The Future of Crypto in Hong Kong, Are There Still Obstacles?

Bittime - The Hong Kong Securities and Futures Commission (SFC) has given preliminary approval to 11 crypto exchanges to continue operating in the city. This is an important first step towards the issuance of virtual asset trading platform (VATP) licenses from 2022.

This step was taken in line with Hong Kong's efforts to become a leading crypto center alongside other countries such as Singapore and Dubai.

Strict Regulations Challenge Hong Kong Crypto Exchanges

According to a South China Morning Post report, among the approved exchanges, Crypto.com, which was founded in Hong Kong and now operates from Singapore, is the largest to be "deemed licensed".

Of note, Crypto.com is the only exchange in the top 20 based on 24-hour trading volume as measured by CoinGecko, which is still applying for a license in Hong Kong.

Bullish, which is registered in Gibraltar but also operates from Singapore and New York, is the next significant exchange to be considered licensed.

Crypto Exchanges Must Be Licensed

Under new regulations introduced last year, crypto exchanges must obtain approval for a “deemed licensed” arrangement in order to continue operating pending full licensing approval.

The cut-off date for exchanges that have not applied for a license to cease operations is June 1. However, some exchanges have withdrawn their license applications due to complications arising from regulatory changes.

Some of the exchanges that withdrew their applications had ties to mainland China, where they were founded but then left after Beijing's crackdown on digital tokens. Famous exchanges include local affiliates of major platforms such as OKEx, Binance, HTX, KuCoin, Gate.io, and most recently, Bybit.

The Hong Kong government has emphasized regulatory compliance, including measures to prevent mainland Chinese residents from accessing crypto platforms and the recently approved Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETF) markets.

Market Confidence Shaken?

According to the report, the exchange's withdrawal raises concerns about Hong Kong's progress in attracting crypto-related businesses and developing a thriving Web3 ecosystem. The city begins its efforts to become a crypto hub in late 2022.

Legislative Council member Duncan Chiu, who represents the information technology sector, said in an opinion piece that the withdrawal had shaken market confidence in local Web3 development.

Despite hoping to access mainland Chinese customers, Beijing maintains a strict ban on commercial crypto activity in the mainland.

The financial authorities of Shenzhen, a neighboring city of Hong Kong, recently issued a warning against cross-border crypto trading, stressing that the activity is “illegal and subject to criminal sanctions”.

The notice also highlights the dangers of crypto-related fraud and reiterates the illegality of providing internet services to mainland Chinese customers without approval.

Hong Kong Towards a Dynamic Crypto Future

Overall, Hong Kong's granting of initial approval to these exchanges is a significant step in the city's regulatory journey towards becoming an innovation hub.

However, challenges remain, including the withdrawal of exchanges with mainland Chinese connections and a strict ban on commercial digital asset activity by Beijing.

The future of Hong Kong's virtual asset market will depend on striking a balance between regulatory compliance, market confidence and attracting business in an ever-evolving global crypto landscape.

Crypto Regulation and Innovation in Hong Kong

Hong Kong faces a complicated situation. On the one hand, the city wants to become a global crypto hub, competing with other developed countries.

On the other hand, it needs to comply with strict financial regulations and minimize risks associated with crypto, as well as follow the anti-crypto policies adopted by its neighbor, mainland China.

Hope for the Future

Despite the setback with the withdrawal of exchanges affiliated with mainland China, Hong Kong still has several advantages, namely:

1. Strong Financial Infrastructure

Hong Kong has a reputation as a global financial center with well-established infrastructure and good regulation. This may attract institutional investors seeking exposure to crypto through regulated platforms.

2. Experienced Talent

Hong Kong has a wealth of talent in finance and technology, which can be leveraged to develop an innovative crypto ecosystem.

3. Open attitude towards innovation

Hong Kong has historically been known as a financial center that is progressive and open to innovation. This could be attractive to crypto companies looking to experiment with blockchain technology and decentralized applications (dApps).

Challenges that Need to be Overcome

However, Hong Kong needs to overcome several challenges to achieve its goal of becoming a crypto hub:

1. Regulatory Uncertainty

Crypto regulations in Hong Kong are still relatively new and may change at any time. This uncertainty may discourage crypto companies from operating in Hong Kong.

2. Tight Competition

Hong Kong faces stiff competition from other countries such as Singapore and Dubai, which are also seeking to become global crypto hubs. Both countries offer a clearer and friendlier regulatory environment for crypto companies.

3. China's Strict Attitude

China's anti-crypto policy is a major obstacle for Hong Kong. Hong Kong is unlikely to become a true global crypto hub without access to the huge Chinese market.

Conclusion

Hong Kong has the potential to become an important global crypto hub. However, the city needs to overcome regulatory challenges, fierce competition and China's anti-crypto policies.

Hong Kong's success will depend on its ability to find common ground between the regulations needed to protect investors and the innovation needed to attract leading crypto companies.

The world will continue to watch Hong Kong's next steps in this challenging crypto journey.

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