Written by: Luke, Mars Finance
Since the Hong Kong government issued All in web3 (a policy declaration on the development of virtual assets in Hong Kong) in October 2022, it has frequently introduced policies that are beneficial to the cryptocurrency industry, including the implementation of a new licensing system, gradually bringing fiat stablecoins and virtual currency over-the-counter (OTC) exchanges under supervision, and approving the listing of Bitcoin and Ethereum spot ETFs in April this year, becoming the first case in Asia.
With the Trump administration's potentially favorable policies for the crypto industry, the global crypto industry landscape is quietly changing. The often-cited rise and fall of the crypto industry in the Biden era seems to have ended. Against this backdrop, Hong Kong is trying to catch up with a newly introduced exciting tax incentive plan.
Tax relief: the top priority
According to the Financial Times, Hong Kong plans to exempt private equity funds, hedge funds, etc. from tax on cryptocurrency gains in an effort to become a top offshore financial center.
Tax relief is crucial to the crypto industry, especially in the fiercely competitive global financial market. The Hong Kong government's latest tax incentive policy plans to exempt private equity funds, hedge funds, etc. from tax on their profits in cryptocurrencies, greatly reducing the costs for investors and financial institutions. This not only enhances Hong Kong's competitiveness as an international financial center, but also provides stronger protection for global funds to flow into the crypto market.
Historically, tax breaks have repeatedly promoted the rapid development of industries. For example, Ireland reduced its corporate tax rate from 50% to 12.5% in the 1980s, attracting a large number of multinational companies. To date, about 1,300 American companies have set up branches in Ireland, including technology giants such as Apple, Microsoft, and Google. Ireland's tax reduction policy has not only helped it become one of the world's technology and financial centers, but also led to a significant increase in the country's GDP growth and employment rate.
Similarly, Singapore has provided tax breaks for the cryptocurrency industry since 2018, launching the "Crypto Tax Benefit Policy", which significantly cuts taxes on blockchain companies and crypto asset exchanges. Data shows that since the introduction of the policy, Singapore's crypto industry has grown by about 4 times, becoming a major crypto trading and innovation center in the Asia-Pacific region. Globally renowned crypto companies such as Binance and Gemini have set up branches in Singapore. Through these tax incentives, the Singapore government has successfully attracted a large amount of capital and technical resources, promoting the vigorous development of local blockchain and crypto finance.
Luxembourg has also promoted itself as an important crypto and fintech center in Europe through a series of tax incentives. In 2019, Luxembourg began to provide lower capital gains tax rates for digital asset exchanges and funds, and introduced preferential policies for blockchain startups. Data shows that Luxembourg's crypto industry has grown at a rate of more than 50%, becoming one of the largest cryptocurrency fund centers in Europe, attracting a large number of crypto companies including Bitstamp and Coinbase.
A similar case is the Cayman Islands, which has attracted a large number of technology companies and investment funds through its low tax policy, becoming an important gathering place in the global financial field.
For the crypto industry, tax relief can not only reduce the operating costs of high-risk investments, but also increase investors' returns, especially for highly volatile and risky asset classes such as cryptocurrencies. The clarity and stability of policies directly affect the flow of capital and the speed of industry development. Hong Kong's move will provide a better development environment for local crypto companies and also attract more attention from global investors for Hong Kong.
Hong Kong's tax incentives are just one of the key measures, but combined with other supporting policies, it demonstrates Hong Kong's strategic foresight as a global financial center. In the future global cryptocurrency competition, Hong Kong may become the next global center of the crypto industry with its sound legal framework, flexible market supervision, and high tolerance for innovation. Compared with traditional financial powers such as Singapore and the United States, Hong Kong's advantages are gradually emerging.
Why Hong Kong embraces web3
The timing of Hong Kong's tax reduction policy is a microcosm of the profound changes in the global economic landscape and local market demand. The rise of the global crypto industry is like a trend, pushing major financial centers to re-examine their future. In this great change, Hong Kong has made a key choice: not only to welcome this emerging industry full of potential, but also to take this opportunity to lay the foundation for the transformation of its own economic structure. Hong Kong, as a major global financial center, cannot miss the opportunity in this wave of financial innovation. Therefore, its tax reduction policy is not only a response to this trend, but also a strategic decision to seize the future opportunity.
