Hong Kong poised to become a significant crypto hub due to its regulatory leadership.
Hong Kong is a city located in the southern part of China, officially known as the Hong Kong Special Administrative Region of the People’s Republic of China. The city has a population of over seven million and is recognized for its pro-innovation and technology stance. In the past year, Hong Kong has implemented laws to encourage and adopt cryptocurrencies.
As a major world economy, Hong Kong serves as a hub for finance, shipping, trade, and retail. It is a cosmopolitan metropolis with influences from both Western and Asian cultures. With the introduction of crypto, it has become a well-established data hub for key businesses.
Although China has had strict anti-crypto regulations for almost five years, Hong Kong has taken a pro-crypto stance. In January, Hong Kong’s Financial Secretary Paul Chan expressed the government’s interest in building a crypto and fintech ecosystem by 2023.
By March, more than 80 crypto firms had expressed interest in opening an office in Hong Kong. In April, the Hong Kong Monetary Authority called on banks to provide services to cryptocurrency firms, and in May, the Hong Kong Securities and Futures Commission announced that licensed crypto platforms would be allowed to serve retail customers. Crypto exchanges Huobi and Gate.io have applied for virtual asset licenses, with Huobi becoming the first member of the Hong Kong Virtual Assets Consortium on May 31.
The SFC has a stricter requirement for virtual asset service providers compared to other regulators and has compulsory insurance and compensation arrangement requirements in place to protect clients. It also has a 98% cold wallet storage requirement that licensed corporations must comply with.
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Binance, the largest international cryptocurrency exchange with a significant presence in Asia, is monitoring the situation in Hong Kong. A Binance representative told Cointelegraph that the company was actively involved during the “public consultation period” and contributed to the policy-making process of virtual asset platform regulation in Hong Kong. The exchange welcomes more regulatory clarity for the industry and is currently considering options to encourage the adoption of cryptocurrencies. Bitfinex, another prominent global crypto exchange, welcomed favorable regulations that allow 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 that allowing retail participation further democratizes access to the crypto marketplace, and they welcome the progressive approach Hong Kong has taken.
While Hong Kong enjoys a certain degree of autonomy, it is still part of China, which 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 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.
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 that they 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, explained that it’s important to differentiate between crypto and Web3 more broadly when looking at the relationship between Hong Kong and mainland China. The digital assets ecosystem is much broader than crypto alone, and while mainland China banned cryptocurrencies in 2021, it is bullish on the potential of Web3 and the application of blockchain technologies.
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.