Forward the Original Title‘MIIX Capital：香港加密市场调研报告’

introduction

The two major centers of the cryptocurrency market in Asia are Hong Kong and Singapore. Due to their close relationship with China and relatively independent governance environment, Hong Kong is not only the center of the Chinese community in the cryptocurrency market, but also a benchmark for regulatory standardization and the strongest hub for information exchange. With the prosperity of the cryptocurrency market in the previous cycle, more and more people in the Asia-Pacific region radiated by Hong Kong have set their sights on the cryptocurrency field. Many institutions and individual investors are eager to try. The unclear policies in Hong Kong around 2021 have also led to a large number of capital and institutions migrating to cryptocurrency-friendly areas such as Singapore, Dubai, and the US. With the official announcement of the Hong Kong government’s openness and inclusiveness to the cryptocurrency market in 2022, many capitals have begun to return one after another, and the overall market situation is becoming more and more prosperous. Rather than the Hong Kong market, it is more like a Chinese axis market. From the perspective of cultural relations, Hong Kong is closely connected with Macau and Taiwan. However, in reality, South East Asia, South Asia, and even the entire Asia are within the radiation range of Hong Kong, so Hong Kong’s connectivity and influence occupy an extremely important position in the cryptocurrency market.

1、Macro Economic Indicators and Current Situation

1.1 Geographic Location & Population Size

Hong Kong was once a colony of the United Kingdom and is now a special administrative region of China. Geographically, it is located in southern China, east of the Pearl River Estuary, facing Macau across the sea to the west, adjacent to Shenzhen to the north, and facing the Wanshan Islands in Zhuhai to the south. The area includes Hong Kong Island, Kowloon, the New Territories, and 262 surrounding islands, with a land area of 113.76 square kilometers, a sea area of 1641.21 square kilometers, and a total area of 2754.97 square kilometers.

As of the end of 2023, the total population of Hong Kong 7.5031 million, making it one of the regions with the highest population density in the world. The average life expectancy is the highest in the world, and the Human Development Index is the fourth highest in the world. Most of the population in Hong Kong is Chinese nationality. According to the 2017 Statistical Data, the proportion of Chinese nationals in the population of Hong Kong is about 91.4%. Other nationalities mainly include the Philippines (about 190,000, 2.6%), Indonesia (about 170,000, 2.3%) and India (about 33,000, 0.4%).

1.2 Economic Structure and Characteristics

Hong Kong is ranked third in the world’s first-tier cities by GaWC. Its economy is a free market economy system highly dependent on international trade. As the economy with the highest degree of service dominance in the world, Financial Services, trade and logistics, professional services and other business support services, and tourism are the four traditional main industries of Hong Kong’s economy.

Hong Kong, as one of the world’s most important financial centers and commercial ports, is characterized by low taxes, minimal government market intervention, and a mature international Financial Marekt. Along with New York and London, it is known as the “York-Don-Kong” and is the third largest financial center in the world. It is also an important international trade, shipping center, and international innovation and technology center. Hong Kong International Airport is the airport with the largest international cargo volume in 2022, and Hong Kong Port ranks ninth in global container throughput.

In addition, Hong Kong has a very high concentration of wealth, with a large wage gap. 90% of income earners receive 41% of all income. In Hong Kong, there is one billionaire for every 109,657 people, making it the second most billionaire city in the world. It has the highest number of billionaires in Asia and the highest concentration of ultra-high net worth individuals in the world. Despite the government’s efforts to narrow the widening gap, the median income of the top 10% of income earners is 44 times that of the bottom 10% of income earners.

1.3 Latest Annual GDP Growth is 3.2%

Hong Kong is the 35th largest economy in the world. According to official data from the World Bank, the gross domestic product (GDP) of Hong Kong in 2022 is 359.84 billion US dollars. The value of Hong Kong’s GDP accounts for 0.15% of the global economy.

In 2023, based on the preliminary figures of local GDP divided by economic activity for the fourth quarter and the whole year released by the Census and Statistics Department of the Hong Kong Special Administrative Region, supported by a strong rebound in service exports and fixed investment, as well as significant growth in private consumption, Hong Kong’s local GDP increased by 4.3% in real terms in the fourth quarter of 2023 compared to the same period last year, and by 3.2% in real terms for the whole year of 2023 compared to 2022.

