Hong Kong plans to allow retail to trade major crypto-tokens such as Bitcoin

by James · February 20, 2023

(Bloomberg) — Hong Kong outlined a plan to let retail investors trade digital tokens like Bitcoin and Ether, taking a big step toward its goal of becoming a crypto hub in a policy shift that contrasts with a crackdown in the United States.

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Individual investors will be allowed to trade major coins on exchanges licensed by the Securities and Futures Commission, providing safeguards such as knowledge tests, risk profiles and reasonable exposure limits are put in place, the regulator said in a consultation document on Monday.

The agency did not specify which large-cap tokens will be allowed for retail investors. Instead, it said the coins should be included in at least two acceptable, investable indices from independent providers, one of which should have experience from the traditional financial sector.

The consultation period ends on March 31, and the goal is to allow retail trading in the new licensing regime for crypto exchanges due on June 1. Bitcoin and Ether, the two largest digital assets by market capitalization, are likely to be listed by Hong Kong platforms, an SFC spokesperson said in a briefing.

Hong Kong shifted to a pro-crypto stance in late October, part of a larger effort to restore the city’s credentials as a financial center. Officials are aiming to learn the lessons of last year’s $1.5 trillion digital asset rout and a wave of global bankruptcies, such as the collapse of the FTX exchange, to create a mandatory regulatory framework that can free up firms and protect investors.

The consultation document did not specify specific crypto-indices as a reference point for a taxonomy of permitted tokens. It is the stock exchanges that must monitor listed assets to ensure that they qualify for trading by individual investors.

The government has already allowed exchange-traded funds to invest in CME Group Bitcoin and Ether futures and this month sold initial digital green bonds.

Digital asset managers are increasingly drawn to the friendlier political stances of places like Hong Kong, Dubai and Europe as a wave of crypto probes into the US clouded by its position as an industrial heartland.

“Next Bull Run”

Hong Kong’s pivot could also open a channel for mainland Chinese investment if Beijing one day loosens its ban on most crypto on the mainland.

Cameron Winklevoss, co-founder of crypto exchange Gemini, tweeted on Sunday that his “job description” is “the next bull run is going to start in the East.” Brian Armstrong, CEO of Coinbase Global Inc., has alluded to Hong Kong as one of the jurisdictions now leading the way in digital assets.

Justin Sun’s crypto exchange Huobi Global is applying for a crypto trading license in Hong Kong and launching a new trading venue there, Sun said on Twitter on Monday. The new exchange, called Huobi Hong Kong, will focus on institutional investors and high-net-worth individuals, he said.

Hong Kong’s ambitions still face many obstacles, including a slowdown in the virtual asset industry that has seen thousands of jobs cut. Crypto markets have only partially recovered from 2022’s bust.

Companies may be hesitant to commit to scarce investments until the contours of Hong Kong’s political landscape become clearer.

The city’s current regime for crypto exchanges is voluntary, limiting them to clients with portfolios of at least HK$8 million ($1 million). HashKey Group and BC Technology Group’s OSL exchange are the only two with permits.

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(Update with Huobi Global plans in section 13.)