The annual Hong Kong FinTech Week arrives as scheduled, coinciding with the two-year anniversary of the Hong Kong Web3 Declaration. How is the development of Web3 in Hong Kong, and is the future still worth looking forward to?
As a business card of Hong Kong's Web3 industry, HashKey is undoubtedly one of the most authoritative institutions. With these questions in mind, PANews interviewed Livio Weng, CEO of HashKey Exchange, Hong Kong's largest compliant virtual asset exchange.
As a veteran in the cryptocurrency field and a pioneer of Web3 in Hong Kong, Livio Weng had an in-depth discussion with PANews about the development status of Web3 in Hong Kong over the past two years, the impact of regulatory policies, and HashKey's business strategy. He shared unique insights into Hong Kong's policy environment, analyzed the trend of integration between traditional financial institutions and Web3 companies, and looked ahead to the future direction of the cryptocurrency market.
Regarding the current state of Web3 development in Hong Kong, Livio Weng stated, 'Hong Kong has embarked on a differentiated path, allowing legitimate players to enter and integrate with Web3 companies, where traditional institutions play a more important role. Thus, Web3 is no longer an independent industry but is deeply integrated with traditional finance.'
Regarding HashKey's unique development path, Livio Weng revealed, 'We do not rule out the possibility of allowing users to purchase Hong Kong stocks or other assets through HashKey Exchange in the future via cooperation. We have considered packaging traditional assets into Real World Assets (RWA) to provide choices for customers, allowing funds to remain within the cryptocurrency field.'
The market is currently in a vacuum period lacking 'killer applications.' The hype around MEME coins is mostly a short-term effect, filling this gap. Once there are truly large applications, long-term capital will return to mainstream projects, and MEME coins will not be the eternal main theme. Livio Weng expressed optimism about mainstream projects in the long term when discussing the current market divergence.
The following is the detailed content of this interview.
Stepping cautiously into development, Hong Kong's Web3 has just entered the stage of formal development.
PANews: First, let's discuss the current state of Web3 development in Hong Kong. Since the introduction of policies, declarations, and the formal issuance of licenses this year, expectations for Hong Kong have been high. However, there are still some divergences in the industry regarding the current state of Web3 in Hong Kong. Some believe the government's policies are excellent and full of expectations, while others feel the pace is too slow, leading to significant divergence. In the past two years, as someone who has been deeply engaged in Hong Kong, how do you feel about the development of Web3 in Hong Kong?
Livio Weng: I believe that Hong Kong's development stage indeed operates in two-year cycles, and we are currently at a critical turning point. The first two years were mainly in the policy brewing stage, where the government showed willingness to support the industry and issued policy declarations, but at that time it was still exploring how to push with what intensity and for which groups. Therefore, the industry did not truly start developing initially.
The real start for Hong Kong should be November 1 of last year when HashKey Exchange launched the first licensed trading application in Hong Kong's history. Everyone mainly traded through the application, which marked the official beginning. Now it has been exactly one year. In this year, the government, especially the Hong Kong Securities and Futures Commission (SFC), has been studying how to regulate this industry, effectively working together with us to navigate. Therefore, Hong Kong emphasizes steady development, initially focusing on caution. Now, I believe we have just entered the stage of formal development.
Some may question whether the development speed is fast enough and see the choices as relatively conservative. I believe this is also inevitable because the Web3 field is full of changes, develops rapidly, and carries a lot of unknowns and risks. Since the policy declaration, many previously popular projects, such as Layer 2 and NFTs, have moved from being in vogue to experiencing a downturn, including the once hot Bitcoin ecosystem of Ordinals. This wait-and-see attitude has benefits, allowing some bubbles to pass first.
From 0 to 1, Hong Kong's strategy has been cautious. As regulators, they need to consider how to effectively protect retail investors from being affected. A conservative attitude might miss some opportunities, but it also avoids a lot of risks. In the long run, the initial measures are not problematic.
