Home ›› 29 May 2023 ›› Asia Biz
Retail investors in Hong Kong may soon be able to buy popular crypto currencies like bitcoin at government-licensed exchanges, thanks to new rules meant to bolster the city’s standing as a digital asset hub.
Global crypto markets have yet to recover from a string of high-profile failures in recent months, including the spectacular downfall of trading platform FTX and crypto-friendly US banks Signature and Silvergate.
But the so-called “crypto winter» has not deterred Hong Kong authorities from embracing the sector, a pivot that began last October and culminated with new laws for crypto exchanges starting June 1.
Officials are also hoping the shift will be a boon for the city’s economy, which continues to struggle in the wake of the pandemic, social unrest and the impact on business confidence from a Beijing-imposed national security law.
Crucially, observers say it will cement Hong Kong as a key route for mainland Chinese investors looking to trade crypto, which is outlawed in the country.
Regulators are hoping to woo firms with favourable business conditions, but must balance that against the need for investor protections -- a well-developed area in traditional finance but less so in the virtual-asset space.
“There is an explicit acknowledgement that these products are becoming more and more part of our economy,” Giuliano Castellano, a law professor at the University of Hong Kong, told AFP.
The city has had a voluntary licensing system for crypto trading platforms since 2019, but licensees could only service professional clients with portfolios of at least HK$8 million ($1 million).
Without licensed local options, Hong Kong’s retail crypto traders are relegated to offshore websites such as Binance and Coinbase, or a raft of brick-and-mortar shops that buy and sell tokens for cash.
The client-base restriction was unpopular with Hong Kong’s crypto businesses, and officials eventually dropped it when designing the incoming rules.
“The genie’s out of the bottle,” said Kristi Swartz, a fintech lawyer at DLA Piper, referring to retail crypto trading.
“(They) just have to face reality... If it’s already there, let’s try to regulate it.”
China’s ‘petri dish’
Hong Kong is racing regulators around the world to figure out ground rules for crypto, which despite its crashes still has a global market capitalisation of more than $1 trillion.
The European Union earlier this month approved the world’s first comprehensive rules on the sector and international securities watchdog IOSCO proposed its recommendations shortly afterwards.
In contrast to evolving attitudes on crypto worldwide, China has maintained a strict ban since 2021.
Hong Kong -- a Chinese city with financial regulations separate from the mainland -- holds special appeal for China›s crypto businesses and investors, according to Leo Weese, co-founder of the Bitcoin Association of Hong Kong.
“There is a huge appetite from... (Chinese) crypto currency ventures to have any kind of legal presence on Chinese soil,» he said, adding that firms see it as a gateway to the lucrative mainland market.
In both traditional finance and crypto, it is common for mainland Chinese investors to be recognised as Hong Kong clients if they have a bank account and address in the city.