1.4 Inflation Rate Slightly Increase But Lower than Expected

In February 2024, Hong Kong’s annual inflation rate increase to 2.1%, slightly lower than the market’s expected 2.2%. Prices of food (2.2%), housing (3%), transportation (2.3%), and other services (3.6%) increased, while prices of clothing and footwear (1.3%) and other goods (1%) slowed down. The cost of electricity, gas, and water (-7.8%) and durable goods (-1.4%) continued to decrease. The core inflation rate also increased to 1.2% compared to the previous 0.8%.

The Hong Kong government stated that the basic consumer price inflation rate remained moderate in the first two months of this year. Although dining out and takeout prices continued to record relatively fast increases, basic food prices fell year-on-year, energy-related item prices further decreased, and price pressures on other major components remained roughly under control. Although local costs may face some upward pressure as the economy continues to grow, external price pressures should further ease.

1.5 Fiat Currency

Hong Kong Dollar (HKD) is the legal tender of Hong Kong, formerly known as “Hong Kong Dollar” (unit: yuan), also known as “Hong Kong Dollar” or “Kong Paper”. The currency and fund code is HKD, marked as HK $. The Hong Kong Dollar is published and regulated by HKMA. The currency is pegged to the US Dollar (USD), with a narrow fluctuation range. The Hong Kong Dollar is widely used in daily transactions in Hong Kong and is also accepted in neighboring Macau.

2. The Current Situation and Characteristics of the Crypto Market

As a special administrative region of China, Hong Kong has autonomy in many aspects of policy, including the regulation of cryptocurrency. Unlike China’s complete ban on cryptocurrency, cryptocurrency is allowed in Hong Kong and the crypto industry is explicitly encouraged to settle and develop in Hong Kong starting from 2023, but the requirements must be under regulatory compliance conditions.

Meanwhile, Hong Kong’s unique cryptocurrency market provides a variety of use cases, suitable not only for local users but also for foreigners. According to professional analysis, based on Hong Kong’s relatively independent judicial environment and role positioning in the world economy, this may indicate that the Chinese government is reversing the development direction of digital assets, or at least becoming more open to cryptocurrency initiatives.

2.1 Cryptocurrency Adoption Rate Ranks the 5th Globally

According to a cryptocurrency adoption report by Finder, Hong Kong has the highest cryptocurrency adoption rate in the Asian region, ranking in the top 5 globally. Among them, the cryptocurrency adoption rate in 2022 is 16%, with a 209% increase in searches for cryptocurrency. At the same time, 7.6 cryptocurrency-related articles were published per 100,000 people, and cryptocurrency ATMs increased by 152%.

2.2 Cryptocurrency Receipt Ranked the 5th in East Asia

According to a report by Chainalysis, Hong Kong is a very active cryptocurrency market in terms of raw trading volume. The cryptocurrency received between July 2022 and June 2023 is estimated to be 64 billion dollars. Although Hong Kong’s population accounts for 0.5% of the China mainland, it is more impressive compared to China’s 864 dollars during the same period.

What’s important is that Hong Kong’s population base and industrial structure are more about replicating its model and framework as a global TOP3 financial center in the field of crypto. This is similar to Singapore and London, but there are significant differences from Dubai, Turkey, and even the US.

2.3 OTC Type Transactions are Growing Significantly

Based on the data of tourists visiting Hong Kong, as the COVID-19 pandemic recedes, the number of visitors to Hong Kong has rapidly increased since early 2023, with China accounting for about 80%. In addition, the government has created a good business and survival environment for the cryptocurrency industry. According to data from Hong Kong Crypto physical stores and feedback from practitioners, OTC transactions increased by about 25% in the first half of 2023 and are expected to continue to grow significantly within 2–5 years.

2.4 Large Institutional Transaction Proportion is TOP1

In terms of transfer volume, large institutional transactions account for a larger share of the transaction volume. Among them, transfers larger than 10 million dollars, Hong Kong ranks first with 46.8%, higher than the global average of 45.7%; retail transfers are slightly lower than the global average. Most of this is driven by the very active over-the-counter market in Hong Kong, where “over-the-counter” trading desks usually provide a large amount of transfers for institutional investors and high net worth individuals.

2.5 The Proportion of DEX Transactions Exceeds the Global Average

Compared with other regions in East Asia, Hong Kong shows a unique segmentation in the most commonly used crypto platform types, especially in DEX, with a high proportion, exceeding Taiwan by 2 percent and exceeding the global average by about 14 percent, mainly due to the higher proportion of over the counter.

