Author: Asher Zhang
The United States has issued a Bitcoin spot ETF, and Hong Kong has also issued a Bitcoin spot ETF, followed by an Ethereum spot ETF. It seems that the Hong Kong government is following in the footsteps of the United States, but is this really the case? Recently, well-established cryptocurrency exchanges such as OKX, Gate, and Bybit have withdrawn their license applications. Some people claim that the Hong Kong government is reversing its stance on cryptocurrency, so is Hong Kong's cryptocurrency policy really tightening or continuing to be relaxed? What are the fundamental differences between Hong Kong's cryptocurrency policy and that of the United States?
Hong Kong's cryptocurrency policy is more advanced than that of the United States
Overall, Hong Kong's cryptocurrency policy is more open and bold compared to that of the United States. This is specifically reflected in three aspects: the design mechanism of cryptocurrency ETFs, the approval of cryptocurrency exchanges, and security token offerings (STOs).
In terms of the cryptocurrency ETF mechanism, Hong Kong pioneered the physical subscription mechanism and allows Ethereum ETFs to participate in staking. Compared to the US Bitcoin spot ETF, which can only be traded in cash, the physical subscription mechanism provides investors with a more flexible trading method. Additionally, the physical subscription mechanism greatly promotes Web 3, serving as a funding exit channel for Web 3 investors, bridging traditional finance and Web 3, and facilitating the circulation of capital in the later stages. Regarding the Ethereum spot ETF, it is reported by Bloomberg on May 23 that the Hong Kong Securities and Futures Commission is discussing allowing the issuer of the Ethereum ETF to engage in staking. In contrast, US Wall Street institutions have removed the staking clause from the Ethereum ETF documents submitted to the SEC.
Although the approval process for cryptocurrency exchanges in Hong Kong is strict, it is still relatively more lenient compared to the United States. While there is essentially only Coinbase listed on the US stock market, Hong Kong has extended an olive branch to multiple cryptocurrency exchanges. On June 1, the Hong Kong Securities and Futures Commission updated the list of virtual asset trading platforms. According to the "Anti-Money Laundering and Counter-Terrorist Financing Ordinance," HKbitEX, PantherTrade, Accumulus, DFXLabs, Bixin.com, xWhale, YAX, Bullish, Crypto.com, WhaleFin, and MatrixportHK, a total of 11 platforms, were listed as "licensed." The remaining 6 platforms on the application list, BGE, HKVAX, VDX, bitV, HKX, and bitcoinworld, were not included in the licensed list. Although the Securities and Futures Commission of Hong Kong stated that all the virtual asset trading platform applicants listed on the list have not been officially licensed by the commission, the issuance of licenses is just around the corner, and it is expected that there will be more than one platform.
Hong Kong is ahead of the United States in terms of security token offerings. In November of last year, the Hong Kong Securities and Futures Commission issued the "Recognized Investment Products Circular," listing the requirements for allowing investment products to be tokenized in accordance with Part IV of the Securities and Futures Ordinance. In addition to tokenized securities, the Securities and Futures Commission has also recognized the pace of tokenized investment products. As early as September of last year, Tai Chi Capital launched the PRINCE token, the first STO real estate fund for professional investors in Hong Kong. According to a report by Wen Wei Po on May 27 this year, the Hong Kong Securities and Futures Commission has recently stated that security token offerings (STOs) and RWA investments may be open to retail investors, further expanding the virtual asset market and attracting more funds and fintech talent to Hong Kong. In February of last year, the Hong Kong government successfully issued a tokenized green bond worth 800 million Hong Kong dollars, which is a typical RWA tokenization project.
Has Hong Kong's Web3 already ended before it began?
Recently, well-established cryptocurrency exchanges such as OKX, Gate, and Bybit have successively withdrawn their applications for cryptocurrency exchange licenses from the Hong Kong government. Some voices in the market believe that "this is Hong Kong reversing its stance," and some even believe that "Hong Kong's Web3 has already ended before it began." But is this really the case?
This article believes that Hong Kong still has strong competitiveness in the Web3 field, which comes from the strong support of the Hong Kong government, and its achievements are also very significant. On May 19, the Financial Secretary of the Hong Kong Special Administrative Region, Paul Chan Mo-po, revealed in his essay "Strengthening the Foundation and Enhancing Quality Development" that more than 400 companies have settled in Cyberport in the past year, bringing the total number of companies in the community to over 2,000, including 8 unicorns. Startups have raised a total of over 40.6 billion Hong Kong dollars, with a clear advantage in the financial technology and third-generation internet enterprise community, and the development of artificial intelligence is accelerating, providing technical support for the digital transformation of Hong Kong enterprises.
