Almost all mainstream large law firms have withdrawn from Hong Kong.
On February 2024, 2, the Hong Kong Securities and Futures Commission publicly announced that the application period for virtual asset trading platforms has officially ended. According to the transitional arrangements of the Hong Kong Securities and Futures Commission, any virtual asset trading platform operating in Hong Kong that has not submitted a license application to the Securities and Futures Commission on or before the deadline of February 29, 2024 must end its business in Hong Kong on or before May 2, 29.
All of a sudden, a wave of virtual asset trading platforms swept across Hong Kong, with nearly 30 institutions from traditional finance and "crypto-native" coming in droves, all trying to take root in Hong Kong's "virtual asset-friendly" soil and create a new world.
However, with only one day left before the deadline of the transition arrangement, we have seen that almost all of the once mainstream "cryptocurrency exchanges" have voluntarily withdrawn. OKX, Gate, Huobi, and even HKVAEX, which is rumored to be associated with Binance, have withdrawn their applications. The only ones left in Hong Kong are Bybit and Bitget, which "bought the OSL license" by acquiring shares.
Doubts are spreading. "The Hong Kong government excludes 'crypto-native' large firms," "Hong Kong is too strict and is essentially the least crypto-friendly in the world." The once highly anticipated "new generation financial center" has become a joke among some people today.
Is it the trend of the world to allow the US market to continue to dominate?
The Hong Kong government's firm belief in developing a new generation of Web 3.0 financial center has never changed and does not need to be questioned. What the market needs is more patience, waiting for the market to slowly change and see compliant and strict development to bring positive and sustainable results to the industry.
Hong Kong remains steadfast
Determination and strong execution
There has never been any basis to question Hong Kong’s determination to create a friendly environment for virtual assets; the quick approval of the spot ETF, which exceeded everyone’s expectations, is the best proof of this.
Hong Kong institutions' judgment on the approval of ETFs is mostly concentrated in the third quarter or the second half of the year. Because of this, all parties have been gradually polishing operational processes, technical docking and other issues; but the Hong Kong government unexpectedly accelerated in April, forcing all parties to focus on material submission and other work first, and the original deployment plan suddenly became incompatible.
The results are obvious, the data doesn't lie.
The absolute size is not good. The scale of $2.5 million is far less than the size of about $573 billion in the United States; but in fact, from a relative perspective, the $2.5 million Bitcoin spot ETF accounts for 0.5% of the Hong Kong ETF market, while $573 billion accounts for 0.67% of the US ETF market, and there is no difference in order of magnitude.
For Hong Kong virtual asset spot ETFs, processes, channels and technologies need more adjustments, which may take several months; and the entire virtual market needs more time to achieve a comprehensive understanding of all aspects.
The reason behind the withdrawal of the application is
Strict investor protection
The Hong Kong government quickly approved the ETF in the hope of driving global capital to focus on Hong Kong through an innovative model; and the Hong Kong government’s purpose is very clear: connecting traditional finance with emerging virtual asset markets is an important task for the Hong Kong market in the future.
The regulatory principle of the virtual asset market in Hong Kong is risk-based; and from many perspectives, the virtual asset trading platforms of the mainland have too many uncertainties. For example, where does the money behind the trading platform come from? Is it within the jurisdiction of the Hong Kong government? Some long-standing problems of the Web 3.0 system are also difficult to solve. For example, almost every platform has issued a platform token. Should these "tokens" be within the jurisdiction? How should risks be governed?
Applicants from the "crypto-native world" entering the Hong Kong market bring with them many problems that cannot be solved under the current regulatory framework. In the face of these key issues, the Hong Kong government has made the best "reconciliation" choice. The "withdrawal wave" of applicants is the result of communication and negotiation, which is completely different from the "rejection" and "clearance" of the hardliners in principle; in contrast, Hong Kong has left ample space and possibilities for future cooperation with these "crypto-native residents".
The author believes that Hong Kong will continue to seek more opportunities for cooperation with these "crypto native residents" in the future. Hong Kong will not be willing to be called a "vassal" of American finance forever. Virtual assets are a rare opportunity that must be seized.
The U.S.’s attitude towards virtual assets
Much worse than Hong Kong
Since Hong Kong's finance is mostly "compliant" with the US financial market, investors generally compare the Hong Kong market with the US market in various ways to judge the pros and cons of Hong Kong's virtual asset market. But fundamentally, the US government still regards virtual assets as one of its political tools. The destructive impact of this uncertainty is far more terrifying than the harshness of Hong Kong.
