Our weekly roundup of news from East Asia curates the industry’s most important developments.

Yet another crypto scandal in Hong Kong 

Scammers posing as investment experts allegedly enticed 145 victims to tip $18.9 million into the unlicensed Hong Kong crypto exchange Hounax.

According to reports earlier this week, the police said investors were allegedly promised up to 40% return per annum with “no risk” in its advertisements. After users deposited their funds, they were unable to withdraw them. On November 1, the Securities & Futures Exchange (SFC) of Hong Kong listed Hounax on its billboard of suspicious crypto exchanges but clarified that because Hounax was unlicensed at the time of incident, it was not subjected to the regulatory’s enforcement actions.

This was the second scandal involving a crypto exchange in Hong Kong in recent months. In September, another unlicensed exchange JPEX collapsed after allegations of a Ponzi scheme unsurfaced, leading to 66 arrests and an estimated $205 million in investors’ losses.

Despite the scandals, Hong Kong regulators appear to remain steadfast in their commitment to transforming the city into a major Web3 hub. On November 27, SFC CEO Julia Leung, explained that “even if the grace period ends tomorrow, fraud will still occur, so there is no intention to modify the grace period and other measures for the time being.”

Under current regulations, a grace period for crypto exchanges to operate without registration will end in June 2024. On November 30, the SFC stated that it seeks to legitimize initial coin offerings in the city to create more revenue for the national budget.

In other Hong Kong crypto news, the financial institutions, Interactive Brokers and Victory Securities, this week announced they had secured crypto licenses, with the former partnering with licensed crypto exchange OSL to immediately provide Bitcoin (BTC) and Ethereum (ETH) trading services to its Hong Kong clients.

And on November 29, Darryl Chan, deputy chief executive of the Hong Kong Monetary Authority, announced a multinational effort to create a cross-chain bridge for China’s digital yuan central bank digital currency (e-CNY CBDC). Dubbed “mBridge,” the protocol seeks to reduce transaction fees and improve speeds for cross-border uses of the e-CNY CBDC. The first pilot tests will begin in Mainland China and Hong Kong.

Foreign banks join e-CNY pilot testing

Standard Chartered, HSBC, Hang Seng Bank, and Taiwan-based Fubon Bank have begun testing of the digital yuan in cross-border transactions.

According to local news reports on November 28, the four foreign banks will also integrate e-CNY transfer services for their clients and enable them to deposit and withdraw e-CNY. Personal banking accounts will also support the official e-CNY app and self-custody wallet. Yuesheng Song, president and vice-chairman of Hang Seng China, commented:

“The central bank’s launch of the digital RMB, a legal currency in digital form, is an important step for China to explore the development of digital currency and promote the internationalization of the RMB. Hang Seng China follows the national financial development policy advocacy and actively supports the application and development of the central bank’s digital currency.”

In the first three quarters of 2023, the use of the digital yuan in transactions was up 35% year-on-year, reaching $1.39 trillion, China Daily reported. On November 29, the first-ever e-CNY student loans were issued in the province of Suzhou with $26,230 worth of loans being issued directly into the digital wallets of 13 recipients. 

HTX back to normal

HTX exchange (formerly Huobi Global) has reopened deposits and withdrawals after a devastating hot wallet hack that drained the exchange of $30 million on November 22.

According to the November 26 announcement, the exchange has since resumed deposits and withdrawals on the Bitcoin, Ethereum, and Tron networks.

“Huobi HTX once again promises to fully compensate for the losses caused by this attack and 100% guarantee the safety of user funds. The amount of funds lost by Huobi HTX this time accounts for a very small amount of the total funds of the platform,” the exchange said.

The firm has also announced that a special airdrop will take place in December designed to reward its “loyal users.” Airdrop tokens will reportedly come from an “upcoming high-quality projects,” and the amount to be received will be determined by a users’ average net assets on the HTX exchange denominated in Tether (USDT). 

Immediately after the incident, Justin Sun, founder of the Tron ecosystem and de-facto owner of the HTX exchange, commented “we will cover the loss and all assets are SAFE.” Despite assurances, however, this was the fourth exploit involving the HTX ecosystem within the past two months. Around the same time as the HTX exploit, the HTX Ecosystem Chain (HECO) bridge was hacked for $87 million.

On November 10, Poloniex, an exchange acquired by Sun in 2018, was hacked for $100 million due to allegedly compromised private keys. The exchange resumed withdrawals on November 30. On September 25, HTX was drained of $8 million in a security incident. The exchange has since clawed back $8 million in stolen funds and issued a 250 Ether bounty to the hacker. 

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Zhiyuan Sun

Zhiyuan Sun is a journalist at Cointelegraph focusing on technology-related news. He has several years of experience writing for major financial media outlets such as The Motley Fool, Nasdaq.com and Seeking Alpha.

The United States Internal Revenue Service (IRS) is considering a proposal that would have sweeping consequences for the cryptocurrency industry. Investors should be concerned, because it could significantly impact the way that individuals — both inside and outside America — are allowed to engage with digital assets.

The IRS is proposing an initiative under Section 6045 of the tax code to establish new tax rules for the treatment of cryptocurrency providers. Specifically, the agency is seeking to amend the law to expand the definition of “brokers” to include nearly all crypto-service providers — including, for instance, decentralized exchanges (DEXs) and wallet providers. Those providers would be required to collect personal information from users beginning in 2025, and to begin sending (a still-unreleased) Form 1099-DA to the IRS in 2026. It would be a crypto-focused version of the 1099-MISC.

The IRS’s move to redefine “broker” is not just a regulatory tweak but a fundamental shift that could reshape the entire U.S. cryptocurrency landscape. By potentially including a wide array of cryptocurrency service providers under this definition, the IRS is extending its reach significantly. This expansion means that many more entities involved in digital asset transactions, from wallet providers to small-scale developers, could be required to report user information and transaction details to the government.

