Hong Kong has pushed ahead with plans to let retail investors trade cryptocurrencies as it vies with Singapore for supremacy as a digital assets hub.
Under plans launched on Monday by the Hong Kong Securities and Futures Commission, the industry’s two largest crypto tokens — bitcoin and ether — would be opened up to retail customers, and licensed exchanges would be required to ensure clients have “sufficient knowledge of virtual assets” before they are allowed to trade. All digital asset trading platforms operating in Hong Kong or actively marketing to Hong Kong investors would need to be licensed by the SFC.
The proposals, which will first be subject to a six-week consultation with “interested parties”, would also require that no more than 2 per cent of client funds be stored in “hot wallets”, a term used to describe online accounts seen as vulnerable to hacks or phishing scams because their keys are stored online.
Granting retail traders — who until now have had to trade crypto assets on unlicensed exchanges — access to licensed platforms would mark a big step up in efforts to attract crypto businesses to Hong Kong. The territory has in recent years been left behind by rival Singapore, which has allowed retail trading but has been stung by several high-profile crypto controversies, including last year’s collapse of the dollar-pegged token terraUSD.
Singapore-based crypto hedge fund Three Arrows collapsed in June last year, while an international manhunt for Do Kwon — co-founder of the company behind terraUSD — shone an international spotlight on the city-state.
“This sends a powerful message that Hong Kong wants to reclaim its status as a global crypto hub,” said Henri Arslanian, managing partner at crypto asset management firm Nine Blocks Capital Management.
“Many large crypto firms had difficulty operating out of Hong Kong in recent years, especially due to the Covid travel restrictions. This consultation will add to the renewed momentum that the city is seeing,” he added.
The crypto industry is seeking to rebound after a year defined by plummeting prices, thousands of job cuts and a crisis of confidence that led to the collapse of several high-profile companies, including crypto exchange FTX, which was established in Hong Kong before moving to the Bahamas.
“In light of recent turmoil and the collapse of some leading crypto trading platforms around the world, there is clear consensus among regulators globally for regulation in the virtual asset space to ensure investors are adequately protected and key risks are effectively managed,” said SFC chief executive Julia Leung.
Additional reporting by Chan Ho-him