The Hong Kong crypto project just got a reality check

Written by Kapronasia || June 05 2024

Ever since Hong Kong threw its hat into the cryptocurrency ring in 2022, we have been warning that inflated expectations would lead to disappointment. Crypto bros intent on selling the narrative of digital asset liberalization in China had been insisting that turning Hong Kong into a crypto hub was only the first step – next would be the mainland. Not anytime soon. In fact, some prominent crypto exchanges have decided to pull out of the former British crown colony, likely in part because they cannot serve mainland customers.

There is no question that in theory, using Hong Kong as a base from which to serve crypto customers in mainland China seems logical. After all, other segments of financial services use that exact business model – and have been very successful. The trouble is that China’s central government has severely restricted the crypto market on the mainland. While most legitimate trading and investment activities are not illegal in the mainland per se, they are also not permitted. Until that changes, it is highly unlikely that Beijing will look the other way as crypto exchanges in Hong Kong solicit business on the mainland.

That brings us to the crypto exchanges exiting Hong Kong. They include the local affiliates of major mainland China-linked crypto exchanges – including OKX,, KuCoin, Binance and HTX, formerly Huobi. The South China Morning Post, citing the Securities and Futures Commission (SFC) website, reported that they have all withdrawn their applications for a virtual asset trading platform (VATP) license in Hong Kong.  

Perhaps stringent SFC requirements proved too demanding for the exchanges, but we suspect that they sought to set up in the city in the first place because of the potential to access the mainland market. Then the SFC poured cold water on that idea. Specifically, the regulator’s notice emphasized that virtual asset trading platforms (VATPs) not only must be licensed by June 1 to continue operating in the city, but that they also are required to “comply with all applicable laws and regulations, including … preventing mainland Chinese residents from accessing any of their virtual asset-related services.” One source to which SCMP spoke said that the SFC’s explicit message to not serve the mainland market “dampened enthusiasm for operating in Hong Kong.”

We will be watching closely to see how many of the 18 remaining exchanges – among them, Bullish and Bybit – are approved to operate in the city. Thus far, only HashKey Exchange and OSL have been approved to serve retail investors in Hong Kong.

Some exchanges had been banking on Hong Kong opening the floodgates for retail investors, but it has become clear that the city’s regulators will take a more cautious approach. With limited opportunities in the retail market and the inability to serve mainland investors, Hong Kong’s push to become a crypto hub may lose momentum unless the city can present a clear value proposition to investors that differentiates it from Singapore and other competing jurisdictions.