Why Hong Kong Wants to Be a Hub for the Crypto Sector

Hong Kong is seeking to become a crypto hub even as a history of volatility and scandal dogs the sector. The city has issued licenses under a new system to regulate virtual-asset exchanges and permitted exchange-traded funds for Bitcoin and Ether. The regime is part of Hong Kong’s effort to attract capital and talent back to a city tarnished by a crackdown on dissent and years of harsh Covid-19 curbs. The push appears to have quiet backing from Beijing despite the mainland’s crypto ban. Results are mixed: some major exchanges didn’t seek permits, and the city’s crypto ETFs are overshadowed by US rivals.

The rules allow retail investors to trade coins on exchanges licensed by the Securities and Futures Commission. Hong Kong says its approach is high on consumer protection: exchanges have to ensure investors understand risks, and allowed tokens must be sufficiently large and liquid while also featuring in at least two respected crypto indexes. Meanwhile, curbs loom for shops and websites that swap cash for crypto, to encourage the use of authorized exchanges. The city is also working on a framework for stablecoins, which are usually pegged 1-1 to fiat currency and backed by reserves of cash and bonds.