3. Crypto Users’ Characteristics

In Hong Kong, the exact number of cryptocurrency owners is difficult to determine, but what is certain is that an increasing number of individuals and businesses are participating in cryptocurrency trading, investment, and blockchain technology development.

3.1 Users Pursuing Short-term Profits Account for 75%.

According to the “2023 Retail Investor Study” conducted by the Investment Committee, 75% of surveyed virtual asset investors pursue short-term returns. In addition, 74% of cryptocurrency investors believe in the enduring trend of virtual assets, while 73% are concerned about missing profitable opportunities.

In other words, although investors have good financial knowledge, their financial behavior still needs to be strengthened, and the disconnect between knowledge and practical application highlights the importance of comprehensive investment strategy methods.

3.2 BTC Holding Rate is 18%, the Highest in the World

In a cryptocurrency adoption report by Finder, the top 5 are all in Asia, with Hong Kong residents having a 26% ownership rate of crypto assets. Considering Hong Kong’s status as a global financial center, this number is not surprising. In fact, Hong Kong has the highest proportion of Bitcoin ownership (18%), ranking second overall, second only to Vietnam (20%).

3.3 Generation Z is the main group of crypto users

In terms of age group, people aged 18–24 are most likely to own cryptocurrency, accounting for 35%, followed by 30% of people aged 35–44, 28% of people aged 25–34, 23% of people aged 65 and above, 19% of people aged 55–64, and 16% of people aged 45–54.

Hong Kong’s cryptocurrency users are mainly concentrated in Generation Z, with a high holding rate, which is consistent with a study by the University of Hong Kong on Generation Z’s investment preferences. Compared with older groups, Generation Z in Hong Kong is more aware of the importance of financial management, has a higher deposit rate in banks, and has a higher investment and holding ratio for cryptoassets.

3.4 Male Users Account for a Higher Proportion of Crypto Users

From a gender perspective, Hong Kong is in line with the global trend. There are more men than women in the crypto user population, with 30% of men holding cryptocurrency in Hong Kong compared to 23% of women. This is mainly due to men’s relatively higher income and stronger interest in crypto and Web3.

4. The Current Situation of CEX in Hong Kong

4.1 CEX Licensed for Trading

Since the official launch of its licensing system in 2023, the website of the Hong Kong Securities and Futures Commission shows that only OSL and HashKey have obtained cryptocurrency trading licenses in Hong Kong. As of 2024, the Hong Kong Securities Supervision Commission has received applications for CEX operating licenses from 22 companies, including OKX, Bybit, Bullish, Crypto.com, Huobi HK, and Matrixport HK.

OSL focuses on B-side brokerage and trading services

OSL is a digital asset brokerage company and crypto exchange headquartered in Hong Kong. Its full name is “Olympus Markets Limited”. OSL provides institutional and professional investors with over-the-counter, custody, and main brokerage services for crypto digital assets, as well as related SaaS services. It mainly provides services to clients around prime brokerage and API tools. Its app has been launched on the Apple App Store and Google Play Store in Hong Kong.

BC Technology’s interim report for 2023 shows that in the six months ending in June, net losses narrowed from HKD 300 million to HKD 95 million, with OSL’s digital asset and blockchain platform businesses playing a key role in BC Technology’s revenue.

HashKey native compliance crypto CEX

HashKey Exchange is a cryptocurrency exchange located in Hong Kong. It is licensed by the Hong Kong Securities and Futures Commission and is one of the platforms legally operating in the region. HashKey Exchange provides users with a platform to buy, sell, and trade various cryptocurrencies, as well as services such as spot trading, derivative trading, and custody solutions. It aims to provide a secure and compliant environment for cryptocurrency trading in Hong Kong and other regions.

4.2 CEX Included in the Suspicious List

The Hong Kong Securities and Futures Commission mainly publicizes CEXs that operate without licenses and are considered or have targeted Hong Kong investors, or claim to have connections with Hong Kong. Currently, there are 23 CEX information listed, including MEXC and Bybit.

4.3 Other CEX used by users

In addition to OSL and HashKey that have already complied, there are multiple CEXs used by Hong Kong users in the custody and trading of crypto assets. Most of these CEXs have actively applied for corresponding license authorizations.

OKX

OKX has been applying for a Hong Kong crypto license since 2022 and has formed a dedicated team of more than 20 people responsible for the compliance process in Hong Kong. The team members are all from SFC, SEC, international law firms or licensed Financial Institutions.

