The Hong Kong government announced its ambitions to be a crypto hub once again and was considering relaxing the prohibition on retail crypto trading.
The Securities and Futures Commission of Hong Kong has set up requirements for entities considering a public offering of an exchange-traded fund (ETF) tied to cryptocurrency futures.
In an Oct. 31 circular, the SFC said that in addition to previously imposed requirements on unit trusts and mutual funds for authorization of a crypto futures ETF, management companies in Hong Kong would need to “have a good track record of regulatory compliance” as well as three years of experience managing ETFs, with consideration for similar investment vehicles. The financial regulator hinted it would follow in the Chicago Mercantile Exchange’s footsteps by only initially allowing listings of ETFs linked to Bitcoin and ETH futures.
What happened
In late October, the head of the fintech unit at the Securities and Futures Commission (SFC) of Hong Kong, Elizabeth Wong, announced the liberalization of Hong Kong’s regulatory landscape by allowing retail investors to “directly invest into virtual assets.”
Up until recently, only individuals with a portfolio worth at least $1 million (which marks about 7% of the city’s population) have been granted access to centralized crypto exchanges by the SFC. The regulator has also been reviewing whether to allow retail investors to invest in crypto-related exchange-traded funds, Wong noted.
Roughly a few days after, on Oct. 21, Hong Kong’s Secretary for Financial Services and the Treasury, Christopher Hu, shared his city’s fintech plans, among other efforts, directed at “transferring wealth to the next generation.” The key is establishing a regulatory regime for virtual asset service providers, and a certain bill was already introduced to the city’s lawmakers, as Hu specified.
Finally, on Oct. 31, during the city’s FinTech Week 2022, Hong Kong Financial Secretary Paul Chan assured attendees that the digital transformation of financial services is a key priority for his team. Chan’s colleague, the CEO of the Hong Kong Monetary Authority (HKMA), Eddie Yue, promised “radical open-mindedness” regarding the innovations.
According to him, the HKMA is in the process of establishing a regulatory regime for stablecoins and has already issued guidelines to banks about cryptocurrency or decentralized finance-related services.
With its partial autonomy, the island city of Hong Kong has traditionally served as “a gate to China” — the local trade center, backed by transparent English-style common law and an openly pro-business government strategy. Could the harbor, home to seven million inhabitants, inherit this role in relation to the crypto industry, becoming a proxy for mainland China’s experiments with crypto?
Bixin Wallet – Secure Your Bitcoin In An Easier Way. Launched in 2014, 8 years of safety and 0 accidents! Welcome to “Bixin Q&A”, a talk show launched by Bixin Wallet, mainly focused on the cryptocurrency market. Bixin will invite friends in the industry to express their opinions together. Some of them are senior practitioners, some are technical developers, and some are market traders. They are all active in the market and can provide the latest valuable information in the market. In each issue, Bixin Talk will select a hot issue to discuss, analyze it from multiple dimensions, and help you filter the value points. Our aim is to “gather more views and seize more opportunities!” Bixin also welcomes you to use Bixin wallet to manage cryptocurrency assets, Website: www.bixin.com In this issue, Bixin Talk interviewed two Web3ers from the top 100 universities in the world. The first is Jack, an HKU student who is a developer on solidity language. And the second is Marco, an HKUST Alumni who is a crypto researcher. They are both active members of the Bixin community.
Why does Hong Kong want to become a crypto hub?
Jack: China, once one of the world’s largest crypto markets, banned transactions of digital currencies in 2021. Singapore recently strengthened regulations around retail transactions after a number of crypto exchanges imploded, including in the city state. Meanwhile, Japan has recently relaxed some of its more conservative rules on listing tokens. The city then introduced a voluntary licensing regime in 2018 for big exchanges but only two were approved for permits — BC Technology and HashKey. One of the biggest exchanges that used to be in the city, FTX, moved to the Bahamas last year.
Given its position as a gateway for China to the international markets, Hong Kong was initially something of a crypto hub.
Marco: Hong Kong is losing its status as the principal Asian financial center. It has certainly faltered during the COVID-19 pandemic when the hardline lockdown policy, exercised in China and Hong Kong, caused an investment escape wave to the neighboring competitor, Singapore, which had eased its restrictions much earlier.Another major factor behind China’s possible support of Hong Kong’s crypto liberalization, is the former’s problem with a giant United States dollar trade proficit. Historically, like almost any nation in the world, China has been storing dollar income in assets like U.S. Treasury bonds.
Is it too late to make this announcement?
Jack: The statement set out Hong Kong’s vision for and approach to developing a vibrant virtual asset sector. This includes a consultation on how retail investors could be given a suitable degree of access to virtual assets. It is welcome news for the local cryptocurrency community, which has long lobbied for regulatory clarity and provisions for retail trading.The policy statement has not come too late.
Marco: Whether the announcement was timed or not, if Hong Kong wants to become an international virtual asset hub, it is better off showing its hand and developing regulation during a messy bear market than a bull market. Reforms following the 2008 global financial crisis have led to stronger banks which, as we head into global economic headwinds, are in a much better position to weather storms.
To quote Warren Buffett, “only when the tide goes out do you discover who’s been swimming naked”. The bear market is the retreating tide, and more naked swimmers will be exposed as more cryptocurrency companies make disclosures. Those that survive or emerge from this are likely to become part of the next Big Techof the Web3 era. This perfect storm is a good stress test for Hong Kong’s regulators in developing the fabric upon which a sustainable and resilient international virtual asset hub can be built.
Which city can make Asia the center of crypto’s future, Hong Kong or Singapore?
Jack: Hong Kong was one of the most important crypto trading hubs in the world until the regulatory environment turned restrictive in 2019. Back then, Hong Kong was the home of influential crypto exchanges like BitMEX and FTX. Many early adopters in the crypto community still have strong emotional ties to Hong Kong. That is why the Hong Kong government’s new enthusiasm toward crypto and Web 3.0 innovation was so widely celebrated as a sign that “Hong Kong is back.”
Marco:Singapore has benefited more than anywhere else from the exodus of Chinese crypto entrepreneurs, prompted by China’s crackdowns, over the past two years. The Token2049 conference in Singapore last month turned out to be one of the most well-attended global crypto and Web3 events in recent years despite the bear market that this industry is facing. In Token2049, we found that many Chinese teams that just relocated here are still actively building products. Meanwhile, deal makers, investors and industry leaders flew in from all over the world because they believed in the market potential of Asia. Singapore proved to be a place of convergence, even when “decoupling” is happening in other places.
The above is all the answers of the two interviewed guests in this issue. Hong Kong has long maintained the principles of stable and orderly market growth. It is reassuring to see the policy statement stick to these principles, but it is paramount in this fast-growing space that regulators properly engage with the city’s thriving Web3 community, who are at the forefront, to avoid being left behind. The last bull cycle of crypto assets was unfortunately very much driven by speculation, and the rise and fall of FTX, Three Arrows Capital and Terra-LUNA remind us that speculation and empty narratives cannot give crypto technology a real future. The next bull cycle will only come when the crypto industry finds ways to solve real-world problems and achieve mass adoption. Asia is the perfect market for crypto entrepreneurs to innovate with not only on-chain tokens but also real-world assets, not only for investors but also for mass users.
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