Hong Kong has pushed ahead with plans to allow retail investors to trade cryptocurrencies as it vie with Singapore for supremacy as a hub for digital assets.
According to plans unveiled by the Hong Kong Securities and Futures Commission on Monday, the industry’s two biggest crypto tokens — bitcoin and ether — would be opened to retail customers, and licensed exchanges would be required to ensure customers had “adequate knowledge of virtual assets”. before they are allowed to act. All digital asset trading platforms operating in Hong Kong or actively marketing to Hong Kong investors would need to be licensed by the SFC.
The proposals, which will initially undergo a six-week consultation with “interested parties,” would also require no more than 2 percent of customer funds to be stored in “hot wallets,” a term used to describe online accounts prone to Hacks or phishing scams as their keys are stored online.
Granting retail traders — who previously had to trade crypto assets on unlicensed exchanges — access to licensed platforms would mark a major step in efforts to attract crypto companies to Hong Kong. The territory has been left behind in recent years by rival Singapore, which has allowed retail but has been hit by several high-profile crypto controversies, including the collapse of dollar-pegged token TerraUSD last year.
Singapore-based crypto hedge fund Three Arrows collapsed last June, while an international manhunt for Do Kwon — co-founder of the company behind terraUSD — thrust the city-state into the international limelight.
“This sends a strong message that Hong Kong wants to reclaim its status as a global crypto hub,” said Henri Arslanian, managing partner at crypto asset management firm Nine Blocks Capital Management.
“Many major crypto firms have struggled to operate out of Hong Kong in recent years, particularly due to Covid travel restrictions. This consultation will add to the new dynamic that the city is seeing,” he added.
The crypto industry is trying to bounce back after a year marked by falling prices, thousands of job cuts and a crisis of confidence that led to the collapse of several high-profile companies, including crypto exchange FTX, which was founded before it moved to Hong Kong in The Bahamas.
“With the recent turmoil and the collapse of some leading crypto trading platforms around the world, there is a clear consensus among regulators worldwide on how to regulate virtual assets to ensure investors are adequately protected and key risks are effectively managed” , said SFC boss Julia Leung.
Additional reporting by Chan Ho-him