Now, Hong Kong has explored a route that allows regulated traditional financial institutions with long-term regulatory experience to enter the market and integrate with Web3 companies like us, forming a more robust long-term development path.
PANews: Can you elaborate on some specific changes?
Livio Weng: For example, Hong Kong's banking industry has always been conservative towards cryptocurrency companies, making it difficult to open accounts for them. But as Hong Kong's largest licensed exchange, we have had more intersections with the banking industry. In the experimental process, they have gradually moved from initial skepticism to recognizing that we are not inferior in user KYC, KYT, anti-money laundering, and other measures. Thus, we have become the best fiat deposit and withdrawal channel in Hong Kong. The launch of zero account freezes is also the result of a long time of mutual trust established with the Hong Kong banking industry.
The securities industry is similar; currently, securities companies offer four types of cryptocurrencies for retail trading, including Bitcoin and Ethereum. Although they were previously conservative, they have also keenly sensed changes in the market. They want to provide trading services for their clients but are also concerned about potential issues. Ultimately, they chose to cooperate with us, allowing us to manage user assets while providing the trading services, enabling them to offer relevant services to their clients. This cooperation model is distinctive globally, allowing Hong Kong brokerages to offer cryptocurrency trading directly in their applications. Some banks are also planning to launch similar services, and more banks will join in. Additionally, we are working with traditional fund companies to issue cryptocurrency ETFs. All of this indicates that Hong Kong is gradually opening up, and many pending licensing institutions have traditional regulatory experience.
Hong Kong has taken a differentiated route, allowing legitimate players to enter and integrate with Web3 companies, where traditional institutions play a more important role. Thus, Web3 is no longer an independent industry but is deeply integrated with traditional finance.
Hong Kong's traditional securities, finance, and banking industries are fully embracing Web3. Web3 companies are organically integrating with them, forming new business forms, and in the long term, everyone will merge into one.
Overall, Hong Kong spent the first year in preparation, the second year in experimentation, and the third year starting to gain traction. It is foreseeable that Hong Kong has entered the second stage of development: moving from past regulation of exchanges to regulation of the entire ecosystem, first integrating with traditional industries. Then, in the recent policy report by the Chief Executive, we see the expansion from a single trading aspect to the entire ecosystem, including virtual banks, virtual insurance, mobile payments, stablecoins, and more. The next step will expand into more areas.
Due to the good track records and histories of traditional institutions, this has given the government more confidence to support the development of multiple pathways. Of course, exchanges remain the core central link, with the issuance and circulation of stablecoins primarily occurring on exchanges. Therefore, our exchanges, including Real World Assets (RWA), payment support, etc., will play a key role.
The exchanges have taken the lead and expanded into the entire ecosystem; this is also a future point of expectation for Hong Kong.
The real competition in Hong Kong has not yet begun.
PANews: There are currently three licensed exchanges in Hong Kong, and more licenses may be issued successively. For HashKey, will the increasing number of new competitors pose a greater challenge?
Livio Weng: I think in the short term, especially from this round of the bull market, licensed exchanges may not catch up. Because after obtaining licenses, they still need to conduct various technical system audits, report to authorities, and supplement a large number of talents, as well as improve their operational and risk control models. All of this takes time. From obtaining the license to formal operation, it took us about a year, and they may not be able to do it faster than that. Therefore, they may miss this round of the bull market.
Additionally, we believe that competition has not truly arrived in Hong Kong yet. Everyone is mostly working together to encourage regulatory bodies to lift various restrictions and expand market space. HashKey has been advocating for regulation for a long time, but often the voice of one institution is less persuasive than that of many institutions speaking together. This makes it easier to distill industry commonalities, allowing the Hong Kong Securities and Futures Commission (SFC) to feel more credible and fair in its decision-making.
Therefore, in the short to medium term, we hope to have more institutions work with us to promote policy openness, making Hong Kong's market ecosystem more prosperous and diversified. However, in the medium to long term, competition may arise. If policies do not further open up and there is not enough profit margin, competition may begin on rates, leading to price wars. Just like the former seven exchanges that made up the Hong Kong Stock Exchange, with minimal differentiation, fierce market competition led to many closures, and the remaining few merged under government coordination to form today's exchange.