However, this move by Hong Kong is not just an adjustment of the local economy, it carries the important mission of the development of China's crypto industry. As a bridge between China and the international market, Hong Kong's policy innovation will provide valuable experience for the rise of China's crypto industry. Although the regulation of the crypto industry in mainland China is still in a gray area, Hong Kong, as a special administrative region, has an independent financial regulatory framework and flexible policy mechanisms, making Hong Kong a test field for the development of China's crypto industry.
Therefore, Hong Kong's tax exemption policy is not only for the current capital outflow, but also for paving the way for the future development of China's crypto industry. As the world's attention and investment in cryptocurrency and blockchain technology continue to rise, Hong Kong, as the "bridgehead" of China's crypto industry, its tax policy will become a key factor in attracting global capital and promoting the maturity and growth of the entire Chinese crypto ecosystem. This policy is not only a strategic deployment of Hong Kong in the global crypto industry, but also a touchstone for providing leading experience for China's crypto industry to enter the international stage.
ETF data: A milestone for Hong Kong’s crypto market
Hong Kong's layout in the financialization of crypto assets began in 2022, and it started its pioneering path in the global crypto asset market by launching cryptocurrency futures ETF products. The first batch of Bitcoin and Ethereum futures ETF products approved by the Hong Kong Stock Exchange provide investors with a standardized and convenient cryptocurrency investment channel, allowing investors to participate in transactions through traditional securities accounts without directly holding digital assets.
Market data confirms the success of this strategy: since its launch in 2022, ETF product trading volume has increased by 35%, and the average daily trading volume in 2023 reached US$180 million, far exceeding other Asian markets. In particular, Bitcoin ETF products saw a 50% increase in trading volume in the first quarter of 2023, significantly outpacing the 20% increase in other global markets.
In April 2024, Hong Kong once again led innovation by launching Asia's first Bitcoin and Ethereum spot ETF. The first-day issuance of products launched by institutions such as China Asset Management (Hong Kong) exceeded US$125 million, setting a new record in Asia. The success of these ETF products not only brought considerable trading volume, but more importantly, attracted the participation of a large number of institutional investors.
The market performance of Hong Kong spot ETFs is remarkable. Within a few months after the initial launch, the average daily trading volume increased by more than 50%, and the product price has always remained in a reasonable range close to the net asset value (NAV), showing good market liquidity and investor confidence. Compared with the premium and discount fluctuations in the European and American markets, Hong Kong ETFs show more stable market characteristics.
As an emerging center for global crypto asset investment, the success of Hong Kong spot ETFs not only meets the needs of the local market, but also provides a standardized and efficient investment channel for global investors. This innovation will continue to promote the inflow of international funds and further consolidate Hong Kong's position as a global financial center.
Hong Kong crypto stocks and digital assets: linkage effect and market potential
Hong Kong's crypto industry is in a booming stage, not only limited to stimulating market vitality through ETFs, but also showing a benign interaction between local crypto concept stocks and cryptocurrencies. This resonance effect is similar to the relationship between MSTR (MicroStrategy) and Bitcoin: when the price of Bitcoin rises, the share price of MSTR rises, and vice versa. As the Hong Kong crypto market gradually matures, local crypto concept stocks and cryptocurrencies also show similar linkage, driving the overall heat and development of the market.
Specifically, in 2024, the performance of Hong Kong crypto stocks such as BlueBay and Boyaa Interactive was quite impressive. Since the beginning of the year, BlueBay's stock price has risen by about 200%; at the same time, Hong Kong's local crypto projects CFX (Conflux) and QTUM have also risen by more than 100% from their lows this year. This trend shows that there is a close connection between Hong Kong's crypto stocks and local cryptocurrencies. With the continuous improvement of Hong Kong's crypto market policies, investor confidence and market participation have continued to increase, which in turn has injected a steady stream of power into Hong Kong's crypto industry.
