The recent approval by the Hong Kong Securities and Futures Commission (SFC) allows 11 cryptocurrency exchanges to operate in the city, signaling the first progress towards issuing virtual asset trading platform (VATP) licenses since 2022.
Hong Kong is positioning itself to become a leading crypto hub, aligning with other global financial centers such as Singapore and Dubai.
Regulatory Obstacles Face Hong Kong's Crypto Exchange Scene
A South China Morning Post story states that Crypto.com, which was first established in Hong Kong and is currently based in Singapore, is the biggest exchange that has been "deemed to be licensed" out of all the authorized exchanges.
Notably, it is the only exchange that is still applying for a license in Hong Kong out of the top 20 according to CoinGecko's 24-hour trading volume. The next major exchange to be considered licensed is Bullish, which is based in Singapore and New York but was incorporated in Gibraltar as well.
In order to continue operating while awaiting full licensing approval, cryptocurrency exchanges must gain clearance under the new regulations that were enacted last year for the deeming arrangement.
As of June 1, exchanges not seeking a license were required to halt their operations, but some have opted to withdraw their license applications due to complications stemming from regulatory changes. Among these exchanges are those with origins in mainland China, which relocated following Beijing's crackdown on digital tokens. Notable examples include local branches of major platforms like OKX, Binance, HTX, KuCoin, Gate.io, and, most recently, Bybit.
The Hong Kong government underscores the importance of regulatory compliance, including measures aimed at preventing mainland Chinese residents from accessing crypto platforms. Additionally, recent regulatory approvals include the introduction of spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs) markets.
Has the Market Lost Confidence?
The withdrawals have reportedly sparked questions about Hong Kong's ability to draw in cryptocurrency-related companies and create a robust Web3 ecosystem. The city started working late in 2022 to establish itself as a crypto hub.
Information technology representative Duncan Chiu, a member of the Legislative Council, stated in an opinion piece that the withdrawals had caused the market to lose faith in regional Web3 development. Beijing continues to firmly forbid commercial cryptocurrency operations on the mainland, even in the hopes of reaching out to mainland Chinese consumers.
The financial authority of Shenzhen, a neighboring city to Hong Kong, recently issued a warning regarding the illegality of cross-border cryptocurrency trading, emphasizing potential criminal liabilities. The notice also highlighted the risks associated with crypto-related fraud and reiterated the illegality of providing internet services to mainland customers without proper approval.
While Hong Kong's initial approval of exchanges signifies progress in its regulatory journey towards becoming an innovation hub, challenges persist, such as the withdrawal of exchanges with mainland Chinese affiliations and Beijing's strict ban on commercial digital asset activities.
The future of Hong Kong's virtual asset market hinges on finding a balance between regulatory compliance, maintaining market confidence, and attracting businesses amidst the evolving global crypto landscape.
At the time of writing, Bitcoin, the largest cryptocurrency, is trading at $69,200, having briefly approached $70,400 earlier in Monday's trading session.
June 2024, Cryptoniteuae