Hong Kong has suffered losses in the history of the securities industry, and I believe they will not make the same mistakes again. However, a few more licenses may be issued before the end of the year, but these institutions may miss this round of bull market, and may have to wait another four years for the next round of bull market to see if there are development opportunities. Therefore, the current situation we face is still relatively good and has a comparative advantage. This is mainly because we acted early, adhered to compliance, and developed steadily.
PANews: The entire cryptocurrency market in Europe and America is still dominated by native projects, which were also the mainstay of the previous crypto world. In the past year or earlier, some native Web3 projects left Hong Kong due to compliance reasons, while some traditional capital and legitimate players started to enter. What do you think of this change? Will Hong Kong become a stronghold for traditional capital in the future, or will native projects gradually return to Hong Kong in a different identity after the compliance wave?
Livio Weng: I believe this is a two-way choice. On one hand, traditional finance indeed needs to embrace this significant trend change; they need to choose to integrate with Web3, or part of them will transform into Web3. On the other hand, Web3 companies will also observe the changes in Hong Kong and its rise, entering this market in different identities or forms.
Currently, it seems that there are still significant differences between traditional finance and Web3, but as integration continues over the next three to five years, these boundaries will become increasingly blurred. You are in me, and I am in you; it may be hard to discern whether a company is traditional or new. Companies will have both traditional and new components. For instance, our company holds VASP licenses along with traditional licenses like the SFC's Licenses No. 1 and 7, which allows us to even issue securities. Gradually, the distinction of whether something is traditional will not be so strongly defined.
PANews: Based on the current development situation, do you think Hong Kong has met its expectations over the past two years?
Livio Weng: I believe the industry has different expectations from different perspectives. It's normal to have such diverse expectations before Hong Kong is fully integrated. Traditional finance may feel that the development is too fast, with so many licenses issued in a year, showing great encouragement and support for Web3. However, those in the rapidly changing Web3 field may feel the pace is not fast enough. Therefore, the Hong Kong Securities and Futures Commission (SFC) is also constantly seeking a balance to better meet the needs of these two different viewpoints.
From our own expectations, we certainly hope for faster development. We have indeed seen significant acceleration in recent months. The reason is that during the past phase of going from 0 to 1, everyone was relatively conservative. After one or two years of preliminary experience, everyone knows how to proceed, especially after industry licensing has been in place for a long time without any issues, so the pace will increasingly quicken. For us, we naturally hope for a faster and bolder pace, with more open policies being introduced.
PANews: Yesterday, the Hong Kong government also launched several Web3-related policies. From your perspective, what will be the focus of Hong Kong's next development? Is it stablecoins or expanding into more areas?
Livio Weng: I believe one aspect is to broaden more categories, such as the issuance of stablecoins in various directions. In the absence of significant policy risks, we should encourage attempts and breakthroughs in multiple directions.
Secondly, from the practitioners' perspective, it is necessary to encourage legitimate players and traditional financial institutions to enter the market and to integrate with the industry. Currently, institutions have already been mobilized. First, brokerages have taken the lead, followed by banks, and then payment companies using stablecoins for global cross-border settlement and payments. Subsequently, fund companies will enter, issuing Real World Assets (RWA) and security token offerings (STO). I believe there is still a lot of imagination to expand in terms of product categories and practitioners.
Asian capital is lagging behind the U.S. market.
PANews: Next, let's discuss the topic of ETFs in Hong Kong. Hong Kong has also launched Bitcoin and Ethereum ETF products, but there is a significant gap in trading volume compared to the U.S. market. How do you view the situation where Hong Kong's ETFs have not produced the trading volume we expected, similar to that in the U.S.?
Livio Weng: I believe there are several reasons.
