Hong Kong is committed to becoming a global crypto hub, refocusing itself in recent months. However, the crash of the crypto markets and the invasion of China make the outlook challenging.

Hong Kong remains committed to becoming a global cryptocurrency hub despite challenges from markets and rivals.

Hong Kong unveiled its new approach to cryptocurrencies during its Fintech Week late last year, which highlighted Web 3.0 integration. Soon after, officials allowed the listing of Hong Kong’s first cryptocurrency-based ETFs, which have since raised more than $80 million.

Later, the Hong Kong Securities and Futures Commission announced that retail investors would be able to trade “highly liquid” digital assets. This development, as well as a mandatory exchange license regime, is expected from June this year.

The authorities have also scheduled a consultation for this quarter, on which assets to allow to retail investors.

Officials have also expressed their willingness to review the property rights of tokenized assets, as well as the legality behind executing smart contracts. Despite these efforts, however, Hong Kong still has a lot of work to do to achieve its crypto ambitions.

Hong Kong Getting into Shape

These ambitions represent more of a return to form, as Hong Kong had served as a crypto hub in the early years of digital assets.

Both FTX and Sam Bankman-Fried’s Alameda Research have their roots in the city, while Binance maintained a base there. However, many companies ultimately decided to leave, due to growing signs of increased regulation and restriction.

Initially, officials decided to significantly raise regulatory standards, restricting access to the exchange to those with portfolios of at least HK$8 million ($1 million).

Once China largely banned crypto in 2021, the city also lost its appeal as an outlet to the mainland. The repressive anti-coronavirus policies instituted by an increasingly authoritarian Beijing also led to a major brain drain from the city.

However, fears about further Chinese incursions are just one of the challenges facing Hong Kong today. As digital asset prices fell last year, transaction volume in Hong Kong expanded less than 10% in the 12 months to June from a year earlier. It also faces persistent competition from nearby Singapore.

Singapore Rivalry

Singapore, a longtime rival financial center in Southeast Asia, has also been vying to become a global center for cryptocurrency.

When Hong Kong announced its crypto plans during its Fintech Week last year, Singapore held its own during the overlapping dates. The Monetary Authority of Singapore (MAS) also submitted crypto regulation proposals late last year.

The current conundrum of a company makes clear the challenge posed by the choice between the two options. Singapore-based crypto lender Matrixport Technologies is currently awaiting the outcome of a virtual asset license application.

However, based on the events being observed in Hong Kong, investors may decide to move there before a decision regarding the license application is reached.

By Audy Castaneda

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