On October 31, the government of the Hong Kong Special Administrative Region released an official policy statement on the development of digital assets in Hong Kong. The statement states that Hong Kong, as a global financial center, is “open and inclusive towards the global community of innovators engaging in virtual assets (VA) businesses.” The government added that it is cooperating with financial regulators to work toward the “sustainable and responsible development of the VA sector in Hong Kong.”
The statement also announces that Hong Kong is planning to unveil an NFT for the upcoming 2022 HK FinTech Week, the tokenization of green bonds, and introduce digital Hong Kong dollars. Notably, Hong Kong’s Securities and Futures Commission (SFC) will conduct public consultations on “how retail investors may be given a suitable degree of access to VAs.”
On the same day, SFC issued a circular that states it is “actively looking into a regime that would enable the authorisation of investment products providing exposure to VAs and would meet investor demands with appropriate safeguards from an investor protection perspective.” This means that the SFC will likely permit exchange-traded funds (ETFs) with VA exposures primarily through futures contracts to hold public offerings in Hong Kong.
The policy announcements suggest that Hong Kong is determined to solidify its status as Asia’s go-to financial hub by embracing cryptocurrencies. In the wake of the 2019 anti-government protests and the ensuing clampdown on dissent (leading to a subsequent exodus of residents), Hong Kong has struggled to attract global talent and foreign investment.
Presumably, Hong Kong hopes that legalizing the retail trading of cryptocurrencies will prompt crypto companies and investors to view Hong Kong as the most favorable destination in Asia, especially compared to Singapore — which has benefitted from Hong Kong’s recent brain drain. Hong Kong’s primary business and financial industry rival, Singapore has tightened regulations since plunging cryptocurrency prices caused the collapse of multiple crypto trading entities based in the city-state earlier this year.
Aside from Hong Kong’s supportive policy environment, the city’s proximity to mainland China provides another advantage. At first glance, mainland China is at the opposite end of the crypto regulatory spectrum from Hong Kong, considering the country bans cryptocurrency transactions and is building its own inward-facing cryptocurrency and Web3 ecosystem.
However, the fact that Hong Kong was able to move forward with welcoming global crypto trading suggests that the People’s Republic recognizes the market potential of cryptocurrencies. In the future, it is possible that institutional investors from mainland China will be able to participate in a wider range of crypto transactions in Hong Kong. In addition, Hong Kong possesses a large number of cultural IPs, many of which are inspired by Chinese culture, that can promote the rise of its homegrown crypto arts market.
Hong Kong is clearly betting on cryptocurrencies to maintain its financial primacy in Asia. Although it is too early to tell if the bet will pay off, much will certainly depend on how the city’s future regulations prevent — or at least mitigate — the downside risks experienced by Singapore.