First, the global macro environment over the past two years has been affected by the dollar's interest rate hikes, leading to a large capital return to the U.S., making the U.S. stock and cryptocurrency markets relatively prosperous, while the performance of other global markets, including Hong Kong, has not been ideal. This is a major reason. However, with the possible interest rate cuts in the future, the situation may change. Global capital may flow back from the U.S. to other emerging markets, as there are many undervalued assets in emerging markets, such as Hong Kong stocks. Capital will flood into Hong Kong stocks seeking bottom-fishing opportunities, and after a period of market movement, may consider other markets. If the cryptocurrency market performs well, capital may return to Hong Kong's cryptocurrency market.
Secondly, U.S. ETFs have a first-mover advantage, with a more mature market and better liquidity. In financial markets, liquidity is king. Because the liquidity of U.S. ETFs is better, many Hong Kong institutions choose to buy ETFs in the U.S. market instead. This is similar to the USDT in the stablecoin market, where the first-mover advantage makes it difficult for later entrants to surpass. Therefore, Hong Kong now needs to consider launching differentiated ETFs that the U.S. does not have yet, such as Ethereum staking ETFs or Solana ETFs. If we can be the first to launch these products, we can gain a first-mover advantage and attract global capital to buy in Hong Kong.
Thirdly, local capital in Hong Kong or Chinese capital, as well as capital from the entire Asia, is still lagging behind the U.S. market. Currently, everyone is still in the learning and educational phase. In Hong Kong, at least more than half of the institutions have not fully understood Web3 and need more time. Their decision-making cycles are longer because most decision-makers in large financial institutions are older. It will take some time for them to learn and dare to make decisions.
The secret to HashKey's growth: hard work.
PANews: HashKey is now the largest compliant exchange in Hong Kong. What secrets have contributed to its growth?
Livio Weng: In terms of growth, there aren't too many secrets. Mainly, we started early. At an early stage, our group's founder, Dr. Xiao Feng, believed that exchanges are a good business model, but they need to operate under compliance. Without licenses, they will certainly face challenges at some point in history. This is what we have seen this year, where various unlicensed exchanges have been raided, criminally prosecuted, and fined in various places. Leading exchanges have exited dozens of markets, leaving less and less room for future expansion.
Therefore, seeing the licensed policies in Hong Kong in 2018, we quickly took action. At that time, the simplest idea was to first do the right thing. HashKey is one of the few companies in the world focused on virtual assets that is 100% licensed. We adhere to honest licensing and uphold long-termism, which is our core growth secret on a macro level.
From a micro perspective, talent is the most crucial strategic resource in the entire industry. We have proactively integrated Hong Kong's financial talents, legal and risk control talents, with internet and technology talents from mainland China, as well as talents from the Web3 industry, creating strong collective strength. These are the two most important secrets to our growth: hard work, but it can take us far.
PANews: From the perspective of user profiles, are your users more institutional or retail?
Livio Weng: The structure of our user base relates to the characteristics of the Hong Kong market. Hong Kong has traditionally not been a market dominated by retail investors, including the traditional stock market. The main players in Hong Kong are still high-net-worth individuals and institutions, along with a portion of retail users. Therefore, the user structure of HashKey Exchange is not much different.
Our core clients are mainly high-net-worth individuals in Hong Kong, such as professional investors (Professional Investor, PI), as well as some financial institutions. As mentioned earlier, various financial institutions from different industries are also our clients. They may be large aggregators, pooling their trading volumes and assets with us. Of course, we also have a portion of retail users, as well as global Chinese clients, all of which constitute our core user profile.
PANews: For institutions, compliance is certainly a very important prerequisite. But is compliance equally important for ordinary users or retail investors?
Livio Weng: Compliance is also very important for retail investors, especially in two aspects.
First is asset security. The JPEX incident in Hong Kong and the global FTX incident have affected many clients, including our friends. These incidents have made everyone realize that at non-compliant and unregulated exchanges, while it may be possible to make a lot of money, one could also lose everything overnight, and previous gains could vanish. No one wants to take such risks, so safety, stability, and reliability are paramount.
