The previous article about OKX’s withdrawal of its application for a Hong Kong license received very good feedback and also caused a certain degree of dissemination and discussion.
Today, Juzuo will discuss this matter in more depth.
1. Mainstream exchange or compliant exchange?
Before we talk about this, we need to clarify two points.
First, we have to admit that the Chinese have really achieved world-class achievements in cryptocurrency exchanges. The talent of the Chinese in running exchanges is simply overflowing the screen.
This is an achievement that is undeniable but rarely mentioned.
Whether it is Zhao Changpeng, Xu Mingxing, Li Lin, Han Lin, MX or even Sun Yuchen, and even earlier Yang Linke and others, they have all been advancing one after another in this field, and eventually the landscape of cryptocurrency exchanges around the world has been dominated by the Chinese.
Without exception, these people are from mainland China.
But perhaps in the eyes of Hong Kong's traditional elites, this group of people are just nouveau riche and are still mainlanders.
Other exchanges such as Coinbase and Crypto, although legal in the United States, can only develop in North America and other regions. They cannot achieve full success in Japan, South Korea, Southeast Asia, the Middle East and other regions like the above-mentioned exchanges.
More importantly, the relationship between these Chinese exchanges is currently more of a competitive and cooperative one, rather than an antagonistic one.
Second, based on the above background and Hong Kong’s compliance policies, there are currently two types of exchanges on the market.
One type is called a compliant exchange, such as Coinbase and Crypto in the United States, and those that have obtained licenses in Hong Kong, such as Hashkey, OSL, etc.
The other type is called mainstream exchanges, which are exchanges that have gained market recognition and consensus, such as Binance, OKX, etc.
Because today we are talking about the issue of compliance in Hong Kong and exchanges owned by Chinese owners, compliant exchanges refer specifically to those exchanges that have obtained licenses in Hong Kong.
The difference between them and mainstream exchanges is: legal in identity but embarrassing in the market.
Legally speaking, they are compliant exchanges approved by the Hong Kong government, but in the market environment, except for a small number of user groups with special needs who use these exchanges, other users are not interested in them or even do not buy into them.
Although mainstream exchanges have not obtained licenses in Hong Kong, it does not prevent them from gaining recognition from the market and capital. It seems that the government's endorsement cannot affect everyone's voting with their feet.
This scene is very ironic, and of course very web3.
2. Hong Kong, China, does not welcome mainland exchanges
So in this process, a very magical question arises:
Hong Kong, China, however, has been stuck in the compliance issue of exchanges, and has been slow to grant licenses to Chinese bosses whose performance has been far ahead of others. None of the exchanges, including Binance, OKX, Huobi, Gate, etc., have been approved.
Among the first batch of approved exchanges, all are local Hong Kong forces, and there is no mainstream exchange.
Do mainstream exchanges lack industry experience?
Is the security level of mainstream exchanges not enough?
Is it that they haven’t achieved compliance elsewhere?
These exchanges have achieved remarkable achievements worldwide. The number of users, capital volume, security level and transaction depth are enough to show who are the world-class exchanges. They also hold corresponding compliance licenses in other countries and regions around the world.
Or is it that they don’t have a deep Hong Kong background, strong social connections, or sufficient division of interests?
In other words, if exchanges of these sizes can get licenses, why can't mainstream exchanges get them?
What kind of inside story is this?
3. Hong Kong Government’s Considerations
Strictly speaking, Hong Kong’s disapproval of exchanges run by mainland bosses is actually the result of a multi-party struggle.
The Hong Kong government has its own considerations.
The reason why they have been slow to issue licenses to mainland exchanges is not because of issues such as size, security, or professionalism, but rather because they are considering things from an uncontrollable perspective.
For example, although the amount of funds is large and there are Merkle trees and proof of assets, these funds are not under the supervision of the Hong Kong government.
The Hong Kong government cannot accept the existence of an exchange that holds its own license but is outside of regulation, let alone gamble its credibility by endorsing such an exchange.
