Hong Kong’s crypto-friendly plans are getting mixed reviews from billionaires and industry players

Hong Kong said it will adopt a welcoming approach to digital assets on Monday as it seeks to regain its status as a global cryptocurrency hub, but the announcement drew a mixed reaction from industry players, including billionaire Sam Bankman-Fried.

In a video call at the Hong Kong Fintech Week conference, the founder and CEO of crypto derivatives exchange FTX said the city could still reclaim the cryptocurrency even though jurisdictions such as the Bahamas and Dubai are already adopting regulations to become more crypto-friendly.

Bankman-Fried pointed to Hong Kong, Singapore and Busan in Korea as the places in Asia that still have the potential to become hubs in Asia. On Monday he tweeted:

That’s because Bankman-Fried moved FTX from Hong Kong to the Bahamas last year, citing the city’s lack of regulatory clarity and strict Covid restrictions.

The Hong Kong government said the city is “open and inclusive” to virtual asset-related businesses. Local financial regulator proposed to allow retail investors to trade cryptocurrencies and crypto-exchange-traded products. It will launch a public consultation on giving retail investors “an appropriate degree of access” to virtual assets under the upcoming mandatory licensing regime for crypto exchanges.

The announcement marks a shift from officials’ previous stance of limiting such activities to professional investors. Back in 2018, Hong Kong introduced a voluntary licensing regime for crypto platforms that restricts them to only serving individuals with a portfolio of at least HK$8 million ($1 million) in liquid assets. The municipality makes the licensing obligation compulsory from March next year.

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However, Bankman Fried strongly argued that a regulatory regime that limits access to crypto products based on wealth is ill-conceived and does not serve its intended purpose. “I think asset-based tests are [expletive], I think they are very bad. I mean, bad for the world, he said.

He called them “deeply classist” because the crypto markets would be reserved only for the rich. “Who do you think is going to be able to increase their wealth in a system where you set a wealth-based test [on it]…It’s going to have all the discrimination you would expect it to have,” Bankman-Fried said. Instead, he believes access should be given to investors based on their knowledge of both the products and their inherent risks.

The government said it will also consider property rights for tokenized assets and the legality of smart contracts. Tokenized assets are digital tokens on a blockchain that represent the ownership of assets, such as real estate or bonds. Meanwhile, smart contracts are computer programs running on a blockchain that run themselves when certain conditions are met.

Adrian Cheng, chief executive of Hong Kong property giant New World Development, said Hong Kong is “back in the game” with its ambitions to become the international center for digital assets. “We believe recent progressive policies have not only laid a solid regulatory foundation in Hong Kong, but also propelled the birth of a world-leading digital issuance center of global securities, which is unparalleled in other countries,” said Cheng, son of Hong Kong. billionaire Henry Cheng, at the conference.

However, Leonhard Weese, co-founder of the Bitcoin Association of Hong Kong, believes that the government is still providing little clarity on its cryptoregulatory framework. He said he was surprised by the fact that the government only announced a public hearing on crypto trading instead of an actual change in policy. “That regulatory certainty is not being introduced now by slightly changing these announcements,” Weese said. “The law, as proposed, is likely to pass, and it will be interpreted as excluding retail.”

But Michel Lee, executive president of Hashkey Group, remains optimistic that Hong Kong will move forward to allow retail trade. Hashkey Group is one of two crypto firms that have already received the green light from city regulators under the current voluntary licensing regime.

“Hong Kong investors are the most sophisticated globally. Many retail investors would have already had some holdings in digital assets. I think it’s irresponsible and illogical for the government to say ‘hey, now you can’t even trade them,'” Lee said. “I think it’s about making sure investors can trade with confidence. So I can totally see this being a very obvious thing that should definitely happen.”