Author: Asher Zhang
The United States has issued a Bitcoin spot ETF, Hong Kong has also issued a Bitcoin spot ETF, and then an Ethereum spot ETF. It seems that the Hong Kong government is following suit, but is it really so? Recently, old crypto exchanges such as OKX, Gate and Bybit have withdrawn their license applications. Some people say that the Hong Kong government is going backwards. So is Hong Kong's crypto policy tightening or continuing to loosen? Compared with the United States, what are the fundamental differences between the Hong Kong government's crypto policy?
Hong Kong's crypto policy goes further than the US
Hong Kong's overall crypto policy is more open and bolder than that of the United States. This is specifically reflected in three aspects: crypto asset ETF design mechanism, crypto exchange approval, and security tokens.
In terms of the crypto asset ETF mechanism, Hong Kong pioneered the physical subscription mechanism, and the Ethereum ETF may be able to participate in staking. Compared with the US spot Bitcoin ETF, which can only be traded in cash, the physical subscription mechanism can provide investors with a more flexible trading method; and the physical subscription mechanism has a great role in promoting Web 3. The physical subscription mechanism can serve as a capital exit channel for Web 3 investors, connecting traditional finance and Web3, which is conducive to the turnover rate of later capital. In terms of Ethereum spot ETF, Ethereum ETF may participate in staking. According to a report by Bloomberg on May 23, the Hong Kong Securities and Futures Commission is negotiating to allow Ethereum ETF issuers to pledge. In contrast, US Wall Street institutions have deleted the pledgeable clause in the Ethereum ETF documents submitted to the US SEC.
Although the approval of crypto exchanges in Hong Kong is very strict, it is still relatively loose compared to the United States. Currently, there is only Coinbase, a crypto exchange listed on the US stock market, but Hong Kong has extended an olive branch to many crypto 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 Terrorist Financing Ordinance, 11 platforms including HKbitEX, PantherTrade, Accumulus, DFXLabs, Bixin.com, xWhale, YAX, Bullish, Crypto.com, WhaleFin, and MatrixportHK were included in the "licensed" list. The remaining 6 platforms on the application list, including BGE, HKVAX, VDX, bitV, HKX, and bitcoinworld, were not included in the licensed list. Although the Hong Kong Securities and Futures Commission stated that all virtual asset trading platform applicants listed in the list have not been officially licensed by the Securities and Futures Commission, the licensing here is just the final step, and it is expected that it will not be just one.
Hong Kong is ahead of the United States in terms of securitized tokens. In November last year, the Hong Kong Securities and Futures Commission issued the "Approved Investment Products Circular", which set out the requirements for the SFC to consider allowing the SFC to authorize the tokenization of investment products offered to the public in Hong Kong under Part IV of the Securities and Futures Ordinance. In addition to tokenized securities, the SFC has taken steps to approve investment tokenized products. As early as September last year, Taiji Capital launched PRINCE Token, which is Hong Kong's first real estate fund STO for professional investors. On May 27 this year, according to Wenhui.com, the Hong Kong Securities and Futures Commission has recently made it clear that security token offerings (STOs) and RWA investments may be open to retail investors, which further expands the virtual asset market and is expected to attract more funds and financial technology talents to Hong Kong. The Hong Kong government successfully issued HK$800 million in tokenized green bonds in February last year, which is one of the typical RWA tokenization projects.
Hong Kong Web3 ended before it even began?
Recently, established crypto exchanges such as OKX, Gate, and Bybit have successively withdrawn their applications to take photos of Hong Kong crypto exchanges. Some voices in the market believe that "this is Hong Kong going backwards", and some even believe that "Hong Kong Web3 has not even started yet." Finish'. But is this really the case?
This article believes that Hong Kong still has very strong competitiveness in the Web3 field. This comes from the strong support of the Hong Kong government, and its results are also very significant. On May 19, the Financial Secretary of the Hong Kong Special Administrative Region, Paul Chan Mo-po, today published the Secretary's essay "Consolidating the Capital and Improving Quality Development". The disclosed information showed that more than 400 companies have settled in Cyberport in the past year, increasing the total number of corporate communities. There are more than 2,000 companies, 8 of which are unicorns; the cumulative financing of start-ups exceeds HK$40.6 billion. Among them, financial technology and the third-generation Internet enterprise community have obvious advantages. The development of artificial intelligence is accelerating, and Hong Kong enterprises are technically supported. digital transformation.