For users and investors in the cryptocurrency space, this change could translate into increased reporting and compliance obligations — rolling back the anonymity and flexibility they currently offer users. For service providers, it would require the adoption of new systems and procedures for compliance, requiring them to ask users for their personal information. While the IRS is technically attempting to target American users, service providers would have no way to determine nationalities before harvesting user data.

Related: IRS proposes unprecedented data-collection on crypto users

The move would be a decisive step toward bringing the world of digital assets in line with traditional financial systems in terms of regulatory oversight and transparency. It’s crucial that the average American understand the proposal’s implications, because it represents a significant pivot point in how digital assets are perceived and managed by regulators.

The industry’s response

The industry’s response to these regulatory changes has been marked by concern and proactive engagement. Major players have expressed apprehensions about the intrusion into personal privacy, including Coinbase, whose chief legal counsel Paul Grewal, noted the change would “set a dangerous precedent for surveillance of the everyday financial activities of consumers by requiring nearly every digital asset transaction — even the purchase of a cup of coffee — to be reported.”

At their core, the proposed regs go well beyond the congressional mandate to establish tax reporting rules on par with those for traditional finance, putting digital assets at a disadvantage and threatening to harm a nascent industry when it’s just getting started. 2/4

— paulgrewal.eth (@iampaulgrewal) October 18, 2023

The broader industry is similarly concerned about the possibility of regulations stifling the growth of digital assets. A primary issue is the appropriate application of conventional regulatory frameworks to decentralized systems, ensuring investor privacy protection and fostering an environment that supports innovation while maintaining market stability.

The change would have profound implications for individual investors and developers within the cryptocurrency realm. For investors, clearer regulatory guidelines could bolster market confidence, potentially leading to increased investment activity. However, excessively strict regulations risk curbing innovation and reducing the appeal of cryptocurrencies as an alternative to traditional financial systems. For developers, especially those in the DeFi sector, these regulatory shifts present both compliance challenges and opportunities to influence the development of rules that recognize the unique capabilities of blockchain technology.

Related: Expect new IRS crypto surveillance to come with a surge in confiscation

Navigating the complexities of these regulatory proposals necessitates a balanced approach. The cryptocurrency industry must proactively engage with regulators to ensure the creation of fair, practical, and innovation-friendly regulations. Balancing regulatory oversight with the preservation of the ecosystem’s core values is crucial for the future of digital finance. The industry’s capacity to adapt to these regulatory changes while retaining its innovative essence is pivotal.

The requirement for regulatory adaptability and industry evolution is more apparent than ever. The cryptocurrency sector is encouraged to evolve its practices to meet emerging regulatory standards while preserving its innovative and decentralized nature. Simultaneously, regulators are challenged to comprehend the unique aspects of digital assets and decentralized systems to devise effective, sensible, and forward-thinking regulations.

Lobbying and political contributions

The cryptocurrency industry’s involvement in lobbying and political contributions has become increasingly significant. In 2022, the industry’s lobbying efforts and political contributions skyrocketed, reflecting its growing interest in shaping regulatory frameworks. This political engagement is a clear indicator of the industry’s commitment to influencing policy decisions that will affect its future. It also highlights the need for a regulatory environment that understands and accommodates the unique characteristics of digital assets and blockchain technology.

Expanding the definition of “broker” would stifle innovation for the industry, but particularly on American soil. The cryptocurrency community’s resilient response, advocating for fair and supportive regulatory measures, underscores the delicate balance between effective regulation and fostering technological progress.

As the industry actively participates in shaping these regulations, its involvement is crucial to ensuring the U.S. cryptocurrency sector continues to thrive in a competitive global landscape, balancing regulatory compliance with innovation and growth.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Dynamic Yield by Mastercard, a digital personalization and artificial intelligence subsidiary of Mastercard, announced the launch of its Shopping Muse generative AI chatbot assistant for ecommerce on Nov. 30. 

The AI system was revealed in a company blog post. According to Dynamic Yield, Shopping Muse is “an advanced generative AI tool that revolutionizes how consumers search for and discover products in a retailer’s digital catalog.”

Shopping Muse generative artificial intelligence

Generative AI systems, such as OpenAI’s ChatGPT and DALL-E, are designed to convert colloquial user commands into text, video, audio, or even computer code.

In the case of Shopping Muse, users can make plain language requests in the context of an online marketplace and the AI system will generate personalized recommendations via a process Dynamic Yield refers to as algorithmic content matching. .

As Ori Bauer, CEO of Dynamic Yield by Mastercard, describes it:

“Personalization gives people the shopping experiences they want, and AI-driven innovation is the key to unlocking immersive and tailored online shopping. By harnessing the power of generative AI in Shopping Muse, we’re meeting the consumer’s standards and making shopping smarter and more seamless than ever.”

Dynamic Yield by Mastercard

Mastercard acquired digital personalization firm Dynamic Yield in 2022 from then-owner McDonalds. Rebranded Dynamic Yield by Mastercard after the acquisition, the company has offices in Tel Aviv, New York, Tokyo, Riga, Barcelona, and other locations around the globe.

It boasts hundreds of clients for its personalization and data services with a reported 400 rands represented. The company joins Mastercard as it continues a years-long trend of acquiring or partnering with artificial intelligence firms.

Related: Mastercard partners with crypto payment firm MoonPay for Web3 services

As Cointelegraph recently reported, Mastercard has entered into a partnership with Feedzai, an AI firm specializing in financial fraud detection. The firm’s software will be integrated with Mastercard’s proprietary security stack.