Hong Kong Tightens Crypto Custody Rules, Clamps Down on Cold Wallet Practices
Hong Kong’s Securities and Futures Commission is tightening the reins on cryptocurrency storage. Starting now, licensed custodians face new rules that put cold wallets under a microscope. The regulator has outright banned the use of smart contracts for offline storage, saying they open doors for attackers that don’t need to be there. It’s a move aimed at keeping assets safer while the crypto sector keeps expanding.
The updated rulebook is anything but light. Custodians will have to use certified hardware security modules, and withdrawals can only go to addresses that have been cleared in advance. Around-the-clock monitoring is now mandatory, with security teams expected to watch networks, wallets, and related systems day and night. Private keys? They can only be created or used in sealed-off, offline environments that are locked down with multiple layers of physical security. These aren’t future plans, though. They’re already in force.
It’s all landing at a time when more people are chasing online crypto opportunities, including those digging into the best 1000x potential crypto investments. Some, like Bitcoin Hyper, are chasing big technical goals. This includes speeding up Bitcoin transactions through Layer-2 scaling. Others, including Maxi Doge and Token6900, thrive on meme energy with a twist of utility. Under the new custody rules, even speculative bets like these need to be kept in cold wallets that meet the SFC’s high security bar. That’s meant to make sure risk-taking traders don’t lose everything to a single breach.
The ban on smart contracts in cold storage is the rule getting the most attention. Public blockchain contracts, the SFC argues, just add more ways for hackers to get in. Plenty of custodians currently rely on them for both hot and cold wallets, which means many will have to rethink how their systems work from the ground up.
In other places, that approach might seem extreme. Providers like BitGo and Safe have built much of their custody infrastructure on smart contracts. Coinbase has publicly called Safe one of the best in the business, showing how different Hong Kong’s stance is compared with the rest of the field.
Even with these strict measures, Hong Kong isn’t trying to push the crypto industry away. Back in April 2024, regulators signed off on spot Bitcoin and Ether ETFs, giving institutions an approved path to invest. Earlier in the year, the ASPIRe roadmap laid out plans to widen market access while pushing for stronger standards in custody and trading.
Stablecoins have been getting attention, too. As of August 1, 2024, the city’s new stablecoin law is active. It requires issuers to get a license and put their names on a public registry. Toward the end of the year, more virtual asset trading platforms picked up licenses, showing that the city wants both strict oversight and room for growth.
Meeting the SFC’s demands won’t be cheap for custodians. Still, if the market sees Hong Kong as a safer place to hold digital assets (whether they’re rock-solid or high-risk), it could pull in more global investors. For traders, that’s a reason to keep watching what happens here next. All things considered, these changes could set a new standard for how markets regulate cold wallets if Hong Kong’s new rules prove to be effective.
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