Article Rewrite:
Title: Hong Kong’s Cryptocurrency Policies: An Open and Diverse Approach
Author: Asher Zhang
The United States recently launched a Bitcoin spot ETF, and Hong Kong followed suit with its own Bitcoin spot ETF, and then an Ethereum spot ETF. At first glance, it seems like the Hong Kong government is following in the footsteps of the US. But is that really the case? Recently, established cryptocurrency exchanges such as OKX, Gate, and Bybit have withdrawn their license applications, leading some to believe that the Hong Kong government is reversing its course. So, is Hong Kong tightening or continuing its lenient cryptocurrency policies? And what are the fundamental differences between Hong Kong’s cryptocurrency policies and those of the United States?
Hong Kong’s cryptocurrency policies are more progressive than those of the United States. Overall, Hong Kong’s policies are more open and daring, which is evident in three key areas: cryptocurrency asset ETF mechanisms, cryptocurrency exchange approvals, and securities token offerings.
In terms of cryptocurrency asset ETF mechanisms, Hong Kong pioneered the use of physical purchases and allowed Ethereum ETFs to participate in staking. Unlike the US Bitcoin spot ETF, which can only be traded using cash, the physical purchase mechanism provides investors with more flexible trading options. Additionally, the physical purchase mechanism greatly promotes Web 3 by serving as an exit channel for Web 3 investors, bridging traditional finance and Web 3 and facilitating capital circulation in the long run. As for Ethereum spot ETFs, they are also allowed to participate in staking. According to Bloomberg, the Hong Kong Securities and Futures Commission is in discussions to allow Ethereum ETF issuers to engage in staking. In contrast, US Wall Street institutions have removed the option for staking in Ethereum ETF filings submitted to the SEC.
While Hong Kong’s cryptocurrency exchange approvals are strict, they are still relatively more lenient compared to the United States. Currently, Coinbase is the only cryptocurrency exchange listed on the US stock market, while Hong Kong has extended its olive branch to multiple cryptocurrency exchanges. On June 1st, the Hong Kong Securities and Futures Commission updated its list of virtual asset trading platforms. According to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, a total of 11 platforms, including HKbitEX, PantherTrade, Accumulus, DFXLabs, Bixin.com, xWhale, YAX, Bullish, Crypto.com, WhaleFin, and MatrixportHK, were included in the “licensed” list. The remaining six platforms, BGE, HKVAX, VDX, bitV, HKX, and bitcoinworld, were not included. Although the Hong Kong Securities and Futures Commission stated that none of the platforms listed on the list have officially obtained licenses, it is expected that more platforms will receive licenses in the future.
Hong Kong is also ahead of the United States in terms of securities token offerings. In November of last year, the Hong Kong Securities and Futures Commission released a circular discussing the requirements for allowing tokenization of investment products under the Securities and Futures Ordinance. Apart from tokenized securities, the Securities and Futures Commission has already recognized the issuance of investment tokenized products. As early as September last year, Taiji Capital launched the PRINCE token, the first real estate fund security token offering (STO) targeting professional investors in Hong Kong. According to a report by Wen Wei Po on May 27th, the Hong Kong Securities and Futures Commission recently stated that security token offerings (STOs) and RWA investments may be open to retail investors, further expanding the virtual asset market and attracting more funds and fintech talents to Hong Kong. In February of last year, the Hong Kong government successfully issued 800 million Hong Kong dollars’ worth of tokenized green bonds, one of the typical RWA tokenization projects.
Is Hong Kong’s Web3 Ending Before It Begins?
Recently, established cryptocurrency exchanges such as OKX, Gate, and Bybit have withdrawn their license applications, leading some to believe that “Hong Kong is reversing its course,” and some even claim that “Hong Kong’s Web3 is ending before it begins.” But is this really the case?
This article believes that Hong Kong still has a strong competitive edge in the Web3 field, thanks to the strong support of the Hong Kong government and its significant achievements. According to the Financial Secretary of the Hong Kong Special Administrative Region, Mr. Paul Chan, in his essay titled “Consolidate the Foundation, Develop Quality Growth,” published on May 19th, Cyberport has attracted over 400 companies in the past year, bringing the total number of companies in the community to over 2,000, including eight unicorn companies. The accumulated financing of startups has exceeded HKD 40.6 billion, with significant advantages in fintech and third-generation internet companies. The development of artificial intelligence is also accelerating, supporting the digital transformation of Hong Kong companies from a technological perspective.
