Hong Kong Moves Toward Legalizing Retail-Investor Crypto Trading

The Hong Kong government appears prepared to interact with crypto market leaders concerning crypto regulations, with an invitation into the country.

Let’s Talk Crypto Regulations

Last week, the Financial Services and Treasury Bureau of Hong Kong released a policy statement that pointed out a willingness to discuss cryptocurrency regulation with leading figures in the industry. The statement, released at the grant commissioning of the city’s flagship Hong Kong FinTech Week, showed the regulator’s willingness to build a more formidable regulatory regime to accommodate players in the market over the long haul.

Hong Kong, a unique administrative region of China, also confirmed that it is reviewing a virtual asset service provider (VASP) licensing structure as part of possible amendments to its Anti-Money Laundering and Counter-Terrorist Financing Ordinance. According to the policy statement, the licensing structure will likely kick off in March 2023.

In addition, Hong Kong’s Securities and Futures Commission will conduct a consultation on providing suitable access to virtual assets for retail investors in the country via licensed exchanges. Retail investors are now free to invest in cryptocurrency however they please. However, once the region’s financial regulators can ready their VASP license, only licensed exchanges will be able to offer crypto asset services.

Interestingly, the policy statement also opines that Hong Kong’s regulators could be open to establishing a framework for launching cryptocurrency-based investment products – including exchange-traded funds (ETFs). As the Financial Services and Treasury Bureau explained, ETFs could be accepted in the country if their issuers show they can provide considerable investor protection.

Speaking at FinTech Week, Commission Deputy Chief Executive Juia Leung explained that the agency has so far been looking to set up a regime for ETF authorization. She added that these ETFs would be subject to additional licensing requirements — related to investment strategies, management companies, investor education, and financial disclosure. And at the initial stage, the agency will focus more on Bitcoin and Ether futures traded on the Chicago Mercantile Exchange (CME).

Beijing’s Reversal on the Way?

Hong Kong’s willingness to open the door for crypto regulations is a significantly stark contrast to that of its neighbor, China. The Republic of China, once the largest digital asset trading and mining market, took a hardline stance against crypto in 2019 and reinforced it with a blanket ban on the entire industry last year.

Beijing has been working on a central bank digital currency (CBDC) to optimize its financial market. However, the city appears to be attempting to cut off access to all competing digital assets in the country.

Still, some investors believe that Beijing’s stance on digital assets could be open to change, and Hong Kong will be the key to making that happen. In a blog post published last week, former BitMEX CEO Arthur Hayes pointed out that the Hong Kong government’s new direction on crypto could signify that Beijing might be having a change of heart soon.

As Hayes explained, Hong Kong has become a testing ground for China to experiment properly with crypto and could act as a hub for Chinese-based capital to flow into the crypto market. He added that a significant materialization of these flows could catalyze yet another bull run. It will likely be a long process, but as Hayes explains, the “red shoots are budding.”

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