The stablecoin regulations are about to take effect, and there are undercurrents in the Hong Kong market.

On the upcoming August 1st, Hong Kong's "stablecoin regulations" will officially come into effect. Compared to the huge waves stirred up by stablecoins in the crypto world in the United States, the ripples created in Hong Kong may seem minor in the encryption field, but they have rarely shown an astonishing impact in the stock market.

Author: Tuo Luo Finance

The wind of stablecoins continues to blow.

On this side, the stablecoin genius bill was formally legislated by Trump, while on that side, Hong Kong's stablecoin is counting down to issuance. On the upcoming August 1st, Hong Kong's "Stablecoin Ordinance" will officially take effect. Compared to the huge waves caused by stablecoins in the United States, the ripples in the crypto world stirred up by Hong Kong may seem minor, but in the stock market, it has surprisingly shown an astonishing influence.

After the draft for stablecoins was passed in Hong Kong, the Hong Kong stock market's enthusiasm for stablecoins has reached an unprecedented high. The stablecoin sector of Hong Kong stocks has seen a skyrocketing increase, with many stocks more than doubling, and even some experiencing tenfold increases. Investors are delighted, and listed companies are happily welcoming increased capital. While this situation seems to bring joy to everyone, Hong Kong's regulatory authorities have new concerns. Recently, the President of the Hong Kong Monetary Authority, Yu Weilun, published an article titled "Stablecoins for Steady Progress" on the official website, aiming to cool down the surging stablecoin market.

However, facing this hissing kettle, it is quite difficult to lower the temperature.

On May 21, the Hong Kong stablecoin regulation draft was passed in the Legislative Council after the third reading. At that time, since the US stablecoin bill was still under review in the Senate, Hong Kong's "first mover" move sparked heated discussions in the market. In fact, in terms of content, the licensing system, 100% full reserve, HKD 25 million paid-up capital, anti-money laundering regulations, etc., are no different from the legislation in other mainstream regions. However, in terms of public opinion, there is a stark contrast, which has become a true reflection of Hong Kong's stablecoin.

On one hand, due to the waning influence of Hong Kong in the encryption field, coupled with many operations that create a lot of noise but little action, the crypto market generally holds a relatively pessimistic view. It believes that even if Hong Kong continues to strengthen its regulatory foundation and improve regulatory provisions, under limited market demand, it will ultimately just be another subsidiary of the US dollar stablecoin, and being able to play a part in maintaining some of the window's residual heat is already sufficient.

Despite the unwelcoming attitude of the crypto market, this news is extremely positive in other markets. After the regulations were passed, major sensitive giants rushed to lay out their strategies, and traditional media and brokerages competed to report on it, allowing stablecoins to achieve a real breakthrough. For a time, discussions on the connotation, use cases, and value significance of stablecoins continued to ferment, gradually extending to the debate on the necessity of a Renminbi stablecoin. The trillion-dollar market of stablecoins seems to be on the eve of explosion.

Just this Friday, the Hong Kong stablecoin regulations will officially come into effect, simultaneously opening up license applications. However, just a week before the implementation, the Hong Kong Monetary Authority's CEO, Yu Weiwen, poured cold water on stablecoins. In his article "Stablecoins: Moving Forward with Stability," he clearly mentioned that stablecoins are being overly conceptualized and are showing signs of bubble formation. Yu Weiwen pointed out that at the initial stage, at most only a few stablecoin licenses will be granted, urging investors to remain calm and think independently while digesting the positive market news. At the same time, the Monetary Authority will implement guidelines for regulation and anti-money laundering, seeking market opinions, and will establish stricter requirements for anti-money laundering to minimize the risk of stablecoins becoming tools for money laundering.

From the above remarks, it can be seen that Hong Kong has expressed concerns about the current market situation and has maintained a very cautious attitude towards the approval of stablecoin issuer licenses. As for why regulatory authorities need to write articles to cool down the market, the reason is quite simple: stablecoins in Hong Kong have indeed become somewhat overheated.

This overheating is concentrated in the stock market. The bright prospects correspond to very early developments, making stablecoins a rather appealing capital story, and under this narrative, almost all stocks associated with stablecoins have experienced rapid increases, with the growth effect almost immediate.

Guotai Junan International was approved for a securities trading license in June, becoming the first Chinese-funded brokerage to provide a full-chain service for virtual assets. On June 25, it surged by 198%, with an annual increase of 4.58 times.

On July 7, Jinyong Investment announced that the company has signed a strategic cooperation framework memorandum with AnchorX to explore potential cooperation in four areas, including cross-border payment and trade, and stablecoin application scenarios. The next day, Jinyong Investment's volume surged by 533.17%.

On July 15, China SanSan Media announced that the company has begun preparations to apply for a stablecoin license. On July 16, China SanSan Media's stock surged 72.73% at closing, with a cumulative increase of 14.95 times since the beginning of this year.

Just a single message can lead to a straight rise, which is enough to demonstrate the strong narrative effect of stablecoins. In addition to the newly added institutions mentioned above, the existing established concept stocks have also collectively soared, with OKLink, Yunfeng Financial, Yixin Group, New Huo Technology Holdings, and OSL Group all seeing cumulative increases of over 100% this year. Even the A-shares, which have long been criticized, have been shaken, with digital renminbi concept stocks like Hengbao Co., Ltd., Sifang Jingchuang, and Chutianlong also experiencing multiple increases.

