Hong Kong — officially the Hong Kong Special Administrative Region of the People’s Republic of China — is a city of over seven million residents on the eastern Pearl River Delta in South China. The city is known for being pro-innovation and technology, and over the past year, it has introduced legislation to promote and adopt cryptocurrencies.
Hong Kong is a major world economy, serving as a center for investment and trade in the region. The city is a cosmopolitan metropolis with Western and Asian influences, and is a well-established data hub for key businesses in finance, shipping, trade and retail, with crypto becoming the latest addition.
While China has maintained a hardline anti-crypto stance for almost half a decade, last year, Hong Kong introduced its own crypto legislation allowing retail investors to invest directly in crypto assets.
In 2023, as most countries in the West are still cautious about cryptocurrencies, Hong Kong has taken a decidedly pro-crypto stance.
In January, as the crypto industry was reeling from the FTX crisis, Hong Kong’s Financial Secretary Paul Chan said that local government and regulators are looking forward to building a crypto and fintech ecosystem in 2023.
On Jan. 13, just days after Chan’s statement, Korean tech giant Samsung announced the launch of a Bitcoin Futures Active ETF, or exchange-traded fund, on the Stock Exchange of Hong Kong.
In mid-February, sources claimed that some Chinese officials were reportedly giving tacit approval to Hong Kong’s pro-crypto efforts. Local business operators stated that the Chinese government might even be open to using Hong Kong as a test bed for crypto as long as it doesn’t threaten the country’s financial stability.
By March, more than 80 crypto firms expressed interest in opening an office in Hong Kong.
In April, the Hong Kong Monetary Authority (HKMA) — the region’s central banking institution and regulator — called on banks to provide services to cryptocurrency firms. The HKMA asked banking institutions to be attentive to market developments and take a forward-looking approach to the nascent tech sector, including cryptocurrencies.
Global crypto exchanges eye the Hong Kong market
In May, the chair of the FinTech Association of Hong Kong told Cointelegraph that the pro-crypto state would launch a licensing regime for crypto service providers and exchanges with a deadline of June 1, including retail. Later in the month, the Hong Kong Securities and Futures Commission (SFC) announced that licensed crypto platforms would be allowed to serve retail customers.
At the time of writing, crypto exchanges Huobi and Gate.io had applied for virtual asset licenses, with Huobi becoming the first member of the Hong Kong Virtual Assets Consortium on May 31.
On May 29, Huobi opened its retail trading services as the firm submitted its license request to the SFC. A spokesperson from the firm told Cointelegraph that “Hong Kong regulations allow existing virtual assets platforms to operate for an extra year without a license.”
#Huobi HK 现已开始向专业和零售客户提供现货和托管服务。作为一家香港虚拟资产交易平台的先驱，Huobi HK 已于 5 月 29 日正式向香港证监会提交了申请通知书，我们期待能够获得虚拟资产交易所牌照。
在未来六个月内，Huobi HK… pic.twitter.com/qkYSqKbLBH
— 火币Huobi中文频道 (@HuobiGlobalzh) May 29, 2023
Gate.io also announced it was applying for a virtual asset license, as it had already operated as a custodian in Hong Kong since August 2022.
A spokesperson from the exchange told Cointelegraph that Gate.HK will officially file the license application in the second half of 2023.
Recent: Is Biden’s controversial Bitcoin mining tax dead or set to rise from the ashes?
The exchange said, “In comparison to other regulators, the SFC has a stricter requirement for virtual asset service providers. It has compulsory insurance/compensation arrangement requirements in place to help protect clients. Further, it has a 98% cold wallet storage requirement that licensed corporations would need to comply with. We believe only the best virtual asset service providers would be able to comply with the financial and operational requirements.”
Binance, the largest global crypto exchange with a significant presence in the Asian market, is currently monitoring developments in Hong Kong. A Binance representative told Cointelegraph that it was actively involved during the “public consultation period and contributed to the policy-making process of virtual asset platform regulation in Hong Kong.”
The crypto exchange said it welcomes more regulatory clarity for the industry and is currently considering its options to best encourage the adoption of cryptocurrencies.
Bitfinex, another prominent global crypto exchange, told Cointelegraph that the developments in Hong Kong’s crypto landscape clearly reflect the constantly evolving nature of the digital asset space.
The exchange welcomed favorable regulations allowing innovation and business growth, while providing a protective environment for all participants. When asked whether the exchange is looking to apply for a virtual asset license, a Bitfinex spokesperson said:
“Allowing retail participation further democratizes access to the crypto marketplace. Accessibility for all is one of the reasons the crypto industry was born in the first place, and we welcome the progressive approach Hong Kong has taken.”
The China factor
While Hong Kong enjoys a certain degree of autonomy, it is still part of China, which — as exemplified in the 2019-2020 anti-extradition law protests — can exert significant influence over the region.
China’s anti-crypto stance made headlines in 2018 when the country imposed a ban on foreign cryptocurrency exchanges. In the following years, China became a hub for Bitcoin (BTC) mining but imposed a blanket ban on all crypto activities, including mining, trading or exchanging, in 2021, although possession of Bitcoin is still legal.
Many in the industry believed China’s crypto policy would influence Hong Kong. However, Hong Kong’s progressive crypto approach might become an escape for crypto users and interested parties in China, with many Hong Kong-based crypto firms receiving interest from Chinese banks.
Firms such as Shanghai Pudong Development Bank, the Bank of Communications and the Bank of China have either started providing banking services to cryptocurrency enterprises in Hong Kong, or have contacted such organizations directly to offer services.
As of April 2023, the Hong Kong arm of the major Chinese state-owned Bank of Communications is collaborating with several cryptocurrency businesses.
Gate.io’s exchange spokesperson said, “We cannot interpret the implications on mainland China, as Hong Kong and mainland China have different regulatory stances, and are independent of each other.”
Vivien Khoo, co-founder and chairwoman of the crypto industry association, Asia Crypto Alliance, told Cointelegraph that it’s important to differentiate between crypto and Web3 more broadly when looking at the relationship between Hong Kong and mainland China.
“The Hong Kong government is a big proponent of Web3 rather than specifically pro-crypto. The digital assets ecosystem is much broader than crypto alone; while mainland China banned cryptocurrencies in 2021, it is bullish on the potential of Web3 and the application of blockchain technologies. The Web3 and digital finance industries look set to continue to grow overall in greater China,” Khoo explained.
Recent: Cryptocurrency markets’ low volatility: A curse or an opportunity?
Yuanjie Zhang, a co-founder of the Conflux Network, told Cointelegraph that the developments in Hong Kong will unfold in a framework of “one country, two systems.”
On one side, Hong Kong will become the “stage for Chinese founders, venture capitalists, institutions and exchanges, where they cluster together and explore the frontier of the industry,” while on the other, “China mainland will continue its policy under the central bank’s guidance to prevent the prevalence of crypto onshore in the consistency of the capital control. More exchanges will exit the mainland markets, clear of the mainland ID users and move their staff to Hong Kong, Thailand and Singapore, etc.”
Binance CEO Changpeng Zhao has said that the developments in Hong Kong, particularly the onboarding of retail traders, could very well become a driving force for the next bull run.
Be the first to comment