In August, Hong Kong took a step – albeit a bit gingerly – that Singapore has not yet: It opened crypto trading to retail investors. HashKey Exchange and OSL became the first cryptocurrency exchanges in Hong Kong to secure licenses for retail investors to trade on their platforms, two months after the local regulator said it would allow companies to offer such services.
Some observers seemed to misunderstand Hong Kong’s purpose in allowing retail trading of crypto. Nikkei Asia said “that the development is an important step in positioning the city as a crypto hub while other markets remain cautious after the collapse in November of FTX.”
But Hong Kong does not intend to be a crypto hub – at least not for trading. “We are not aiming to be a crypto trading hub but we recognise crypto trading as an important part of the virtual asset ecosystem,” Julia Leung, Securities and Futures Commission (SFC) chief executive officer, said in June.
Ultimately, whether Hong Kong succeeds in its still evolving crypto aspirations will depends on several factors. First, the crypto ecosystem itself has to stabilize. Hong Kong and its regulators can only do so much to help facilitate this evolution. Second, major economies outside of Europe and East Asia have to signal openness to crypto. If both the United States and India do not, that will limit crypto’s prospects, because the former is the world’s largest economy and set to remain that way for many years, while the latter is rising in a way not dissimilar to China a few decades ago. Third, Beijing has to fully endorse Hong Kong’s crypto experiment.
It would appear that this is the case now, but there has not been a lot of clarity on the subject by top regulators on the mainland, and certainly nothing from the Chinese leadership to signal that China is preparing to change its own crypto policies. To be sure, Hong Kong can under the one country, two systems model experiment with crypto a fair bit, and develop an ecosystem for it different from the mainland, but if decentralized virtual currencies remain under a de facto ban on the mainland, it is hard to see Hong Kong realizing its potential as a crypto-forward financial center.
We have noted that most of the people in the crypto community telling journalists that Beijing wants to use Hong Kong as an experimental hub for crypto, or even to attract foreign direct investment and internationalize the renminbi, usually have some vested interest in promoting a related crypto business. And so we take what they say with a few grains of salt.
Only time will tell the direction Beijing wants to go.
Meanwhile, the JPEX trading scandal now unfolding shows that Hong Kong has a lot to learn when it comes to regulating an asset class that still attracts a large number of unsavory elements. According to Hong Kong police, the city’s largest ever alleged financial fraud now involves HK$1.56 billion (US$199.2 million) and 2,538 victims.