Against this backdrop, whether it is the "chameleon" enterprises trying to ride the wave of capital effects, financial institutions that genuinely want to partake in the stablecoin market, or strategic giants aiming to reduce settlement costs and build a corporate moat, all are rushing in. As of now, according to Caixin reports, around fifty to sixty companies have expressed their intention to apply for a Hong Kong stablecoin license, including state-owned enterprises and financial institutions from mainland China, as well as internet giants.

However, a surge in applications does not equate to a surge in approvals. The Hong Kong Monetary Authority has indicated that most of the institutions applying are still at the conceptual stage, lacking practical application scenarios. Those with application scenarios, however, lack the technology to issue stablecoins and the experience and capability to manage various financial risks. Issuing solely for the sake of issuing is clearly not what Hong Kong wants to see. It is precisely against this backdrop that the Hong Kong Monetary Authority stated that only a single-digit number of licenses would be granted in the initial phase.

At the same time, in response to the overheating of license applications, the Hong Kong Monetary Authority also intends to implement a preliminary screening mechanism. Caixin cited sources as saying that the licenses for stablecoin issuers will not be conducted through a method where applicants download forms themselves and submit written applications uniformly, but will be arranged in a manner similar to an invitation application system. Specifically, in practical operations, the Hong Kong Monetary Authority, which is responsible for licensing regulation, will communicate in advance with interested stablecoin license applicants to understand whether they meet the basic application qualifications. Only after obtaining basic recognition in the pre-communication will the Monetary Authority issue application forms.

As for which company will obtain the license? From the market opinion, it seems that the intention issuers participating in the stablecoin sandbox pilot have a greater chance. As early as July last year, the Hong Kong Monetary Authority launched the stablecoin sandbox test, with institutions such as JD Coin Chain Technology, Yuan Coin Innovation Technology, and the Standard Chartered consortium (including Standard Chartered, ANZ Group, and Hong Kong Telecom) being selected. Now, the sandbox test has entered the second phase, and although the Monetary Authority emphasizes that being selected for the sandbox does not mean that a license will be granted, sandbox companies still need to apply for a license according to regulations. However, given the application scenarios and risk control foundations tested in the sandbox, participants in the sandbox clearly have more insights on how to meet regulatory requirements.

Overall, Hong Kong mainly focuses on three aspects in the license application: first, technical implementation capability, whether it meets the technical requirements for issuance; second, application scenario demand, which requires practical solutions and implemented scenarios; third, risk control capability, especially to prevent stablecoin money laundering risks. Objectively speaking, there have been large enterprises with a strong foundation in cross-border finance and payment business, along with a complete risk control system, which have advantages, while the success rate of applications from small and medium-sized enterprises is quite bleak, playing more of a supporting role.

At this stage, although the Monetary Authority has called for a cooling down, the market's FOMO is unlikely to drop suddenly in the short term.

Firstly, there is a certain correlation between the development of stablecoins in the United States and Hong Kong. After the passage of the Genius Act, the enthusiasm for stablecoins in the U.S. remains unabated, with Circle hitting new highs and large institutions expressing high interest. Coupled with the positive sentiment in the crypto market and the anticipated interest rate cuts, U.S. stablecoins are likely to continue to see a sustained narrative, and this narrative has a transmission effect.

Secondly, the discussion on Hong Kong stablecoins continues to extend. Initially, the market only discussed the HKD stablecoin itself, but now, more discussions are beginning to focus on the necessity of an offshore RMB stablecoin. National think tanks such as the National Finance Development Research Institute, local governments such as the Shanghai State-owned Assets Supervision and Administration Commission, major brokerage consulting institutions, social organizations, and others are starting to pay attention to this topic. From the current viewpoints, many believe that the offshore RMB stablecoin should be piloted in the Hong Kong market, and when conditions are ripe, it can then be explored in the domestic offshore market represented by free trade pilot zones. Prior to this, the reason for the slow development of Hong Kong's Web3 was due to blocked channels, and if the offshore RMB stablecoin is feasible, it will not only provide more imagination space in this field but also promote the development of the industry itself. In the long run, it will also have a profound impact on the existing financial system.

More importantly, for participants, stablecoins represent a potentially profitable market and are gradually forming a complete industrial chain. From the issuer's perspective, for retail issuers, stablecoins can significantly reduce transaction settlement costs and enhance competitiveness; for payment issuers, there is ambition to deeply penetrate the digital asset market starting from the medium and to move towards global financial facilities; even if it is merely to embellish stock prices for capital narratives, there is motivation for some participants to get involved. Recently, as the concept has become popular, over 5 groups, including ZhongAn Online, Fourth Paradigm, Jiamu Technology, and Yisou Technology, announced large-scale equity financing plans. The OSL Group allocated over 101 million shares at a price of 14.9 HKD per share, with the financing plan nearing 2.4 billion HKD. Beyond issuance, the main carriers for monetizing traffic, such as virtual asset trading platforms and banks as custodians, are actively laying out plans to capture industry dividends.

Based on the above, the speculation around stablecoins will continue in the short term, and licenses, as the stepping stone in this compliance competition, will see competition around licenses heat up. However, it is worth noting that as an industry in its early stages, the extent of the license's radiation, the strength of the radiation effect, and even the feasibility of business demand all need to be examined. Considering the hard threshold of 25 million Hong Kong dollars and the potential ongoing compliance costs exceeding one million per year, applying hastily without strong business model support may lead to losing more than gaining. As noted in a piece by the Hong Kong Monetary Authority, those who act steadily and aim for long-term success are ultimately few, while many enterprises that only seek to capitalize on trends will inevitably revert to their original form after undergoing the scrutiny of licenses.

In this regard, investors who are closely watching stocks may need to be more vigilant.