New Regulations for Investment Immigration in Hong Kong: Opportunities and Challenges of Using Crypto Assets as Proof of Asset

Recently, the Hong Kong Investment Promotion Agency approved an intriguing case: an applicant successfully obtained investment immigration qualifications using Ethereum (ETH) valued at 30 million HKD as proof of assets. This is not the first occurrence; there was a precedent last October where an application was successfully made using Bitcoin. While this seems to open a new path for Crypto Assets holders, many large coin holders encounter a key obstacle in the process—proof of source of funds (SOF). Let’s delve into the reasons behind this phenomenon.

The Feasibility of Crypto Assets as Proof of Asset

The “New Capital Investor Entry Scheme” in Hong Kong requires applicants to prove that they personally or jointly with their spouse own at least HKD 30 million in assets, including but not limited to stocks, bonds, deposits, and real estate. The primary reasons why Crypto Assets are accepted as valid assets are twofold:

1. The policy does not explicitly prohibit: The Hong Kong government holds an open attitude towards asset types, as long as the authenticity and ownership of the assets can be verified through an accountant’s report, they generally meet the requirements.

2. There are successful cases: Industry insiders reveal that from Bitcoin to Ethereum, as long as the process is compliant, Crypto Assets and traditional assets are fundamentally no different during the application process.

However, proving asset ownership and proving the source of funds are two entirely different challenges.

Proof of Source of Funds: The Biggest Obstacle

There is a common contradiction within the Crypto Assets circle - “assets are clear, sources are vague”. This issue mainly stems from the following aspects:

• Early participants found it difficult to provide complete records: Many obtained Crypto Assets through mining, over-the-counter transactions, or gifts from friends, lacking formal bank statements or transaction records.

• Instability of trading platforms: Some well-known exchanges have faced compliance issues, resulting in the loss of user historical data or lack of regulatory recognition.

• The anonymity of blockchain: Although transaction records are public and transparent, the association between wallet addresses and actual identities is difficult to establish, which increases the difficulty of tracing funds.

For example, an investor invested 1 million HKD to buy Bitcoin in 2017, and its value has now increased to 10 million HKD. If the transaction record from back then is no longer traceable, or if it was completed through cash transactions, proving the legal source of these funds will become a major challenge.

Challenges Faced by Accountants

Hong Kong policy stipulates that asset verification mainly relies on professional reports from Certified Public Accountants (CPA). However, accountants also face many difficulties when handling cases related to Crypto Assets:

1. The valuation standards are not unified: The cryptocurrency market is highly volatile, and determining a fair valuation standard has become a challenge.

2. The responsibility for anti-money laundering is significant: if the source of the client’s funds is unclear, the accountant may face joint liability.

3. High technical requirements: Verifying wallet address ownership, distinguishing between own assets and borrowed assets, etc., all require professional blockchain knowledge.

Possible Solutions to Solve the Problem

For those looking to apply for investment immigration using Crypto Assets, the following tips may be helpful:

1. Complete record keeping: From the moment you first acquire Crypto Assets, all related transaction records, invoices, and tax proofs should be kept. Even handwritten receipts are better than having no evidence at all.

2. Seek professional assistance: Assemble a professional team including lawyers, accountants, and immigration consultants, particularly those familiar with Crypto Assets and Hong Kong policies, to design a compliant application pathway for applicants.

3. Gradual standardization: If the early sources of funding are unclear, consider gradually converting the assets into forms that are easier to prove their origin through legal means.

Conclusion

Hong Kong’s new investment immigration policy provides a new opportunity window for Crypto Assets holders. However, to successfully leverage this opportunity, applicants need to overcome the key challenge of proving the source of funds. With the continuous improvement of policies and the accumulation of practical experience, it is believed that there will be more successful cases in the future, opening up broader space for the application of Crypto Assets in the investment immigration field.