Currently, OKX has established a Hong Kong entity to launch virtual asset services in Hong Kong. It plans to apply for a virtual asset service provider license under the Anti Money Laundering and Counter-Terrorism Financing (Amendment) Ordinance 2022 (which will take effect on June 1, 2023), as well as Class 1 and 7 licenses under the Securities and Futures Ordinance.

Bitget

Bitget hired Hong Kong lawyers and compliance professionals at the end of 2022 to further understand all relevant Hong Kong policies and is preparing to apply for a Hong Kong virtual asset trading platform license.

Huobi Global

Sun Yuchen stated in an interview with Bloomberg that Huobi Global has applied for a cryptocurrency trading license in Hong Kong and will be able to expand its services and products to Hong Kong customers, providing a wider range of cryptocurrency trading and investment options. Currently, Huobi has launched a new exchange — Huobi HK, in Hong Kong, providing spot trading and virtual asset custody services.

Gate.io

Hippo Financial Services, a subsidiary of Gate.io, has obtained a virtual asset custody license in Hong Kong and is allowed to provide virtual asset custody services in Hong Kong. Gate has also obtained a Trust and Company Service Provider (TCSP) license in Hong Kong, which can provide custody solutions covering a range of digital assets in Hong Kong. Currently, its parent company, Gate Group, is applying for a new cryptocurrency license in Hong Kong and launching a new platform- Gate HK, designed for the Hong Kong market.

BitMart

In May 2023, BitMart announced the official launch of its trading platform “BitMart Hong Kong” in Hong Kong to continue providing services to Hong Kong institutional and retail investors. Currently, BitMart Hong Kong supports spot trading of virtual assets such as Bitcoin, Ethereum, and LTC.

4. Web3 Projects in Hong Kong

As a financial center, Hong Kong is vigorously promoting the landing, compliance, and introduction of resources and talents in the Web3 and crypto industries. However, due to natural limitations, there are not many Web3 projects in Hong Kong, and some of them will outsource their technical or marketing teams to Shenzhen or Kuala Lumpur.

MAMORI

Mamori is a smart contract audit system based on Web3 algorithm, which mainly focuses on zero-day economy vulnerabilities and MEV, solving scalability, automation, vulnerability detection relevance, and efficiency issues in the Web3 security field. Their goal is to apply interdisciplinary technology and prevent “unknown-unknown” vulnerabilities. To achieve this goal, they use algorithm parsing technology to establish smart contract sequences, reproducible stateful computing technology, and integrate innovative and customizable algorithm feedback mechanisms.

Ladder

Ladder is a decentralized automated market maker protocol (AMM) that specializes in providing instant exchange services for NFTs using liquidity pools. Although Ladder is mainly aimed at the GameFi field, they support all major token standards, including ERC-721, ERC-1155, ERC-3525, ERC-20, and so on.

Yuliverse

Yuliverse is a blockchain-based play-to-earn game that combines elements of GameFi and SocialFi with its NFT, cryptocurrency, ARG, and ART. It provides players with a gaming experience with an “on-demand money-making” mechanism. The game aims to promote social participation and interaction, providing players with opportunities to explore the real world and establish connections with local businesses. By completing tasks and challenges, players can earn two native tokens, which play an important role in the Yuliverse ecosystem.

Conflux Network

Conflux is a high-performance Layer1 blockchain designed specifically for dapps that require large-scale speed while ensuring decentralization. Conflux’s tree graph structure can simultaneously confirm multiple blocks, reducing confirmation time and greatly improving transaction throughput through parallel processing of blocks and transactions. As a compliant and permissionless public chain in China, Conflux is building a borderless transaction and technology ecosystem for crypto projects with a global mindset, expanding from China to North America, Russia, Latin America, Europe, Africa, and other regions of the world.

Element

Element is a multi-chain aggregation NFT market, aiming to establish a community-driven integrated market with the best trading experience and the lowest entry threshold. Element provides exclusive pages, collection certification, and launchpad services for partners to promote project development and participation. Element has been laying out in the Hong Kong market for a long time, and many multinational companies with headquarters in consumer goods have a demand for publishing NFTs.

The Sandbox

The Sandbox was founded in 2012 and is one of the leading metaverse concept projects. It is a decentralized, community-driven gaming ecosystem where players can create NFTs, upload them to the in-game marketplace, and transmit them to the game. The project has raised 2 rounds of financing, with a total amount of $95.10 million. The main investors include SoftBank Vision Fund, Animoca Brands, Blue Pool Capital, Polygon Labs, Liberty City Ventures, Samsung Nex, etc.