Secondly, because we are financial institutions ourselves, our integration with banks gives us the best fiat deposit and withdrawal channels in all of Hong Kong. Currently, our platform achieves zero account freezes for fiat deposits and withdrawals. This has been a pain point in the past; many people made money on exchanges but couldn't withdraw. Once they tried to withdraw, their accounts could be frozen. Now, through HashKey, we can achieve zero account freezes, earning the respect and trust of the traditional banking industry. Our extensive KYC, anti-money laundering, and similar work have garnered the trust of traditional finance. These two features remain very important functions and advantages for the future.
PANews: HashKey also holds License No. 1 and License No. 7. In the future, is it possible for retail investors to buy Hong Kong stocks or other assets on HashKey's exchange?
Livio Weng: This possibility cannot be ruled out. We can achieve this through cooperation. In fact, we have also considered packaging traditional assets, such as equity and money market funds, into RWA (Real World Assets) to provide customers with choices. This way, customers' funds can remain within the cryptocurrency field while completing transactions on our platform. Additionally, our integration with banks also has another direction; we plan to issue debit cards later. If you hold cryptocurrencies like Bitcoin or USDT, you can use this card for online purchases, settling directly. These are all routes we are taking through integration, which is also our compliance advantage.
We are still in the early stages of the bull market, and MEME coins are just a short-term effect.
PANews: This year's market situation shows serious divergence. The entry of institutions such as ETFs may have driven up Bitcoin, but even Ethereum has not benefited much. Additionally, some mainstream public chains performed well this year, along with MEME coins. However, the previous VC coins and some mainstream star projects have not seen much improvement in market prices. What are your thoughts on this divergence?
Livio Weng: I believe the market is currently in a vacuum period lacking 'killer applications.' In the past, people expected, whether it was the inscriptions, runes on the Bitcoin ecosystem, NFTs, GameFi, Layer 2, etc., that none of these have become mainstream in this stage. Even further projects like RWA (real-world assets) and DePIN (decentralized physical infrastructure) have yet to develop in this phase.
Currently, the main reason is that the development of Bitcoin and people's expectations of a dollar rate cut have led to a large influx of capital into Bitcoin, driving up its price and creating a phenomenal market trend. However, more fundamentals have yet to land. For example, while Ethereum's TPS has increased, without a massive influx of DeFi, TPS is merely a number.
PANews: Has the hype around MEME coins brought more benefits or drawbacks to the market?
Livio Weng: At this stage, I personally view MEME coins more as 'blockchain lottery.' Just like a scratch-off ticket, people invest a little money to see if they might achieve a hundred times return. This is a speculative behavior in the absence of better investment opportunities. Therefore, MEME coins are speculative in a lottery-like manner, representing a phenomenon of a certain stage.
The hype around MEME coins has more of a short-term effect on the market, filling the gap left by the lack of 'killer applications.' For example, in the last bull market, there was DeFi, which was a collection of 'killer applications,' but this round has not seen such an emergence yet, although it may come. Once there are truly large applications landing, long-term capital or larger capital will return to the right track. MEME coins will not be the eternal main theme.
PANews: For the entire market, what stage of the cycle do you think we are in now?
Livio Weng: I believe we are at the early stage of a bull market. Due to the beginning of rate cuts for the dollar, this round of the bull market has a somewhat structural nature, different from previous cycles. From February to April of this year, due to the unexpected approval of Bitcoin and Ethereum ETFs, a large amount of capital flowed in, pushing up a phase of the bull market that surprised everyone with how easily it broke previous highs. However, due to the rapid increase, a round of adjustments was inevitable, and profit-taking needed to occur, leading to a washout phase from April until now, after which the market has started to rise again.
I believe that after the official start of dollar rate cuts, the real benefits have not yet fully landed. Only when a large amount of capital enters, pushing prices to break previous highs or even higher, will the bull market be considered truly here. Therefore, we are currently in the early stages of a bull market. Over the next year, we are relatively optimistic about the overall market.