In addition, Hong Kong has a strong crypto-sustainable environment. On May 15, the latest survey by KPMG China and Aspen Digital showed that 92% of Hong Kong respondents were interested in virtual asset investments, of which 58% of family offices and high-net-worth individuals had already made relevant investments, and 34% were planning to make relevant investments. In addition, less than 5% of the investment portfolios of 60% of the interviewed family offices and high-net-worth individuals were in virtual assets, and 54% of the respondents expressed their intention to allocate 5% to 30% to this asset class.
Judging from the performance of crypto asset ETFs, although there is a lack of participation from crypto exchanges in the currency circle, the traditional financial market still shows a strong interest in crypto assets, and many crypto big Vs are still very optimistic.
Eric Balchunas, senior ETF analyst at Bloomberg, had previously predicted that it would take two years for the Hong Kong virtual asset ETF market to reach the $1 billion level, but it hit $292 million on the first day. He also said that although the trading volume is not as good as that of the United States, in terms of proportion, the $310 million Hong Kong ETF is equivalent to the $50 billion in the US market. Therefore, the impact of Hong Kong virtual asset ETFs on its local market is as great as the impact of US spot Bitcoin ETFs on its local market.
Sui Chung, CEO of CF Benchmarks, a subsidiary of crypto exchange Kraken, expects Hong Kong Bitcoin ETF assets under management to reach $1 billion by the end of 2024.
HashKey Group COO and HashKey Exchange CEO Weng Xiaoqi said that the scale of HashKey Exchange's custodial assets has increased from 2.2 billion yuan before the ETF was released 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, Weng Xiaoqi believes that ETFs can attract more traditional investors to enter the virtual asset market, and the overall scale can reach 20% of the US market in one year, that is, about 10 billion US dollars. He believes that the virtual asset market is still a long way from saturation.
Hong Kong’s Web3 strategy may be even more ambitious
Hong Kong's Web3 strategy is very diverse. It has not only launched Bitcoin ETFs and extended olive branches to many crypto exchanges, but also vigorously promoted security token issuance (STO) and RWA. Behind this diversified layout, the most important thing may be to introduce digital RMB into the Web3 economic ecosystem and build an innovative financial market infrastructure, which is something that the United States does not have and is difficult to achieve quickly under the bipartisan political tug-of-war in the United States.
With the launch of various virtual currencies and the tokenization of traditional assets in Hong Kong, what is the most convenient way to buy digital assets? Native digital RMB is definitely more credible than stablecoins issued by centralized companies. As the Hong Kong government vigorously develops Web3, the digital RMB is also expected to develop unprecedentedly. On May 17, the Hong Kong Monetary Authority announced that its cooperation with the People's Bank of China on the pilot of cross-border payments of digital RMB has achieved further results, expanding the pilot scope of digital RMB in Hong Kong, facilitating Hong Kong residents to open and use digital RMB wallets, and add value to digital currency wallets through "FPS". With the expansion of the pilot scope this time, users can now open and use personal digital currency wallets in Hong Kong with only a Hong Kong mobile phone number. Hong Kong users can add value to their wallets through "FPS" through 17 local retail banks. In addition to being used in the Greater Bay Area, digital RMB can also be used in other pilot areas in the Mainland.
Judging from the statements of Hong Kong government officials, the Hong Kong 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 expects Hong Kong to promote the interconnection of virtual asset transactions and security tokenization (STO). The Hong Kong Monetary Authority has studied the inter-bank delivery and settlement of tokenized deposits through the sandbox, conducted payment tests for the future digitalization of Hong Kong dollars and stablecoins, and made full preparations for innovative financial market infrastructure and future digitalization.
Summarize
Although it seems that the Hong Kong government's encryption measures are slower than those of the United States, from more dimensions, the Hong Kong government's encryption policy is actually more open and more diverse. From a more macro perspective, the Hong Kong government's encryption policy is moving forward in the macro top-level design and continuous sandbox experiments, while the United States is advancing and retreating in the bipartisan tug-of-war. This article believes that with the end of the Hong Kong government's sandbox experiment, the Hong Kong government's encryption policy will be implemented faster and more planned, and it is expected to prosper Hong Kong again in the Web3 field and promote the digital RMB to become the economic cornerstone in the Web3 world.