A positive cycle between Hong Kong crypto concept stocks and Hong Kong concept cryptocurrencies is taking shape. Whether the good story between MSTR and BTC can be replicated is worth looking forward to.
Family office layout: dual-wheel drive of RWA and crypto investment
In addition to policy innovations such as tax incentives and financial instruments, web3 participants in Hong Kong are also taking active actions. High net worth investors (especially family offices) are making great efforts to deploy, paying special attention to the combination of "real world assets" (RWA) and digital assets. As family offices are increasingly interested in crypto asset allocation, Hong Kong has become one of the core areas of this trend. Ye Weiwen, Vice Chairman of Deloitte China and International Tax Partner, revealed that some family offices established in Hong Kong have allocated 20% of their portfolios to digital assets. Industry experts further pointed out that family offices generally adopt the "6-3-1" combination strategy in digital asset allocation: 60% allocation to Bitcoin and its ETF, 30% allocation to other mainstream tokens, and 10% investment in project tokens in emerging tracks.
In addition, family offices in Hong Kong are actively combining traditional assets (such as real estate) with digital assets to achieve more flexible asset allocation. As an emerging asset class, RWA not only brings higher liquidity and transparency to traditional investors, but also effectively solves the cyclical and tax burden issues of traditional assets. Specifically, RWA breaks through the lock-up period restrictions of traditional asset allocation through tokenization, and provides new solutions for family office core businesses such as asset liquidity, inflation resistance, hedging and capital activation.
When faced with the problem of poor liquidity in the traditional capital market for family businesses, family offices can solve the capital liquidity problem by issuing RWAs (such as corporate bonds or equity RWAs) and conducting digital IPOs in Hong Kong. This approach can not only improve asset liquidity, but also enhance the market acceptance of capital through tokenization design, thereby promoting the development and financing of family industries.
At the same time, the model of traditional real estate investment has changed, and more attention has been paid to real estate with operating cash flow, such as commercial real estate, data centers, etc. Combined with RWA, family offices can allocate these assets more flexibly, such as through digital real estate investment trust (REITs) products to improve liquidity and dividend flexibility. In addition, the incremental intrinsic value of RWA tokenization enables traditional assets to generate more dividends in the investment structure.
Finally, the assets of a family office are often closely linked to the family's core industries. RWA can help family offices achieve industrial hedging or value preservation through tokenization and other means, especially when facing industrial recession or market shocks. For example, in the field of new energy photovoltaic storage and charging, family businesses can hedge the risks of traditional industries through tokenization, and even use tokenization projects in emerging tracks such as DePIN (decentralized physical infrastructure network) to provide new capital liquidity for industrial value-added.
The Hong Kong Securities and Futures Commission has made it clear that it will consider opening up security token issuance (STO) and RWA investment to retail investors. This move will expand the size of the virtual asset market and attract more funds and financial technology talents. The Hong Kong government successfully issued HK$800 million in tokenized green bonds in February last year, setting an example for RWA tokenization.
This development trend is not only reflected in the adjustment of family offices' investment strategies, but also highlights Hong Kong's potential as a global crypto asset management center. In the process of promoting the integration of digital assets and traditional assets, Hong Kong has demonstrated its innovative ability and market adaptability, making it the preferred destination for global family offices and high-net-worth investors. The combination of RWA and digital assets not only brings new vitality to Hong Kong's crypto industry, but also creates more liquidity and investment opportunities for the global capital market.
Conclusion
Overall, as an important hub for the global crypto asset industry, Hong Kong is gaining momentum. With policy support, innovative financial instruments, and the active deployment of high-net-worth investors such as family offices, Hong Kong is forming a diversified and flexible crypto asset investment ecosystem.
Looking ahead, the Hong Kong government will continue to exert its strength in the field of cryptocurrencies, and more favorable policies will continue to deepen innovation and cross-border integration in the field of crypto assets. This will not only reshape the Hong Kong financial market, but will also have a profound impact on the global crypto industry landscape. In this era of change and opportunity, Hong Kong is standing at a new starting point, leading the global crypto industry towards a more diversified and globalized future. For investors, seizing the development opportunities of the Hong Kong crypto market will be an indispensable part of future investment layout.