Although all exchanges have made certain concessions in this regard and demonstrated strong sincerity, it is clear in the minds of all bosses: sincerity is sincerity, and the bottom line is the bottom line.
If the cost of showing sincerity is far higher than the size of the Hong Kong market, then this deal is obviously not cost-effective.
Another example is the system black box problem.
Although each exchange can disclose or even access part of the data to the Hong Kong government, compared to the overall situation, the Hong Kong government still keeps a black box view of the data of each exchange. The data the Hong Kong government can see are all the data that the exchanges want them to see, or even the data that they have made up.
Everyone knows about this kind of thing. If you want to see that I'm compliant, I'll show you the compliant part.
As for the rest, I'm asking you to lift up my underwear just for a license? Don't even think about it.
Another example is past non-compliance issues.
Every mainstream exchange issues platform coins.
It is still unknown whether issuing platform coins is considered issuing securities, whether there are any compliance issues, and whether the Hong Kong government will be affected after granting a license because the platform is shut down by other regions due to similar compliance issues.
The most fatal point is actually in the United States.
Suppose the Hong Kong government now grants these exchanges compliance licenses, but the United States eventually imposes sanctions, just like what happened to CZ this year.
The Hong Kong government will be very embarrassed then, because the essence of Hong Kong's finance is that it is a vassal of Wall Street.
Therefore, it will be difficult for the Hong Kong government to make concessions on this matter before the United States gives in.
If you want to make an opening, you must provide conditions that are attractive enough.
However, for local exchanges in Hong Kong, this series of external constraints does not exist.
I am a new exchange and I am licensed, so my exchange business is compliant.
I am a new exchange and I have not issued any platform coins, so I have no problem with that.
Black box? Our new exchange’s system and data are connected to the Hong Kong government, so there is no black box.
The above is part of the reason why the current situation has occurred from the perspective of the Hong Kong government.
4. The Thoughts of Local Forces
Local forces will certainly not miss out on such a popular benefit. After all, whenever it comes to licenses, it will inevitably involve the distribution of interests. Whether in mainland China or Hong Kong, the importance of licenses is obvious to all.
But local forces will inevitably lobby the Hong Kong government in an attempt to achieve their own interests to a greater extent.
In addition to accepting a series of conditions set by the Hong Kong government, they also had corresponding conditions in exchange:
Delay the time as much as possible to give them more time to develop.
This issue was mentioned in Juzuo’s first article about Hong Kong, which listed the progress of Hong Kong’s crypto compliance supervision. The time span for compliance approval is very long, but the time is compressed to the extreme when the ETF is approved.
This only shows that the Hong Kong government is not inefficient, but is deliberately delaying time.
The biggest beneficiaries of the delay are the first batch of exchanges that have obtained licenses.
Let’s imagine a scenario like this:
After the first batch of compliant exchanges were approved, other exchanges were approved three months later - regardless of whether they were mainstream exchanges or not.
The first-mover advantage of the first batch of compliant exchanges will only be three months, and then they will have to engage in hand-to-hand street fighting with the second batch of approved exchanges in the tiny city of Hong Kong.
If it were you, would you hope that this time would be as long as possible?
The strategic significance of delaying time is huge. On the one hand, it can give local exchanges enough time to develop rapidly and acquire a good amount of users and funds.
And if it really fails, the first batch of licenses during the approval vacuum period can also be sold at a good premium.
Therefore, for local forces, the strategy of delaying time can be used for both offense and defense, and there is nothing wrong with it. It just makes life difficult for those waiting in line behind.
So, this is the chronic disease of capitalism. Those who have come ashore earlier only think about land grabbing and then eating up the market share, while what we in the mainland advocate is to let the rich help the poor and ultimately achieve common prosperity.
It seems that we will have to strengthen party building and ideological and political work in Hong Kong’s financial market in the future to prevent the invasion of capitalist sugar-coated bullets.
5. The layout of the Chinese boss
Please note that here Ju Zuo refers to the bosses of these exchanges as Chinese bosses, not Chinese bosses.
Because many of them have already obtained foreign citizenship, and none of them is currently in the country, so this is the only way to call them that.
