Success of Crypto in Hong Kong Contingent on Support From China

• Hong Kong recently introduced its highly anticipated regulatory regime for the crypto industry.
• Crypto firms operating in Hong Kong need to navigate rules surrounding risk profiling, asset custody, etc.
• The real potential of Hong Kong will be realized once mainland China lifts its crypto ban.

Hong Kong has finally introduced its highly anticipated regulatory regime for its crypto industry. However, unlocking the true potential of the city-state’s crypto market is contingent on mainland China’s support in lifting its ban on crypto and permitting its citizens to trade digital assets through Hong Kong.

According to a report by Bloomberg, Hong Kong unveiled its regulations for crypto in a bid to position itself as a digital asset hub. However, the city-state’s framework prioritizes investor protection rather than helping businesses keep their costs down. This doesn’t come as a surprise, given the turmoil in the crypto industry over the past year.

The new regulations beg the question, is it worth the cost and effort for crypto exchanges to navigate the complex regulations surrounding permitted tokens, risk profiling, insurance, and asset custody, among several other variables? There may be some doubt lingering among crypto entities about setting up operations in Hong Kong.

Bloomberg’s report suggested that the hype around Hong Kong as a crypto hub may be stemming from crypto entities looking at it as a potential region to operate in rather than actually setting up operations. This is reflected by the lack of actual pledges of investment in the city-state, despite the widespread excitement around it.

Crypto entities in Hong Kong are hoping to attract investment from wealthy Chinese businesses, given that it is China’s special administrative region. Angela Ang, the senior policy advisor at TRM Labs, believes that the real question is if the expectations of regulators and the crypto industry match up in reality.