Hong Kong can look forward to real results with virtual asset trading
- Proposals allowing retail investors to trade in big-cap cryptocurrency tokens on licensed platforms with regulatory oversight would enhance the city’s reputation for prudent financial innovation
Today the financial secretary will deliver what is effectively the first post-Covid budget, if that is defined by a return to near normal life.
People will be looking for a positive vision of the future. A taste may have surfaced ahead of the budget in proposals by the securities watchdog to allow retail investors to trade in big-cap cryptocurrency tokens on licensed virtual asset platforms, which would provide regulatory oversight.
This comes as governments around the world start to rein in the freewheeling cryptocurrency market. It would enhance Hong Kong’s reputation for prudent financial innovation and investor protection.
The proposal by the Securities and Futures Commission (SFC) for retail trading and welcoming crypto exchanges to set up here would serve both ends. It is important to the city’s future as a regional and global financial hub.
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What are cryptocurrencies?
There are between 22,000 and 50,000 cryptocurrencies in circulation, depending on who you listen to. The SFC plan will allow retail investors to dabble in “large coins”.
Although the SFC did not spell it out, it is understood to mean the two most liquid coins — bitcoin and ether — and not the exotic and meme coins such as dogecoin.
That offers a layer of protection against fraudsters’ pump-and-dump schemes. The SFC would licence cryptocurrency exchanges with strict rules on knowledge tests, risk profiles and limits on exposure.
Hong Kong has been seen to lag the likes of Dubai and Singapore in embracing cryptocurrency. In the light of the collapse of the FTX crypto exchange, and the loss of US$275 million by Singapore government investment firm Temasek, the city’s regulators and officials have been proved right. Far from reason to feel smug, however, it is a reminder of the need for diligent risk-management.
Crypto exchanges Huobi, OKX to apply for Hong Kong licences under new regime
Fintech is more than just cryptocurrency. Hong Kong has been at the forefront of innovation. Despite being slow to adopt cashless payments, the city has quietly led the way by licensing eight virtual banks, such as ZA Bank, WeLab Bank and Mox Bank, which have already attracted half a million customers a year since their launch.
Hong Kong is also leading in the use of digital currencies in trade financing. The Monetary Authority has been experimenting with the UAE, China and Thailand on using e-HKD for settlements. This puts the city at the forefront of exploiting central bank digital currencies.
The SFC proposals for retail virtual asset trading, to be put to public consultation, would attract a new wave of capital and talent to set up company offices in Hong Kong to capitalise on the new opportunities, and help reverse the brain drain.
