Food for thought: Hong Kong Emerges as a Crypto Hub Again as the US Cracks Down

As the United States government tightens its grip on the cryptocurrency industry, Hong Kong is opening up to the world of digital assets. Hong Kong has long been a bridge between the West and Greater China, and was once home to several cryptocurrency firms, including Bitmex, Amber, and FTX. When China implemented its crypto ban, it was believed that Hong Kong's crypto industry was nearing its end. However, the opposite seems to be happening.

After FTX, Hong Kong has become more progressive in offering a legal pathway for crypto startups to operate. The city recognizes that the ambiguous “regulation by enforcement” approach that stifles innovation, and a middle ground must be found. Recently, HashKey Capital was granted a license to offer regulated OTC crypto trading, and the SFC is soliciting feedback on its proposed licensing regime for crypto exchanges.

The proposed framework for crypto exchanges includes lifting the limit for accredited investors, pre-approving assets by a committee, requiring exchanges to apply for securities and virtual assets licenses, and implementing knowledge and risk assessments for non-institutional users. This framework is a strong signal to crypto founders that there will be a clear pathway for exchanges to operate legally.

With more exchanges likely to set up a presence in Hong Kong via regulated means as part of their China strategy, local offerings will likely resemble Coinbase US or Binance US, with strict position limits and limited derivatives offerings, but open to all retail investors. The fact that there will be a clear regulatory framework will provide a boost to the industry and may encourage more people to use crypto.

In conclusion, while the US is taking a tough stance on crypto, Hong Kong is opening up to it. Hong Kong recognizes that the industry needs clear regulatory guidance to expand, and the proposed licensing regime for crypto exchanges provides a clear pathway for firms to operate legally. With more exchanges likely to set up in Hong Kong, the city may regain its position as a leading crypto hub.