Hong Kong in crypto rush, with financial firms setting sight on new opportunities
As a global financial hub, it’s natural for the city to extend to virtual asset arena: expert
Published: Feb 23, 2023 07:43 PM
Hong Kong Photo: VCG

Hong Kong Photo: VCG

A 30-something Hong Kong resident surnamed Zhang has been caught in a crypto heat in recent months. 

Across the city, crypto-related promotions - ranging from lessons by veteran industry insiders to heavy discounts offered by crypto exchanges and joint non-fungible token (NFT) issuances by virtual asset (VA) platforms and renowned artists - caught her attention, prompting her to eventually make a tentative purchase of an NFT collection, worth around 1 ethereum (ETH) in market value. 

"The city has been spearheading a VA push," Zhang told the Global Times. As an employee of a securities brokerage, she gave another example of the crypto frenzy in the financial industry, in which some of her peers are planning to job-hop to VA companies. 

Joining the buzz have been some of the world's leading crypto trading platforms and traditional financial institutions, which are keen to get a slice of Hong Kong's crypto pie. 

As part of the market campaigns in Hong Kong, crypto exchange Binance on February 14, or Valentine's Day, took to the street and set up a truck for a "challenge game." Winners of the game could access various NFTs, according to a post on Binance's Twitter account.

A spokesperson of Binance told the Global Times on Wednesday that the company is optimistic about the future development of the Hong Kong crypto market. 

"As one of the most important finance centers in the region and the globe, Hong Kong has an advantage and competitive position when it comes to the talent pool as well as the business environment," the spokesperson said.

Hong Kong has launched a consultation on the proposals for operators of virtual asset trading platforms (VATPs), and it is seeking views on whether to allow licensed platform operators to serve retail investors. 

A draw to companies 

The consultation will end on March 31, paving the way for the new licensing regime for crypto exchanges, which could allow retail investors to access trading of large-capitalization crypto. The new system comes into effect on June 1.

"The VA licensing regime is the first comprehensive regulatory framework in the world to include a full range of investor protection features, which are essential to facilitating responsible and sustainable development of the VA sector," a spokesman for the Financial Services and the Treasury Bureau said in a statement sent to the Global Times. 

The move is among concrete measures the Hong Kong government has taken to support the development of VAs with appropriate safeguards and build it into a crypto hub. 

In October, Hong Kong published a policy paper that clearly showed an encouraging attitude toward fostering sustainable development of local VA sector. All the measures are conducive to the development of quality VA service providers, and the establishment of the VA ecosystem in Hong Kong, the bureau said. 

Crypto entrepreneur and first advisor to the Huobi Global Advisory Board Justin Sun Yuchen confirmed to the Global Times on Wednesday that he will move cryptocurrency exchange Huobi's Asia headquarters from Singapore to Hong Kong to capitalize on the city's efforts to establish itself as a digital asset hub.

Sun said in a tweet on Monday that Huobi is applying for a crypto trading license in Hong Kong. The company will also set up a new exchange in Hong Kong, named Huobi Hong Kong, providing trading services for institutional investors and high net worth individuals in Hong Kong, according to the tweet.

Duncan Fitzgerald, Risk Assurance partner of PwC Hong Kong told the Global Times on Thursday that PwC in Hong Kong has a large and experienced team working with numerous clients already in the VA industry. "We plan to continue to serve all clients seeking to enter this ecosystem and are well prepared for this."

Singapore's largest bank, DBS Group, is planning to enter the market. Sebastian Paredes, CEO of DBS Bank (Hong Kong), said in a statement sent to the Global Times that "at the appropriate time, DBS will apply for the necessary licenses in Hong Kong to avail our digital asset solutions to the market."

Balance on regulation

Industry insiders said the Hong Kong authorities have been exploring ways of balancing "a healthy dose of supervision" to prevent the crypto market from going astray and "not putting a fence" up against innovations. 

This comes at a time when Singapore, which has risen to prominence in the crypto industry, has strengthened supervision and enforcement over the sector - including issuing guidelines to discourage crypto trading by the general public - following the scandals of leading platforms like FTX. 

"The clock is ticking… Hong Kong is facing competition from not only Singapore but also Dubai, so there's a sense of urgency for the city to scale up efforts. Hong Kong's traditional financial advantage, its globally adopted economic principles, and its role as a 'super-connector' between the Chinese mainland and the world will help," another industry insider surnamed Zheng told the Global Times. 

In January, the Hong Kong Special Administrative Region's Chief Executive John Lee Ka-chiu said the city is dedicated to creating an environment for the sustainable development of VA. According to Lee, the Hong Kong Monetary Authority will announce new steps regarding the regulatory regime for virtual assets. 

In October 2022, the SFC put in place a regime for the authorization of virtual asset futures exchange-traded funds (ETF), under which three VA futures ETFs have been listed. 

But observers said a full legalization of crypto trading is not possible in Hong Kong, at least in the short term, due to volatility and financial risks involved. The SFC consultation paper noted that under the existing regulatory regime, licensed platform operators are not allowed to offer, trade or deal in virtual asset futures contracts or related derivatives.

Zheng said the city's booming VA industry also has a very positive impact on fintech and the broader financial service ecosystem, which would provide new drivers to shore up local economy this year.