Hong Kong attracts top crypto firms in bid to become global digital finance nexus

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1st March 2024 – (Hong Kong) Hong Kong is witnessing a surge in applications for digital-asset exchange licenses as prominent names in the cryptocurrency industry, including Bybit, OKX, and Crypto.com, vie for a foothold in what is anticipated to become a leading regulated marketplace for virtual assets.

Gate.io and HTX, along with Bullish, are among the platforms with significant trading volumes aiming to secure their operational legitimacy in the city. The Hong Kong authorities set a strict deadline of 29th February for such submissions, with the proviso that non-compliant entities must discontinue their services by the end of May.

Remarkably, industry behemoths such as Binance, Coinbase, and Kraken have not appeared on the application list, sparking speculation about the attractiveness of Hong Kong’s regulatory environment.

The local virtual-asset regulatory framework, which is less than a year old, has been crafted with a strong emphasis on investor protection, a move that may introduce additional operational costs for the businesses involved.

Angela Ang, a senior policy adviser at blockchain intelligence firm TRM Labs, considers the current spate of applications as a crucial indicator of the industry’s confidence in Hong Kong’s potential as a crypto hub. “The presence of esteemed industry players among the applicants is promising. For Hong Kong to cement its status, it will need substantial investment from these key participants,” Ang stated.

With the city’s pivot towards establishing itself as a hub for cryptocurrency operations in late 2022, regulatory compliance costs are now a significant consideration for businesses in the sector. Ding Chen, from Bullish, acknowledges the cost implications but notes they are part and parcel of the company’s strategic planning.

Hong Kong’s ambition to transform into a nexus of digital finance is underscored by the two existing authorized digital-asset exchanges, HashKey Exchange and OSL Group, which are already adapting to the evolving regulatory framework.

While the city has seen an estimated US$64 billion in crypto transactions in the year through June, mostly through OTC trades, regulators are moving to exert greater control over these channels as part of a broader clampdown.

In addition to tightening regulations on exchanges and OTC outlets, Hong Kong is exploring rules for stablecoins and the possibility of allowing exchange-traded funds that invest directly in cryptocurrencies. In a recent initiative demonstrating its commitment to the digital finance sector, the Hong Kong government successfully conducted a sale of US$750 million in digital green bonds, utilising the tokenisation platform provided by HSBC Holdings Plc.