5. Crypto Ventures in Hong Kong

Although Hong Kong has lagged behind in its Web3 policy, it is still one of the strongest cities in Asia in terms of heritage. Many giant projects in the crypto field started in Hong Kong. In recent years, many new blockchain startups and crypto investment institutions have emerged in Hong Kong, demonstrating the potential of incubating Web3 projects in the region. Among them, investment institutions rely on their own industrial resources to provide customer docking, resource import, technical support, etc. for enterprises or project parties. Its importance to strategic implementation and industry development is self-evident.

Cyberport

Cyberport is managed by the Hong Kong Special Administrative Region Government and is a digital technology center and incubator in Hong Kong. It has over 2,000 members, including 900 on-site and nearly 1,100 off-site start-ups and technology companies. Cyberport is committed to promoting Hong Kong’s digital economy, cultivating talents, promoting youth entrepreneurship, supporting start-ups, and promoting industry cooperation in digital transformation.

HASHKEY Capital

HashKey Capital headquarters is located in Hong Kong, with branches in Singapore, Japan, the US and other places. It is a leading blockchain investment company located in Hong Kong, with assets under management exceeding 1 billion USD. As one of the largest and most influential blockchain investment institutions in Asia, it is also the earliest institutional investor in Ethereum, mainly investing in blockchain technology, digital assets and cryptocurrency-related projects.

HashKey Capital provides funding, strategic guidance, and support to promising blockchain startups and projects, and advises institutional investors seeking exposure in the blockchain and crypto markets, playing an important role in driving innovation and growth in the blockchain ecosystem.

Amber Group

Amber Group is a leading digital fintech platform in the industry, a well-known trading service provider and institutional investor in the primary market. Based on the rapid development of the business and the resource background of the founding team, Amber has successively obtained large-scale financing from top investment institutions, including Temasek Holdings, Sequoia China, Pantera Capital, Tiger Global Management, Fenbushi Capital US, etc.

Amber Group’s investment projects include public chain NEARProtocol, decentralized staking protocol StaderLabs, decentralized staking protocol SSV.Network, algorithmic stablecoin project Sperax, Aurora native lending protocol Aurigami, lightweight public chain Mina, Japanese blockchain game startup doublejump.tokyo, Web3 infrastructure company EthSign, etc.

IOSG Ventures

IOSGVentures is an investment and research company focused on the blockchain/crypto field, with investment areas covering multiple blockchain verticals such as infrastructure, DeFi, GameFi, and SocialFi. According to the official website, when making investments, it focuses on the breakthrough and innovation of the project, the ambition and resilience of the founders and team, excellent operation and delivery capabilities, and a focus on community building.

IOSG mainly focuses on investing in Layer1 projects and has become one of the anchors of Polkadot and Near Protocol. It has invested in many well-known projects, including 0x, 1inch.exchange, DeFiAlliance, etc. in the Defi field, and Conflux, Cosmos, MinaProtocol, etc. in the Layer-1 field.

Animoca Brands

Animoca Brands is a Deloitte Tech Fast winner, one of the Fortune 40 cryptocurrency companies, and one of the Financial Times’ 2023 Asia-Pacific high-growth companies. It uses blockchain to provide digital property rights to consumers around the world to help build open virtual universes. Animoca Brands is one of the most active investors in Web3, having made over 400 investments directly or through Animoca Ventures, including Yuga Labs, Axie Infinity, Polygon, Consensys, Magic Eden, Fireblocks, OpenSea, Dapper Labs, Yield agency Games, etc.

C Capital

C Capital is a global asset management company that manages private equity stake funds, private credit funds, and blockchain hedge funds. It was co-founded in 2017 by Hong Kong real estate tycoon Adrian Cheng Chi-Kong, CliveNg, and Ben Cheng. Its BlockchainMarketFund is a discretionary long/short hedge fund focused on investing in the blockchain field, providing investors with a range of cryptocurrency trading strategies through technical analysis, fundamental analysis, and on-chain analysis evaluation.

CCapital has invested in more than 60 companies so far, covering consumer, technology, and blockchain fields. Its investments in blockchain and digital asset fields include Ethereum infrastructure development company ConsenSys, Financial Services platform Matrixport, NFT virtual fashion brand RTFKT, AnimocaBrands, etc.

