providing opportunities for hedging, diversification, and speculation, Coinbase emphasizes the heightened risks of leveraged futures trading, including the possibility of losses surpassing initial investments. This expansion into derivatives marks a significant step for Coinbase, especially as it operates within a challenging regulatory environment, evidenced by ongoing disputes with the Securities and Exchange Commission regarding the platform's operational scope.

Happenings of the week

• Perpetual futures market paints a rosy medium-term picture for Bitcoin

• Why HSBC is Building a Decentralized Identity Solution With Polygon ID

• Swiss bank launches bitcoin and ether custody and trading services

• Different types of layer 2s

PayPal Gains FCA Approval as Crypto Service Provider in the U.K.

PayPal has successfully secured its position on the U.K. Financial Conduct Authority (FCA) crypto register as a crypto service provider, a move that aligns with the country's anti-money laundering regulations. With this registration, PayPal UK Limited can now conduct approved cryptoasset activities and manage its crypto-related marketing communications.

Despite this progression, PayPal's services will have certain limitations; the company is not authorized to offer services such as staking, crypto exchanges, involvement in initial coin offerings, or DeFi lending without additional consent from the FCA.

This regulatory milestone enables PayPal to transfer U.K. customer accounts to the new U.K. entity from its European base, starting from November 1, 2023. However, this development does not alter the temporary suspension of crypto purchases that PayPal announced in August to comply with the U.K.’s new marketing regulations.

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