A few examples show the unpredictability of US regulation. On May 2024, 5, the US SEC suddenly approved the 24b-19s documents of all Ethereum spot ETFs, giving the green light to pending Ethereum spot ETF transactions. Previously, various institutions had never expected that the Ethereum spot ETF would make a breakthrough in progress. At the Consensus 4 conference, Ark Capital CEO Cathie Wood said frankly: "We originally thought it would not be approved, absolutely not approved. According to normal procedures, if it is approved, we will receive inquiries from the SEC. But strangely, we did not receive any inquiries from the SEC before this approval."
What is the reason behind the sudden change in the US SEC's direction? It is undeniable that this change may be a political show for the result of this year's election.
Biden's rival, former US President Trump, has made it clear that he will accept donations for his presidential campaign in the form of cryptocurrencies. "Biden's lack of understanding of cryptocurrencies" has also become one of the focuses of his attack, suggesting that cryptocurrencies will become a focal point of election debate. Caixin.com also reported that the "cryptocurrency community" has become a political bargaining chip in the US election year. Biden may have a significant change in his attitude towards cryptocurrencies in order to stop Trump from winning this group.
The result was indeed so. Like a joke, the SEC approved the key steps of the Ethereum spot ETF at the speed of light. If it had been delayed until after the election, would the SEC have made another change of direction and directly rejected the subsequent steps of the Ethereum spot ETF?
The development of the virtual asset market to this day is still a means for the US authorities to play tricks; relatively speaking, no matter how "strict" or "unprofitable" the regulatory framework of the Hong Kong market is, it is a stable state based on clear rules. The virtual asset industry has been developing for more than a decade and has already entered a bottleneck of growth. It is almost impossible to expect to overtake the "crypto-native" group. Hong Kong's expectation is that world-class institutions can recognize this land and bring more innovative changes from the perspective of traditional finance. This is bound to be a process that still requires years of hard work from more aspects.
Hong Kong is the place for Web3.0 development
One of the best sandboxes
Just yesterday, May 5, Chen Chun, an academician of the Chinese Academy of Engineering and professor of the School of Computer Science and Technology at Zhejiang University, was invited to the Legislative Council of Hong Kong to exchange views with members of the Legislative Council on relevant issues.
At the exchange meeting, Chen Chun said: "The rapid development of digital technologies represented by big data, artificial intelligence, blockchain, the Internet or mobile Internet, and the Internet of Things has led to the emergence of a new economic model, which is called the "digital economy." The "digital economy" is becoming a key force in restructuring global factor resources, reshaping the global economic structure, and changing the global competitive landscape."
“Based on Hong Kong’s technical facilities and unique advantages, the development of Web 3.0 should focus on serving the real economy and promoting innovative application exploration, such as digitizing traditional finance and physical assets, developing digital asset businesses centered on the tokenization of real assets, improving asset liquidity, reducing transaction costs, and increasing transparency, so that Hong Kong can occupy the position of a digital financial center in the new round of international competition.”
"Web 3.0 is not simply 'virtual currency', but a study of how to promote the real economy. Hong Kong has great advantages and perfect laws and regulations. The development of virtual currencies on the market is 'running wildly', but Hong Kong is a 'big sandbox'. Risks must be considered and clear boundaries must be maintained for management. When negative events occur, the causes can be found. Hong Kong must form a unique ecosystem through its financial attributes and traditional service industries, which I believe will play a big role in the development of China's digital economy."
For a long time, the opinions and comments from professionals in mainland China have been despised by "insiders"; but this time, the academicians of the Chinese Academy of Engineering took the lead in speaking out, which actually represents the positioning and views of mainland China on Hong Kong to a certain extent: Hong Kong is a cautious testing ground, and risk control is the first priority. In terms of direction, how to complete the transition from tradition to Web3.0 is the key issue.
No one can say for sure whether such a strategy is correct; but it is clear that given the incomplete infrastructure in Hong Kong, compared with the wild growth of the US market, Hong Kong will undoubtedly need more time to see results. In time, when Hong Kong's virtual asset trading platform successfully cuts in from the perspective of real-world assets, diversified new asset categories will become the best support for the Hong Kong market, which is also the foundation of Hong Kong's establishment and a weapon for Hong Kong to challenge the United States.
At least, it is far from the time to give up the Hong Kong market; if we have a bad start, why will we definitely lose in the end?
Source: Bailu Living Room
Article author: Bowen