Everest Ventures Group

Everest Ventures Group, abbreviated as EVG, is a blockchain investment bank and incubator spun off from Hong Kong private equity/venture capital fund Huiyou Capital, aiming to promote the large-scale application of digital assets and blockchain technology. EVG focuses on the fields of financial technology, DeFi infrastructure, NFT, GameFi, Web3, and metaverse.

EVG’s investment portfolio includes many well-known projects such as blockchain game and NFT developer AnimocaBrands, decentralized metaverse TheSandbox, public chain Flow, and cryptocurrency exchange Kraken. In addition to financing business, EVG will also build many companies to do GameFi, film and television NFT and other businesses. It will have more layout in the metaverse in the future.

GBV Capital

GBVCapital is an investment institution under GenesisBlock, a venture fund focused on blockchain technology and digital assets in Asia. It mainly operates cryptocurrency over the counter business in Hong Kong. The GBV team supports full-stack cooperation with the project, aiming to promote project development by providing assistance through marketing, trading functions, products, and strategically focused team members when needed.

Since its establishment in 2020, GBV has invested in more than 70 companies covering multiple vertical fields, including Layer2 public chain BobaNetwork, Layer2 currency market protocol zkLend, DeFi startup Arch, crypto options trading platform SignalPlus, P2E shooting game CantinaRoyale, Web3 creator collaboration platform Joyn, etc.

Newman Capital

Newman Capital is a full stack venture capital firm focused on Technology Investment private equity stakes, blockchain startups, art and collectibles investments, with a focus on core infrastructure, decentralized finance, social, and gaming.

According to the official website, Newman’s team has supported more than 60 projects. In addition to well-known crypto projects such as NFT unicorn YugaLabs, crypto exchange Kraken, Ethereum scaling and infrastructure development platform Polygon, and DapperLabs in the blockchain /web3 field, they have also participated in early investments in well-known internet technology companies such as Reddit, SpaceX, and Epic Games.

MindWorks Capital

MindWorks Capital is headquartered in Hong Kong, with offices in Beijing, Shanghai, and Jakarta. Its investment portfolio covers Greater China and South East Asia. It is a venture capital firm that conducts early-stage and seed capital investments.

MindWorks Capital manages funds from university endowments, global asset management companies, funds of funds, family offices, and leading new economy entrepreneurs in Asia. It has invested in 33 projects, including several blockchain startups such as YGGSEA under the blockchain game agency YGG, cryptocurrency exchange Zipmex, on-chain data monitoring platform PARSIQ, and composite asset protocol StarfishFinance.

6. HK Crypto Market Regulatory Framework

The Hong Kong Financial Services and The Treasury Bureau (FSTB) officially released the “Policy Declaration on the Development of Virtual Assets in Hong Kong” on October 31, 2022, indicating the Hong Kong government’s open, compatible, and innovative attitude towards public participation in virtual asset trading, property rights protection of tokenized assets, and the development of stablecoins. The Hong Kong government also personally participated in three experimental programs, NFT publishing, green debt tokenization, and digital Hong Kong dollar, to test the technological benefits brought by virtual assets and attempt to further apply relevant technologies to Financial Market.

In recent years, the virtual asset industry has been booming, with various innovative technologies and applications emerging one after another. Regulatory authorities in various jurisdictions around the world are also closely following suit, in order to regulate the development of the industry and find new development engines for the local economy. Institutions such as the Securities And Futures Commission of Hong Kong (SFC), Financial Services and The Treasury Bureau (FSTB) , and Hong Kong Monetary Authority (HKMA) have issued multiple statements, circulars, position papers, legislative consultations, and other documents from different regulatory perspectives, gradually constructing Hong Kong’s regulatory framework for virtual assets.

6.1 Regulatory Agencies and Division of Labor

Financial supervision in Hong Kong is mainly conducted by the Financial Services and Treasury Bureau (FSTB), the Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission (SFC) and the Insurance Authority (IA).

The Financial Services and the Treasury Bureau (FSTB) plays a management role in financial regulation and can formulate financial policies and submit legislative proposals.

The Hong Kong Monetary Authority (HKMA) is mainly responsible for maintaining the stability of the financial system and banking industry, and managing the foreign exchange fund to maintain the stability of the Hong Kong dollar.

The Securities and Futures Commission (SFC)n, which oversees and promotes the development of the Securities and Futures Markets and may license regulated activities;

The Insurance Authority (IA) supervises the insurance industry, protects the interests of policyholders, and promotes the stable development of the insurance industry.

