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The City of Hong Kong is inclining towards a more favorable regulatory policy for the cryptocurrency industry. This will contradict its recent cautious stance towards the industry as mainland China continues to ban crypto activity within its borders.

Crypto Lists explores the future of Hong Kong as an east Asian crypto hub and what measures need to be taken to achieve the territory’s desired goal.

Hong Kong’s Mandatory Licensing Program

Hong Kong authorities are putting in place a mandatory licensing program for crypto firms. The program is set to roll out in March 2023 in a bid to facilitate retail trading in the city. Undisclosed individuals familiar with the program plans requested to be incognito as the information is not available to the public.

They revealed that Hong Kong regulators shall welcome listings of bigger tokens but will limit specific cryptos such as Ethereum (ETH) and Bitcoin (BTC). Regulators are consulting the public before finalising the details and timetable of the program.

The government is planning to instate its objective of creating an appealing crypto hub at a fintech conference beginning on Monday. Hong Kong’s crypto push is driven by its desire to restore the city’s credentials as a financial center. This is after recent political turbulence and the Covid pandemic that resulted in a talent exodus.

The executive director at BC Technology Group Ltd, Gary Tiu, reiterated that one of the essential things for regulators is introducing mandatory licensing in the city. He further stated that regulators can no longer ignore the needs of retail investors.

Listing Criteria

Considerations for listing tokens on retail exchanges in the upcoming regime may include liquidity, market value, and membership in third-party crypto indexes. It’s a similar approach for structured products such as warrants. The Hong Kong Securities and Futures Commission spokesperson declined to comment on details about the regime’s details.

Crypto-related firms’ shares in Hong Kong rose on Friday with BC technology rising by 4.8% The growth was the highest in three weeks while Huobi Technology Holdings Ltd had higher growth.

The recent developments coincide with how regulators globally debate the best ways to oversee the volatile crypto industry. The industry is recovering from a $2 trillion crush since a peak in November 2021. The crash shut down several crypto firms and exposed unrestrained leverage and insufficient risk management.

Hong Kong’s traditional financial rival, Singapore, suffered from the implosion and tightens its crypto assets rules and restricted retail trading. Earlier in the week, Singapore proposed banning leveraged retail token purchases. Mainland China declared the crypto industry illegal to a great extent a year ago.

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Program to Grow the Ecosystem Beyond Retail Trading

The executive president of HashKey Group digital-asset specialist, Michel Lee disclosed that the city-proposed crypto regime will go beyond retail trading. Top performing crypto exchanges such as Binance and FTX had their base in Hong Kong with their laissez-faire reputation and links with China. In 2018, the city had a voluntary licensing regime restricting crypto exchanges to customers with at least a K$8 million ($1 million) portfolio. BC Group and HashKey were the only firms approved for permits. This effectively lured away more lucrative consumer-facing businesses. FTX shifted to the Bahamas last year.

Debate surrounds whether Hong Kong’s attempts to correct the situation and attract crypto entrepreneurs are redeemable. There is uncertainty about whether mainland Chinese investors would be allowed to trade crypto in the city. Co-founder of the Bitcoin Association of Hong Kong, Leonhard Weese, agrees that there are still fears about a strict licensing regime. The allowance to deal directly with retail users does not make them as appealing as overseas platforms.

Chainalysis’ report indicated crypto transaction volume expanded less than 10% from July 2021 to June 2022 from the previous year. China aside, this was the least growth in East Asia. It fell further from its overall global crypto adoption ranking of 46 from 39 in 2021.

Re-establishing Hong Kong as a Financial Hub

Hong Kong is exploring further steps in creating a lucrative crypto hub. One of them is to initiate a regime authorizing exchange-traded funds. This would provide exposure to mainstream virtual assets. Hong Kong Securities and Commission Head of Fintech, Elizabeth Wong, agrees. At a recent event, Wong outlines that the ability of Hong Kong to introduce its own crypto regulatory framework contrasting China’s indicates the one country, two systems framework in action in financial markets. She revealed the government is considering a crypto regulation bill. The SFC would allow direct investments into virtual assets by individuals.

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