A plan to legalize retail cryptocurrency trading has been announced by Hong Kong to create a more friendly regulatory regime for cryptocurrencies. There has been an opposite trend over the last few years in the city, with skeptical views, as well as China's ban on the practice.
According to sources familiar with the matter, an upcoming mandatory licensing program for crypto platforms scheduled to take effect in March next year will allow retail traders access to crypto platforms. There has been a request not to name these people since they are not authorized to release this information publicly.
There have been reports that the regulators are planning to allow the listing of higher-value tokens in the coming months but will not endorse specific coins such as Bitcoin or Ether, according to the people. They noted that the details and timeframe are yet to be finalized since a public consultation is due first.
At a fintech conference that starts on Monday, the government is expected to provide more details regarding its recently announced goal of creating a top crypto hub in the region. To restore Hong Kong's reputation as a financial center after years of political turmoil and the aftermath of Covid curbs sparked a talent exodus, the marketing campaign comes amid a larger effort to put Hong Kong back on the map.
Gary Tiu, executive director at crypto firm BC Technology Group Ltd, said that, while mandatory licensing in Hong Kong is one of the most effective things regulators can do, they cannot forever satisfy the needs of retail investors who are investing in crypto assets.
Criteria for listing
According to people familiar with the matter, the upcoming regime for listing tokens on retail exchanges is likely to include criteria such as the token's market value, liquidity, and membership in third-party crypto indexes to determine eligibility for listing. Their approach resembles the one they used when it came to structured products such as warrants, they continued.
Hong Kong's Securities and Futures Commission spokesperson did not respond to a request for comment regarding the details of the revised stance adopted by the agency.
Several crypto-related Hong Kong companies that are listed on the stock exchange increased their share prices on Friday. In the same report, BC Technology climbed 4.8% to its highest in three weeks during the third quarter, whilst Huobi Technology Holdings Ltd. rose slightly.
In a world where more and more regulators are grappling with how to manage the volatile area of digital assets. This area has gone through a $2 trillion rout, following a peak in early November 2021. The sector is finding it difficult to regain its previous strength. Firms that dealt in cryptocurrency were crushed by the crash because their leverage grew without limit and their risk management methods were exposed.
It is widely believed that Singapore has tightened up its digital-asset rules to curb retail trading in digital assets to deal with the implosion that has hit Hong Kong.
There was a proposal earlier this week by Singapore to ban the purchase of leveraged retail tokens on the retail market. There was a ban on cryptos in China a year ago because it was largely illegal.
Michel Lee, executive president of digital-asset specialist HashKey Group, said that Hong Kong is trying to frame a crypto regime that extends beyond the retail token trading market to incorporate all types of digital assets, including cryptocurrencies.
Bringing the ecosystem to the next level
Among other things, Lee believes that tokenized versions of stocks and bonds could become a much more significant segment in the future as time passes on. Lee said, "Just trading digital assets on its own is not the goal". According to Lee, digital assets are not intended to be traded on their own but the ecosystem must grow as quickly as possible.”
A big exchange such as Binance and FTX once had their base in Hong Kong. Their attraction was the reputation of a laissez-faire regime and their strong ties to China. A voluntary licensing regime, that was introduced by the city in 2018, limited crypto platforms' access to clients with portfolios exceeding HK$8 million ($1 million) to those with portfolios of less than that amount.
It has been confirmed that only two firms have been approved to operate under the license, BC Group and HashKey. FTX successfully managed to turn away the more lucrative consumer-facing business to the Bahamas last year as a result of the signal of a tough approach.
However, the plan to attract crypto entrepreneurs back to Hong Kong seems to be a bit short of what is needed to usher them back. Among other things, it remains to be seen if mainland Chinese investors would be able to trade in tokens through Hong Kong if that were to be permitted.
Leonhard Weese, the co-founder of the Bitcoin Association of Hong Kong, expressed a fear that there might be a very strict licensing regime in the future. "The conversations I have had indicate that people still fear it will be very stressful," he said. The company claims that it is not competitive on the same level as overseas platforms. Therefore, it will not be as attractive to customers as it would be if it dealt directly with retail users.
According to blockchain specialist Chainalysis Inc., the volume of digital-token transactions in Hong Kong through June declined less than 10% from a year earlier, the most modest increase in the region outside of a slump in China, in the 12 months through June. It has fallen two positions from its global ranking of 39 in 2021 to 46 in 2022 when it comes to crypto adoption throughout the city.
The Securities and Futures Commission of Hong Kong's Fintech Department has also suggested that the city could take further steps in this area, including the establishment of a regime to authorize exchange-traded funds seeking exposure to mainstream virtual assets.
It shows that the one country, two systems principle is being put into action in financial markets, Wong said at an event last week. He said that the fact that the city can introduce a cryptocurrency framework distinct from China's indicates how far it has come.