In addition, the Hong Kong Association of Banks, the Hong Kong Stock Exchange, and the Hong Kong Insurance Companies Association respectively serve as industry self-regulatory organizations for the banking, securities, and insurance industries, and conduct industry supervision. Such a multi-level regulatory system can greatly stimulate the creativity and enthusiasm of Financial Market while controlling financial risks, thereby promoting the stable development of the Special Economic Zone.

For the regulation of crypto assets and the crypto industry, there is no separate regulator in Hong Kong, but several financial regulators have issued guidance documents on the subject, including the Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA).

6.2 Regulatory progress timeline

In September 2017, the release of the “Statement on Initial Token Publishing” required ICOs to apply for a license from the Hong Kong Securities and Futures Commission.

In December 2017, issued a circular to licensed corporations and registration authorities regarding bitcoin futures contracts and cryptocurrency-related investment products.

In November 2019, Hong Kong began regulating cryptocurrency exchanges, requiring licensed CEXs to provide corresponding services to investors.

In June 2022, the announcement “Reminding Investors to Pay Attention to NFT Risks” was released, mentioning that most NFTs are intended to represent their related assets.

In October 2022, the Financial Services and Treasury Bureau (FSTB) released the “Hong Kong Virtual Asset Development Policy Statement” expressing Hong Kong’s open and inclusive attitude towards virtual assets.

In December 2022, the Hong Kong Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022.

In January 2023, the “Discussion Paper on Crypto-assets and Stablecoins” was released, requiring stablecoins to fully support and allow face value redemption.

In February 2023, the Hong Kong Securities and Futures Commission (SFC) issued a consultation paper on proposed regulatory requirements for operators of virtual asset trading platforms.

In May 2023, the “Guidelines for Combating Money Laundering and Terrorist Financing” will be released.

In June 2023, the licensing system for virtual asset service providers (VASP) will be implemented.

In August 2023, the Hong Kong government announced that listed exchanges could sell to retail investors.

In January 2024, the “Strategic Focus for 2024–2026” was released, which pointed out that technology innovation centered on crypto will be the development focus.

6.3 Classification of financial licenses

There are ten types of financial licenses issued by the Hong Kong Securities and Futures Commission:

License №1, securities trading, providing clients with stock, stock options, bond trading and brokerage services, as well as providing mutual funds, unit trust placement and underwriting securities.

License №2, futures contract trading, providing clients with index or commodity futures trading and brokerage services.

License №3, leveraged foreign exchange trading, providing foreign exchange trading services to customers.

License №4, Securities Investment Advice, provides clients with securities investment advice and research analysis reports.

License №5, Futures Contract Investment Advice, provides clients with investment advice and research analysis reports on futures contracts.

License №6, institutional financing consulting, approved to act as a sponsor for clients’ initial public offerings, and provide advice on company listing compliance and other matters.

License №7, automated trading, providing customers with electronic trading platform services for order matching operations.

License №8, guarantee financing, providing customers with stock pledge financing services.

License №9, asset management, providing clients with discretionary fund management and securities futures contract investment management services.

License №10, credit rating, allows rating of companies, bonds, and sovereign credit.

The most critical of these licenses are License №1 and License №7 (for securities trading and providing automated trading services, respectively), which are necessary conditions for compliance exchanges to land. License №9 is also a focus of the market. The difference is that it can manage user funds, which is a necessary condition for private or public funds. Exchanges do not currently need to change their licenses. Currently, OSL and HashKey have obtained License №1 and 7, and Huobi Technology has obtained License №9.

6.4 Requirements and Guarantees for CEX Operations

Regarding the operation of the CEX platform, according to the documents published by the Hong Kong Securities and Futures Commission, the requirements are as follows:

• CEX platform operators must maintain a fully paid-up capital of not less than 5 million Hong Kong dollars at all times (i.e. the “minimum amount of fully paid-up capital”);
• The platform operator should have assets with sufficient liquidity in Hong Kong at all times, such as cash, deposits, Treasury and deposit certificates (but not virtual assets), the amount of which should be equal to the actual operating expenses of the platform operator calculated on a continuous basis for at least 12 months.
• Platform operators should establish and implement strict internal control measures and governance procedures for private key management to ensure the secure generation, storage, and backup of all crypto seeds and private keys, which are stored in Hong Kong.

6.5 ETF policies and regulatory requirements

On December 22, 2023, the Hong Kong Monetary Authority and the Securities and Futures Commission jointly issued an updated Joint Circular on Virtual Asset-related Activities of Intermediaries, stating that they are ready to accept applications for virtual asset spot ETFs and futures ETFs, and have put forward regulatory requirements.

