At the end of May, the Hong Kong Securities and Futures Commission officially ended the transitional period for virtual asset trading platform license applications. Prior to this, many mainstream exchanges such as OKX, Gate, and Huobi had withdrawn their applications, leading to speculation about the demise of Hong Kong as the Web3 capital. This article will compare the regulatory attitudes towards cryptocurrencies in the United States and Hong Kong from a positive perspective, and analyze the reasons why the author is still optimistic about the Hong Kong market.
Hong Kong remains determined and has strong execution capabilities.
The withdrawal of applications reflects strict investor protection.
The United States has a worse attitude towards virtual assets compared to Hong Kong.
Hong Kong is one of the best sandboxes for Web3.0 development.
Hong Kong’s next step is to enter the real-world assets (RWA) market.
Most mainstream exchanges have almost completely withdrawn from Hong Kong. On February 29, 2024, the Hong Kong Securities and Futures Commission publicly announced the end of the virtual asset trading platform application deadline.
According to the Hong Kong Securities and Futures Commission’s transitional arrangements, any virtual asset trading platform operating in Hong Kong must end its business in Hong Kong by May 31, 2024 if it has not submitted a license application to the Securities and Futures Commission by the deadline of February 29, 2024.
For a while, the wave of virtual asset trading platforms in Hong Kong swept over, with nearly 30 institutions from traditional finance and the “crypto-native” sector trying to take root in Hong Kong, which is known as a “virtual asset-friendly” environment, and create a new world.
However, what we have seen is that almost all of the once mainstream “crypto exchanges” have voluntarily withdrawn, including OKX, Gate, Huobi, and even HKVAEX, which is rumored to be associated with Binance, have withdrawn their applications. The only ones remaining in Hong Kong are Bybit and Bitget, which acquired OSL’s license through shareholding.
There have been doubts and criticisms. Some people say that the Hong Kong government excludes “crypto-native” exchanges and that Hong Kong’s regulations are too strict, making it the most unfriendly crypto country in the world. The once highly anticipated “new generation financial center” has now become a joke in some people’s mouths.
Is it the trend for the US market to continue to dominate the world?
The Hong Kong government’s determination to develop a new generation Web 3.0 financial center has never changed and does not need to be questioned. What the market needs is more patience, waiting for the market to gradually change and seeing the positive and continuous results brought by compliance and strict development.
The question of whether Hong Kong wants to create a crypto-friendly environment has never been based on evidence. The unexpectedly rapid approval of spot ETFs is the best proof.
Various institutions in Hong Kong expected the approval of ETFs to take place in the third quarter or the second half of the year. As a result, all parties have been gradually refining their operations, technical integration, and other issues. However, unexpectedly, the Hong Kong government accelerated the process in April, forcing all parties to focus on document filing work, resulting in a mismatch with the original deployment plan.
The result is obvious. Data does not lie.
The absolute volume doesn’t look good. With a scale of $250 million, it is far from the $57.3 billion volume in the United States. However, in terms of relative proportion, the $250 million Bitcoin spot ETF accounts for 0.5% of Hong Kong’s ETF market, while the $57.3 billion accounts for 0.67% of the US ETF market. There is no significant difference in proportion.
For the Bitcoin and Ethereum ETFs in Hong Kong, more time is needed for coordination in terms of processes, channels, and technology. This may take several months. The entire virtual market needs more time to achieve integration in all aspects.
The Hong Kong government’s rapid approval of ETFs aims to attract global capital to focus on Hong Kong through innovative models. The government’s goal is clear: to integrate traditional finance with emerging virtual asset markets, which is an important task for the future of the Hong Kong market.
The regulatory principles of the virtual asset market in Hong Kong are risk-oriented, while the “mainland-based” virtual asset trading platforms have many uncertainties from various perspectives. For example, in terms of funding, where does the funding behind the trading platforms come from? Can it be within the jurisdiction of the Hong Kong government? Some long-standing issues in the Web 3.0 system are difficult to solve. For example, almost every platform has issued platform tokens. Should these “tokens” be within the jurisdiction? How should risks be regulated?
Applicants entering the Hong Kong market from the “crypto-native world” bring many unsolved problems under the current regulatory framework. In the face of these key issues, the Hong Kong government has made the best “compromise” choice. The wave of withdrawals by applicants is the result of communication and negotiation. It is completely different from the principle of being rejected and forced to withdraw. Compared with the hardliners, Hong Kong has left ample space and possibilities for future cooperation with these “crypto-native residents.”
The author believes that in the future, Hong Kong will still look for more opportunities for cooperation with these “crypto-native residents.” Hong Kong will not willingly be called a “vassal” of US finance. Virtual assets are a rare opportunity and must be seized.