In addition, Hong Kong has a strong foundation for cryptocurrency. A recent survey by KPMG China and Aspen Digital on May 15 showed that 92% of respondents in Hong Kong are interested in investing in virtual assets, with 58% of family offices and high-net-worth individuals having made related investments, and 34% planning to make related investments. Furthermore, 60% of the surveyed family offices and high-net-worth individuals have less than 5% of their investment portfolios in virtual assets, while 54% of respondents expressed interest in allocating 5% to 30% to this asset class.
From the performance of cryptocurrency ETFs, although there is a lack of participation from cryptocurrency exchanges, the traditional financial market still shows strong interest in cryptocurrency assets, and many cryptocurrency influencers remain optimistic.
Eric Balchunas, a senior ETF analyst at Bloomberg, had previously predicted that the Hong Kong virtual asset ETF market would take two years to reach a level of 1 billion US dollars, but it reached 292 million US dollars on the first day. He also stated that although the trading volume is not as high as in the United States, the 310 million US dollars in Hong Kong ETFs is equivalent to 50 billion US dollars in the US market in proportion. Therefore, the impact of the Hong Kong virtual asset ETF on its local market is as significant as that of the US Bitcoin spot ETF on its local market.
Sui Chung, CEO of CF Benchmarks, a subsidiary of the cryptocurrency exchange Kraken, predicted that by the end of 2024, the asset management scale of the Hong Kong Bitcoin ETF will reach 1 billion US dollars.
Wong Hiu Ki, Chief Operating Officer of HashKey Group and CEO of HashKey Exchange, stated that the custody assets of HashKey Exchange have increased from 2.2 billion yuan before the ETF was launched to 3.3 billion yuan, and he believes that a large amount of funds will continue to flow into the market in the future. At the same time, Wong Hiu Ki believes that ETFs can attract more traditional investors into the virtual asset market, and the overall scale can reach about 20% of the US market in a year, or about 10 billion US dollars, believing that the virtual asset market still has a long way to go before saturation.
Hong Kong's Web3 strategy may be more ambitious
Hong Kong's Web3 strategy is very diverse. It has not only launched Bitcoin ETFs and extended an olive branch to many cryptocurrency exchanges but also vigorously promoted the issuance of security tokens (STOs) and RWA. Behind this diverse layout, the most important thing may be the introduction of the digital renminbi into this Web3 economic ecosystem and the construction of an innovative financial market infrastructure, which the United States does not have and is difficult to achieve quickly under the political tug-of-war between the two parties.
With the launch of various virtual currencies and the tokenization of traditional assets in Hong Kong, what is the most convenient way to purchase digital assets? Native digital renminbi is definitely more credible compared to stablecoins issued by centralized companies. While the Hong Kong government is vigorously developing Web3, the digital renminbi is also expected to see unprecedented development. On May 17, the Hong Kong Monetary Authority announced that it has made further progress in cooperation with the People's Bank of China on the cross-border payment pilot of the digital renminbi, expanding the pilot scope of the digital renminbi in Hong Kong, facilitating Hong Kong residents to open and use digital renminbi wallets, and adding value to the wallets through "Faster Payment System." With the expansion of the pilot scope, users can now open and use personal digital renminbi wallets in Hong Kong with just a Hong Kong mobile phone number. Hong Kong users can add value to their wallets through "Faster Payment System" at 17 local retail banks. In addition to being used in the Greater Bay Area, the digital renminbi can also be used in other pilot areas in the mainland.
From the statements of Hong Kong government officials, it is clear that the government is also making efforts in this regard. On May 9, according to Pang Baolin, a licensed person of the Hong Kong Securities and Futures Commission, the market is looking forward to Hong Kong promoting the interconnection of virtual asset trading and security tokenization (STO). The Hong Kong Monetary Authority has conducted sandbox studies on matters such as the tokenization of deposits for interbank settlement and clearing, preparing for future tests of digital Hong Kong dollars and stablecoins, and laying the groundwork for innovative financial market infrastructure and future digitization.
Conclusion
Although it may seem that the Hong Kong government's cryptocurrency measures are slightly slower than those of the United States, from a broader perspective, Hong Kong's cryptocurrency policy is actually more open and diverse. From a more macro perspective, the cryptocurrency policy of the Hong Kong government is advancing through top-level design and continuous sandbox experiments, while the United States is making progress amid the tug-of-war between the two parties. This article believes that with the conclusion of the Hong Kong government's sandbox experiments, its cryptocurrency policy will be implemented more quickly and systematically, and is expected to once again prosper in the field of Web3, and promote the digital renminbi to become an economic cornerstone in the Web3 world.
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