On the same day, the Securities and Futures Commission issued the “Circular on Securities Supervision Commission Authorized Fund Investment in Virtual Assets” (“ETF Circular”). The ETF Circular replaces the Circular on Virtual Asset Futures ETFs issued by the Securities Supervision Commission on October 31, 2022, and proposes new regulatory requirements for virtual asset ETFs (including futures ETFs and spot ETFs).

• Qualifications of the administrator: The administrator of the ETF should have a good regulatory compliance record; at least one competent employee with experience in managing virtual assets and related products; and hold an upgraded №9 license plate.
• Underlying assets: ETFs can only (directly or indirectly) invest in assets that are available for retail users to trade on licensed exchanges in Hong Kong.
• Investment strategy: ETFs do not allow leverage at the fund level.
• Subscription and redemption: The Securities Supervision Commission allows redemption through cash (in-cash) or in-kind (in-kind).
• Custody Arrangement: The assets held by ETFs need to be held in Hong Kong licensed exchanges or financial institutions and their subsidiaries recognized by the HKMA.

6.6 Stable currency issuance regulatory legislation

Stablecoins are pegged to the value of specific assets (such as fiat currency, gold, etc.), with small price fluctuations, and play the role of “currency” in the cryptocurrency market. The Hong Kong government is very concerned about the development of stablecoins and actively promotes relevant legislation.

• Plans to introduce new legislation rather than amend existing legislation (e.g. Payment Systems and Stored Value Facilities Ordinance (Cap. 584) or Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615));
• The proposed stablecoin regulatory system only applies to fiat-referenced stablecoins (FRS), which are cryptographically protected digital forms of value that maintain a relatively stable value with one or more fiat currencies.
• To publish FRS in Hong Kong, publish FRS pegged to the Hong Kong dollar in any region, or actively promote FRS to the Hong Kong public, a FRS publisher’s license is required.
• The main licensing conditions and regulatory requirements that FRS publishers need to meet include requirements related to reserve assets and stability mechanisms, face value redemption of FRS in reference currencies, and approval from the HKMA before any new business;
• Only FRS published by FRS publishers licensed by the HKMA can be sold to retail investors, and all other types of FRS can only be sold to professional investors.

Based on the relevant policy documents released by institutional departments, the main regulatory focus is on Anti Money Laundering and investor protection. It draws on traditional financial regulatory thinking, conforms to the regulatory principle of “same business, same risk, same rules”, prevents legal financial activities from becoming tools for criminal activities such as money laundering and terrorist financing, maximizes investor protection, reduces huge asset losses caused by non-compliant or even illegal trading platforms, and allows investors to invest in targets that do not match their risk tolerance.

7. Summary

Hong Kong has been laying out in the blockchain industry for a long time. Since the launch of the “Financial Data Competition” in 2018 to encourage local enterprises to participate in the development of blockchain and other technology fields, there have been more than 600 fintech companies in Hong Kong, including mobile payment, cross-border wealth management, wealth and investment management, compliance technology, crypto asset trading, and other fields. At the same time, it has launched crypto asset ETFs and continuously held multiple large-scale blockchain industry summits.

With the rise of blockchain technology, as a traditional global financial center, Hong Kong is actively exploring how to maintain its position in the Web3 world, fully leveraging its unique advantages as a financial center, and has become a hot spot in the blockchain and digital asset fields. More and more companies choose to establish institutions or branches in Hong Kong.

The characteristics of Hong Kong’s financial industry are a strong regulatory framework, sound infrastructure, and openness to foreign investment. This is also reflected in the cryptocurrency industry, where corresponding regulatory policies are becoming increasingly clear. By establishing a clear regulatory framework, creating an environment conducive to digital asset activities, and utilizing the opportunities brought by the growing digital asset market, it continues to empower the broader fintech ecosystem.

In the turbulent environment of the crypto market, Hong Kong’s unique position and governance environment give it great potential to become the axis of the Chinese market. With the further promotion and implementation of policies, the attention of the Chinese market, the Asia-Pacific market, and the global market is converging on Hong Kong. Its advantages as a financial center are also being amplified and released in the crypto field. We have reason to believe that Hong Kong’s position in the crypto market will become increasingly important and become the hub and driving force of the crypto industry.

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1. This article is reprinted from [Miixcapital]. Forward the Original Title‘MIIX Capital：香港加密市场调研报告’.All copyrights belong to the original author [Miixcapital]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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