The wisdom of the Chinese in doing things has not diminished at all.
A friend of mine at Juzuo has some understanding of this matter. He said that it is very likely that Hong Kong has made extremely excessive demands, which has caused the investment-output ratio of this matter to be completely unbalanced, so OKX’s announcement to withdraw its application for a Hong Kong license appeared.
In fact, at the beginning, OKX planned to handle this matter in a low-key manner, that is, not to publicize it to the outside world, to get through it in a low-key and stable manner, and then just make an explanation after the matter was over.
But what was unexpected was that OKX not only issued an announcement in Chinese and English, but also issued an announcement on its official website, causing public opinion on this matter to spread rapidly. It can be seen that the top management of OKX is very dissatisfied with this matter - because although other companies also withdrew their applications, they basically did not do any publicity or explanation.
According to a friend, the few exchanges that have obtained licenses in Hong Kong are actually not doing very well. Their business volume is completely unable to grow and they basically rely on institutional users to do things. None of them can make money from this business.
So several of them are looking to sell, but no deal was made because the offers were too high.
The current situation of Hashkey is not optimistic, it is basically sold.
At present, the value of Hong Kong licenses is also declining sharply - because there is no direct data to show how strong the positive effect of obtaining a Hong Kong license is on market growth.
Therefore, the current valuation of the Hong Kong license is around 20 million.
I have to say that it is really wise to let the bullets fly for a while, and the bosses of Chinese exchanges are also well aware of this.
If the Hong Kong region is really that powerful, it would be worthwhile to spend an additional 100 million to get the license at that time.
If the market share in Hong Kong is limited, let them rush out to occupy the territory first, and then take them into our own pocket.
Anyway, in the process of pursuing compliance, I have gained exposure, users and traffic. Apart from some necessary expenses, there is actually not much loss.
6. Hong Kong license, a hot potato
Once the Chinese boss fell, the ball was kicked back to the Hong Kong government and local forces, but this ball was a little hot to the touch.
For local forces, this is really a hot potato. They originally thought they could make a fortune from the license, but ended up shooting themselves in the foot.
Obtaining a Hong Kong license does not mean that you can operate an exchange globally. It only means that you can open it to Hong Kong users. Even though Hong Kong belongs to China, you do not have the authority to open it to mainland users - because the exchange business is not compliant in mainland China.
The entire Hong Kong has a population of only 7.5 million.
You can’t have all Hong Kong people bringing in money to trade cryptocurrencies.
Even if they all come in and do business with mainstream exchanges, what does it matter?
Therefore, it seems that the only option left for local forces is to take action.
What is even more uncomfortable is the Hong Kong government.
When the Hong Kong government announced two years ago that it would carry out compliance supervision on cryptocurrencies, market enthusiasm was actually extremely high. However, with its unwillingness to lower its profile and some mysterious operations, it has now completely lost its heat and cannot make any waves no matter what.
This matter seems big, but in fact the market is very small - because in the entire crypto market, those who have demand for Hong Kong licenses are only these potential buyers.
Not everyone can run an exchange. One must go through market trials and consensus before applying for a license.
A fake exchange is just a pig-killing game, so is it necessary to apply for a license?
Only those who can stand out from the crowd and have a certain business volume need to apply.
If you count them all, you can probably count them on two hands.
Now, these people not only do not continue to apply, but also take the initiative to withdraw it.
Where will the Hong Kong government put its face?
What’s even worse is that local forces have begun to stab us in the back.
Assuming that one of these six companies officially sells its license (accepting equity, selling shells, etc.), the others will inevitably follow suit, because it is really difficult to run an exchange.
If this is the case, then the licenses issued by the Hong Kong government have become a tool to support local forces. After three years of holding back, the big move ended up in vain.
What was originally a good hand has now been played badly.
It was also unexpected that in the crypto market, Chinese bosses used the condensed wisdom of socialism to deal a heavy blow to decadent capitalism.
Suddenly I realized that our generation’s mission is to implement socialist values into the web3 world. Brothers, do you think I am doing the right thing?
