Evaluating the Effectiveness of Hong Kong’s Cryptocurrency Regulatory Framework and its Future in the Global Crypto Economy

This paper critically examines Hong Kong's emerging regulatory framework for digital assets and cryptocurrencies through the lens of the JPEX Scandal, the first significant test of the city's cryptocurrency regulations. The scandal, involving fraudulent activities on an unlicensed virtual asset trading platform, has exposed both the strengths and limitations of Hong Kong's efforts to protect consumers and investors while fostering innovation in the rapidly evolving crypto space. By situating the JPEX case within the broader context of blockchain and cryptocurrency development, this study identifies key regulatory challenges, particularly in addressing decentralised finance (DeFi) and decentralised autonomous organisations (DAOs).

Using a doctrinal legal methodology, supplemented by a case study of the JPEX incident, this research evaluates the current regulatory framework's adequacy in ensuring transparency and accountability in the virtual asset market. The paper draws on recent legislative developments, including the introduction of licensing requirements for virtual asset trading platforms and the legal recognition of cryptocurrencies as property, to assess how well these measures address fraud and market manipulation.

While significant progress has been made, the findings reveal persistent gaps, particularly in regulating decentralised systems that are inherently difficult to oversee, such as DAOs, which operate on blockchain-enabled smart contracts. The paper concludes by offering recommendations for enhancing regulatory clarity and addressing these challenges to ensure the sustainable growth of Hong Kong as a global hub for digital assets. These recommendations are aimed at refining the legal framework to strike a balance between consumer protection and the continued innovation of blockchain technologies, thereby positioning Hong Kong as a leader in the global cryptocurrency economy.