A tweet suggesting the city will make crypto fully legal for all citizens is a misreading of the legislation.
Hong Kong is warming up to crypto, and a licensing regime for Virtual Asset Service Providers (VASP) – the local term for crypto exchanges – kicks in on June 1.
Does this mean crypto is going “fully legal” in the city for everyone, as a tweet suggests? Not at all.
While the situation may change later, for the time being the VASP framework for licensing exchanges, which just finished a multiyear consultation, allows them to provide access only to accredited professional investors. Retail investors are excluded.
The Hong Kong government has indicated that the Securities and Futures Commission (SFC), its securities regulator, may consider retail access to virtual asset services in the future, after further consultation.
In January, Reuters reported the SFC is in the process of considering which cryptocurrencies to offer to retail investors should the door eventually be opened to them. CEO Julia Leung is quoted as saying that only “highly liquid” assets will be on the list, and the choices will be very limited at first.
The city’s authorities see June 1 as an opportunity, saying “Brand Hong Kong” is much more highly regarded around the world than, say, Seychelles or St. Kitts and Nevis. The regulator is expanding its headcount to deal with an anticipated flurry of license applications.
“We’re able to bring together investments globally,” Christopher Hui, secretary for Financial Services and the Treasury (FSTB), said in an earlier interview with CoinDesk. “We can manage and also channel these investments in a well-regulated and also sustainable manner.”
Hong Kong’s credibility comes from its “rule of law, regulation, commercial modus operandi,” Hui said, and this translates well from traditional finance to crypto.
Others in Hong Kong, however, see things differently.
“For those platforms operated outside of Hong Kong, we see little incentive to incorporate in Hong Kong, establish an office here, go through the strict licensing requirements, as the local market is small,” Leo Weese, co-founder of the Bitcoin Association of Hong Kong, wrote in a 2021 post. “Local institutional investors will be able to interact with foreign platforms through their foreign subsidiaries.”
Still, he’s optimistic the new regulations “can reintroduce clarity and stability after years of uncertainty,” Weese said in an interview. “It is important that individuals are granted the easy access to bitcoin they have become accustomed to in the past 12 years.”
Those individuals, the retail investors, are bound to be excited by the chance to use a local Hong Kong entity to trade. After all, there is no capital gains tax in Hong Kong, and Japan shows what happens when retail investors are able to trade in a regulated environment. Post-FTX, Japanese traders seem to be living in a parallel world, where their tokens were stored with a custodian and funds are being returned.
But it’s not quite the retail investors’ turn yet in Hong Kong. That’s still a work in progress.
This article was originally published by Coin Desk.