Hong Kong introduces new regulation to position itself as a crypto hub

As the crypto industry faces an increasing number of regulations imposed by the U.S. government, alternative locations are emerging as new centers for the virtual asset industry.

As the US government tightens its grip on the cryptocurrency industry with a slew of regulations, other regions are emerging as new centers for the virtual asset industry. Hong Kong, in particular, has proposed rules that would allow retail investors to trade certain "large-cap tokens" on licensed exchanges, which is in stark contrast to mainland China where crypto-related transactions are completely banned. The Securities and Futures Commission of Hong Kong did not specify which large tokens would be allowed, but it's likely that Bitcoin and Ether, two of the biggest digital assets by market value, will be included.

Since China's crackdown on crypto trading, the country's web3 startups have largely abandoned their domestic market and shifted their focus overseas. Some of the more resourceful companies have established new bases in friendlier locations such as Singapore and Dubai, while still retaining developers in China to tap into the country's large pool of affordable tech talent.

With Hong Kong's more relaxed regulatory environment for cryptocurrencies, some of these Chinese-founded web3 companies in exile may consider returning home. China's clampdown on crypto trading to protect individual investors from speculative activity now seems prescient, given the recent bankruptcies and layoffs that have roiled the global crypto industry. However, despite the burst of the crypto bubble, money and talent continue to pour into web3. It's difficult to imagine Beijing sitting still while the rest of the world develops the building blocks that some argue could ignite a new wave of innovation as big as the current internet itself.

Hong Kong, which has a history as a financial hub, could be a testing ground for China's policymakers to explore blockchain's potential with a degree of insulation for the nation's one billion netizens. According to the proposal outlined by Hong Kong, all centralized virtual currency exchanges operating in the city or marketing services to its investors must obtain licenses from the securities and futures authority. The requirements cover essential areas such as safe asset custody, know-your-client procedures, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism, and prevention of market misconduct.