Due to the fact that Hong Kong’s finance is heavily influenced by the US financial market, investors generally compare the Hong Kong market with the US market in various ways to judge the advantages and disadvantages of the Hong Kong virtual asset market. However, fundamentally speaking, the US government still regards virtual assets as one of its political tools. The destructive impact of this uncertainty is far more terrifying than Hong Kong’s strict regulations.
A few examples can illustrate the unpredictability of US regulations. On May 24, 2024, the US SEC suddenly approved all Ethereum spot ETF 19b-4 filings, giving the green light to pending Ethereum spot ETF trades.
Previously, institutions did not anticipate a breakthrough in the progress of Ethereum spot ETFs. At the Consensus 2024 conference, Cathie Wood, the CEO of Ark Invest, admitted, “We originally thought it would not be approved, absolutely not. According to the usual process, if it is approved, we will receive inquiries from the SEC. But strangely, we did not receive any inquiries from the SEC before the approval this time.”
The reason behind the sudden change in the direction of the US SEC is unclear. It cannot be denied that this change may have been a political show staged for this year’s election results.
Trump, Biden’s competitor, has clearly stated that he accepts campaign donations in the form of cryptocurrencies. “Biden’s lack of understanding of cryptocurrencies” has also become one of his attack points, implying that cryptocurrencies will become a focus of election debates. Caixin reported that the “cryptocurrency community” in the US has become a political tool in the election year. Biden’s attitude towards cryptocurrencies may undergo a significant change to prevent Trump from winning this community.
The result is indeed as expected. Like a joke, the SEC quickly approved the crucial step for Ethereum spot ETFs. If it had been delayed until after the election, could the SEC change its direction again and directly reject the subsequent steps for Ethereum spot ETFs?
The development of the virtual asset market is still a game played by the US authorities. In comparison, although Hong Kong’s market regulations may be considered “strict” and “unprofitable,” they are based on clear rules and a stable state. The virtual asset industry has been developing for more than a decade and has entered a bottleneck in terms of incremental growth. It is almost impossible to overtake the “crypto-native” community. Hong Kong’s expectation is that internationally renowned institutions can recognize this land and bring more innovative changes from the perspective of traditional finance. This will undoubtedly require many years of hard work from various aspects.
Just yesterday, on May 30, Chen Chun, an academician of the Chinese Academy of Engineering and a professor at the College of Computer Science and Technology at Zhejiang University, was invited to the Hong Kong Legislative Council to exchange views on relevant issues with lawmakers.
During the exchange, Chen Chun stated, “Digital technologies represented by big data, artificial intelligence, blockchain, the Internet or mobile internet, and the Internet of Things are rapidly developing. In this context, new economic models that have emerged are called the ‘digital economy.’ The ‘digital economy’ is becoming a key force for restructuring global resource elements, reshaping the global economic structure, and changing the global competitive landscape.”
“Based on Hong Kong’s technological infrastructure and unique advantages, the development of Web 3.0 should focus on serving the real economy, exploring innovative applications. For example, digitizing traditional finance and physical assets and developing digital asset businesses centered around the tokenization of real assets to enhance asset liquidity, reduce transaction costs, and increase transparency. This will enable Hong Kong to occupy a position as a digital financial center in the new round of international competition.”
“Web 3.0 is not just about ‘cryptocurrencies.’ It is about studying how to promote the real economy. Hong Kong has great advantages and comprehensive laws and regulations. The development of cryptocurrencies in the market is like ‘racing all the way,’ but Hong Kong is a ‘big sandbox’ that considers risks and manages them with clear boundaries. When negative events occur, the reasons can be identified. Hong Kong needs to establish a unique ecosystem through financial attributes and the traditional service industry. I believe it can play a significant role in the development of China’s digital economy.”
The views and opinions of professionals from mainland China have long been looked down upon by “insiders.” However, this time, with the leading voice of an academician of the Chinese Academy of Engineering, it actually represents to a certain extent the positioning and views of mainland China on Hong Kong. Hong Kong is a cautious testing ground, where risk control is paramount. The key issue is how to transition from the traditional to Web 3.0. Nobody can determine whether this strategy is correct. However, it is clear that Hong Kong still needs more time compared to the wild growth of the US market to see results.
With time, when Hong Kong’s virtual asset trading platforms successfully enter the real-world asset market, the diversification of new asset classes will become the best support for the Hong Kong market, as well as the foundation for its success and a powerful tool to challenge the United States.
Related Reports:
Is Hong Kong Becoming a New USDT Hub? Co-founder Brock Pierce: China Opening Up to Crypto is Only a Matter of Time!
Rumors: Hong Kong to Establish VASP Association in June, Decide on Whether to Promulgate Special Laws by Year-end – An Unexpected Mishap…
Rumors: China to “Lift the Ban on Cryptocurrencies” within 3 Months, Is Hong Kong’s Approval of Cryptocurrency ETF a Prelude?