Hong Kong Aims to Push for Web3 Amid US Regulatory Crackdown

Hong Kong’s finance chief recently stated in a blog post that it is the “right time” for the city to push for Web3 despite the recent market volatility. The statement comes as Hong Kong is accelerating towards becoming a global crypto hub with a more friendly regulatory stance on the nascent industry.

Hong Kong’s Financial Secretary Compares Recent Market Downturn to Dot-com Bubble

In a Saturday blog post, Hong Kong’s Financial Secretary, Paul Chan, reiterated the city’s crypto hub ambitions despite the recent fluctuations. He claimed that now is the “right time” for the city to push forward with its Web3 plans. 

“The recent instability of the virtual assets market and the collapse of some virtual asset exchanges have cast doubts on the future of Web3, but we believe this is the best time to promote development,” Chan wrote.

When addressing the recent market meltdown, Chan said the crypto industry is going through the same process as the Internet in the early 2000s. He noted that after the dot-com bubble burst in 2000, surviving market players focused on technological innovation, applications, and value creation.

“In the next stage, market participants need to develop blockchain technology more deeply, so that its characteristics and advantages of transparency, efficiency, security, disintermediation, de-platformization, and low cost can find wider application scenarios and solve more existing problems.”

The finance chief also mentioned that the city aims to introduce a licensing regime for virtual asset service providers in June and a regulatory framework around stablecoins to ensure appropriate supervision of Web3 while minimizing potential risks of the space. 

Historically, Hong Kong has been a fintech and crypto hub thanks to its friendly regulatory stance. However, the city started to lose its shine amid increasing regulatory ambiguity regarding digital assets after China outlawed all crypto-related activities. The emergence of potential rivals like Singapore and Dubai further undermined Hong Kong’s position.

Hong Kong has once again pivoted toward a friendlier regulatory regime to reclaim its position as a global crypto hub and attract more crypto companies. The city has also unveiled crypto and blockchain projects to accelerate adoption.

Hong Kong Strives to Create a Friendly Environment For Crypto Firms

Hong Kong’s Securities and Futures Commission (SFC) published a consultation paper on its proposed regulatory regime for crypto trading platforms in January. The new rules are set to go into effect starting in June and require all crypto platforms to be licensed by the SFC.

As part of the new regulatory regime, retail investors in the city would be allowed to trade certain “large-cap tokens” on licensed exchanges, given that safeguards such as knowledge tests, risk profiles, and reasonable exposure limits are put in place.

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Subsequently, Chan revealed that he would allocate $6.4 million to speed up the development of the Web3 ecosystem and to unlock the potential of what he referred to as the “third generation internet.” He added that the city would establish a virtual asset (VA) task force to offer guidance on responsible growth of the VA sector.

The city also successfully sold $102 million worth of digital green bonds in mid-February, marking the first tokenized green bond issued by a government. The sale came a month after a Hong Kong official said the government wants to launch tokenized green bonds for institutional investors.

More recently, Hong Kong’s Secretary for Financial Services and the Treasury, Christian Hui, said that more than 80 companies working in the digital asset space had shown interest in establishing a presence in the city since October 2022.

The surge in interest came after the Hong Kong government released its policy statement on Virtual Asset Development in October 2022. Back then, the city said it would attempt to establish a “facilitating environment” allowing sustainable development of these rapidly-growing sectors.

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The improving regulatory stance has also led to a growing investor appetite for digital assets. As reported, Hong Kong investors have launched a new $100 million fund, ProDigital Future, to support early-stage crypto and Web3 companies.

Notably, the city has also taken the lead in blockchain logistics. According to a report by The South China Morning Post, Hong Kong-based Global Shipping Business Network (GSBN) has the largest blockchain platform for collaboration in shipping and logistics after the closure of Danish firm TradeLens.

The US Launches Aggressive Crypto Crackdown

In sharp contrast to Hong Kong authorities, regulators in the US, specifically the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have launched an aggressive crackdown on the crypto industry. 

Last month, the CFTC revealed that it is suing Binance and its founder Changpeng “CZ” Zhao on allegations that the crypto exchange knowingly offered unregistered crypto derivative products in the US in the transgression of the law.

Before this, the SEC had sent a Wells notice to Coinbase, threatening the crypto exchange with legal actions regarding some of its listed digital assets, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet. 

The recent regulatory pressure has forced at least one crypto exchange to leave the US. As reported, Bittrex has announced that it is shutting down US operations due to increasing regulatory pressure and a lack of precise regulatory requirements. Bittrex co-founder Richie Lai said in a statement at the time:

“Regulatory requirements are often unclear and enforced without appropriate discussion or input, resulting in an uneven competitive landscape. Operating in the U.S. is no longer feasible.”

Could Hong Kong reclaim its position as a global crypto hub? Let us know in the comments below. 

About the author

Ruholamin Haqshanas is an accomplished crypto and finance journalist with over two years of experience writing in the field. He has a solid grasp of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi), and the emerging market for non-fungible tokens (NFTs). He is an active user of digital assets for remittances.