Furthermore, Hong Kong has a strong foundation for cryptocurrencies. According to a recent survey by KPMG China and Aspen Digital, 92% of respondents in Hong Kong are interested in investing in virtual assets, with 58% of family offices and high-net-worth individuals already making related investments, and 34% planning to do so. In addition, only less than 5% of the investment portfolios of 60% of the surveyed family offices and high-net-worth individuals consist of virtual assets, and 54% of the respondents expressed interest in allocating 5% to 30% of their portfolios to this asset class.
Despite the absence of participation from cryptocurrency exchanges in the crypto asset ETFs, the traditional financial market has shown strong interest in cryptocurrency assets, and many influential figures in the cryptocurrency industry remain optimistic.
Eric Balchunas, a senior ETF analyst at Bloomberg, previously predicted that it would take two years for the Hong Kong virtual asset ETF market to reach a scale of $1 billion, but it reached $292 million on the first day. He also stated that although the trading volume may not be as high as that of the United States, the $310 million Hong Kong ETF is equivalent to $50 billion in the US market in terms of proportion. Therefore, the impact of the Hong Kong virtual asset ETF on its local market is just as significant as that of the US Bitcoin spot ETF on its local market.
Sui Chung, CEO of CF Benchmarks, a subsidiary of Kraken, predicts that the assets under management of the Hong Kong Bitcoin ETF will reach $1 billion by the end of 2024.
Winston Wen, Chief Operating Officer of HashKey Group and CEO of HashKey Exchange, stated that the custodial assets of HashKey Exchange have increased from HKD 2.2 billion before the ETF launch to HKD 3.3 billion, and he believes that more funds will continue to flow into the market. Wen also believes that ETFs can attract more traditional investors to enter the virtual asset market, and he expects the overall scale to reach 20% of the US market, or approximately $10 billion, in one year. He believes that the virtual asset market still has a long way to go before reaching saturation.
Hong Kong’s Ambitious Web3 Strategy
Hong Kong’s Web3 strategy is highly diverse. It not only launched Bitcoin ETFs and extended its support to numerous cryptocurrency exchanges, but also actively promoted securities token offerings (STOs) and RWA. The most important aspect behind this diverse approach may be the integration of digital yuan into the Web3 economic ecosystem and the establishment of innovative financial market infrastructure, which the United States lacks and is difficult to achieve quickly due to its two-party political tug-of-war.
With the introduction of various virtual currencies and the tokenization of traditional assets in Hong Kong, what is the most convenient way to purchase digital assets? The native digital yuan is undoubtedly more trustworthy compared to stablecoins issued by centralized companies. While the Hong Kong government is vigorously developing Web3, the digital yuan is also expected to experience unprecedented growth. On May 17th, the Hong Kong Monetary Authority announced further progress in its cooperation with the People’s Bank of China on the cross-border payment pilot of the digital yuan, expanding the scope of the pilot in Hong Kong and facilitating Hong Kong residents in opening and using digital yuan wallets and adding value to their wallets through “Faster Payment System.” With this expanded pilot scope, users can now open and use personal digital yuan wallets in Hong Kong using their Hong Kong mobile phone numbers. Hong Kong users can add value to their wallets through 17 local retail banks via the “Faster Payment System.” In addition to being usable in the Greater Bay Area, the digital yuan can also be used in other pilot areas in mainland China.
Based on the statements of Hong Kong government officials, it is clear that the government is making efforts in this direction as well. On May 9th, according to licensed individual Mr. Pang Baolin of the Hong Kong Securities and Futures Commission, the market expects Hong Kong to promote interoperability in virtual asset trading and security token offerings (STOs). The Hong Kong Monetary Authority has already conducted sandbox studies on tokenized deposits’ settlement and clearing in interbank transactions and is preparing for future tests of digital Hong Kong dollars and stablecoins’ payments to support innovative financial market infrastructure and future digitalization.
Conclusion
Although it may seem like Hong Kong’s cryptocurrency measures are slightly behind those of the United States, a closer look reveals that Hong Kong’s policies are actually more open and diverse. From a macro perspective, Hong Kong’s cryptocurrency policies are progressing through top-level design and continuous sandbox experimentation, while the United States is caught in a political tug-of-war. This article believes that with the conclusion of Hong Kong’s sandbox experiments, the government’s cryptocurrency policies will be implemented more quickly and strategically, bringing prosperity to Hong Kong’s Web3 field once again and establishing the digital yuan as an economic cornerstone in the Web3 world.