PANews: What price do you think Bitcoin will reach in the future?
Livio Weng: As the head of a licensed exchange in Hong Kong, I cannot directly predict the price of Bitcoin, but I can summarize some mainstream opinions in the market. From 2022 to 2030, or even 2032, many well-known figures predict that the price of Bitcoin will exceed one million dollars, and some even believe it may reach over ten million dollars by 2050, with various bold ideas being circulated.
In the short term, I have summarized different viewpoints. More neutral industry analysts believe Bitcoin's price may settle around $150,000. More optimistic predictions range from $180,000 to $200,000, while more pessimistic views hover around $100,000 to $120,000. Overall, there is a relatively consistent consensus that Bitcoin has a chance to break $100,000. We also look forward to that day.
PANews: You have been in this industry for many years. What insights do you have from the changes in the cryptocurrency market over the years?
Livio Weng: I believe this is one of the best opportunities for young people to seize. The current market opportunities, besides AI, are Web3. However, not everyone can participate in AI. At least one-third of people can participate in Web3, at least by buying Bitcoin and Ethereum as a stable long-term investment, which presents opportunities for wealth generation.
Especially with the depreciation of fiat currencies, I believe the collapse of fiat currencies in the future is inevitable. The U.S. national debt has reached 35 trillion dollars, and from the perspective of American industrial interests, they should maintain high interest rates to prevent capital outflow, but it has become difficult to sustain. The interest generated by this 35 trillion dollars of debt already exceeds military spending, forcing them to lower interest rates.
After interest rate cuts, we may enter the next round of quantitative easing, leading to the printing of a large amount of currency, resulting in further depreciation of the dollar and driving down other global currencies. This is a long-term trend for humanity, and this cycle has already begun.
Looking back thirty years ago, our parents' salaries were only a few dollars a month; a hundred dollars was a lot of money. A 'ten thousand dollar household' back then is equivalent to nearly a million today. This means that currency has been diluted dozens or even hundreds of times. This trend will continue in the future, and money will become increasingly worthless.
Ordinary people can buy gold to hedge against inflation, while people in the new era can buy Bitcoin. Therefore, Crypto will gradually replace gold in the future, and even take on part of the role of fiat currency, becoming a fairer global currency. This is an inevitable long-term trend. Young people can catch the wave of this era; I believe those who believe in it will buy Bitcoin just as people used to buy gold.
PANews: In my impression, it was relatively easy to make money through cryptocurrency speculation in the past few cycles. But now, the opportunities to replicate such chances are decreasing, and new projects are becoming increasingly difficult to understand. For new users, the barriers may be higher. Do you think the current situation in this industry still presents wealth-making effects or opportunities like in the past?
Livio Weng: To some extent, the industry's volatility is indeed decreasing. Early investors in Ethereum could achieve thousands of times returns because they entered early, buying at one dollar each. Early Bitcoin investors even saw returns of hundreds of thousands of times. As time went on, opportunities for a thousand times or hundred times returns have become rare. Now, the returns are more likely to be dozens of times or a few times.
The certainty of the entire industry is increasing, and volatility is decreasing. This phenomenon has occurred in most financial sectors; the further we go, the lower the volatility and the more mature the industry becomes. Therefore, the earlier one joins this industry, the greater the possibility of seizing market opportunities.
But there are still opportunities. I think the first half may not be over yet, and the second half has not yet begun. I started mining in 2010 when it was still possible to mine with a laptop and GPU without specialized equipment. I really began trading in 2013, but that was just small-scale attempts. It wasn't until 2017 and 2018 that large-scale investments started, but typically, first-time large-scale investors tend to get trapped. After experiencing one or two rounds of bull markets, it may be easier to seize market opportunities more accurately. At that point, there may be significant returns. Afterward, one might grasp the opportunities even more precisely. Generally, the first bull market is a learning experience, the second might involve being trapped, and only in the third bull market does one start making profits.