Hong Kong to Legalize Retail Crypto Trading: China Endorses City’s Crypto Hub Ambitions

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The Securities and Futures Commission (SFC) of Hong Kong announced its latest policy proposal to allow retail investors to buy big-cap cryptocurrency tokens such as bitcoin and Ether on licensed virtual-asset platforms. The new cryptocurrency regulatory regime will come into effect on June 1, 2023, and can only offer “eligible large-cap virtual assets” to retail investors.

Eligible Large-Cap Virtual Assets for Retail Investors

The SFC defines eligible large-cap virtual assets as tokens that are included in at least two acceptable indices issued by at least two independent index providers. The SFC policy proposal aims to provide regulatory oversight and investor protections to once vibrant but unregulated cryptocurrency investment activities.

Consultation Period for Policy Ends on March 31

The consultation period for the policy proposal will end on March 31. During this period, exchanges can determine what cryptocurrency tokens retail investors can trade and how much they can invest. Platforms will also need to consider a range of general factors, such as a virtual asset’s management team, maturity, and liquidity, and the security infrastructure of its blockchain protocol, before offering these tokens to investors.

Regulatory Oversight for Effective Regulation

The SFC emphasizes the need for effective regulation, stating that collapses in the past year “resulted in substantial losses to tens of millions of investors.” The watchdog also highlighted the exposure risks arising from the “increasing interconnectedness” between the virtual-asset market and the traditional financial system.

Platforms to Conduct Knowledge Assessments on Investors

Under the new regime, platforms will need to conduct knowledge assessments on investors before serving them and set exposure limits for customers depending on their financial situations. They will also set up token admission and review committees responsible for following through with the SFC’s admission criteria and making final decisions on whether to admit, halt, suspend or withdraw offerings.

Hong Kong’s Push to Emerge as a Virtual-Asset Hub

Hong Kong has recently made a significant push to emerge as a virtual-asset hub, with policies unveiled last year legalizing retail access to cryptocurrency trading. In December, the city passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022, which officially introduced the new virtual-asset platform licensing regime. After June 1, unlicensed cryptocurrency trading activity will be a criminal offense, the SFC said.

Huobi Hong Kong for High net worth individuals

Justin Sun’s crypto exchange Huobi Global is applying for a crypto trading license in Hong Kong and is launching a new trading venue there, Sun said on Twitter on Monday. The new exchange, called Huobi Hong Kong, will focus on institutional investors and high-net-worth individuals, he said.

Crypto-Linked Stocks Rally

Chinese crypto- and blockchain-linked stocks rallied Tuesday. Digital asset firm OKG Technology Holdings Ltd. jumped as much as 22% in Hong Kong. Crypto platform operator New Huo Technology Holdings Ltd. advanced as much as 12%. In mainland China, software specialist Shenzhen Forms Syntron Information Co. at one point added 10%.

China Endorses Hong Kong’s push to become a crypto hub

As Hong Kong moves towards legalizing retail crypto trading, officials from China’s Liaison Office have been showing support for the idea by attending crypto gatherings in Hong Kong and making follow-up calls to certain projects. The move is seen as an endorsement of Hong Kong’s push to become a crypto hub, as the territory uses its separate legal system and markets to be a testing ground, much like it was for China’s first test of open markets in the 20th century. 

The SFC’s consultation paper comes as governments around the world start to rein in the freewheeling cryptocurrency market following a series of meltdowns last year, including that at FTX, previously the world’s second-largest cryptocurrency exchange. Hong Kong’s stance has drawn the attention of cryptocurrency firms based in the United States, where recent crackdowns have triggered an industry outcry.

Next Crypto Bull Market

Coinbase CEO Brian Armstrong said on Twitter last week that the US risked losing its status as a financial hub to jurisdictions such as Hong Kong, while Gemini co-founder Cameron Winklevoss wrote on Twitter that cryptocurrencies’ “next bull run is going to start in the East.”