Hong Kong outlined a plan to let retail investors trade digital tokens like Bitcoin and Ether, taking a major step toward its goal of becoming a crypto hub in a policy shift that contrasts with a crackdown in the US.
Individual investors would be allowed to trade larger coins on exchanges licensed by the Securities and Futures Commission, providing safeguards such as knowledge tests, risk profiles and reasonable limits on exposure are put in place, the regulator said in a consultation paper on Monday.
The agency didn’t specify which large-capitalization tokens will be allowed for retail investors. Instead, it said the coins should be included in at least two acceptable, investible indexes from independent providers, one of which should have experience in the traditional financial sector.
The consultation period will end on March 31, and the objective is to allow retail trading in the new licensing regime for crypto exchanges due on June 1. Bitcoin and Ether, the two biggest digital assets by market value, are likely to be listed by Hong Kong platforms, an SFC spokesperson said in a briefing.
Hong Kong at the end of October pivoted to a pro-crypto stance, part of a wider 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 spate of global bankruptcies, like the collapse of the FTX exchange, to create a mandatory regulatory framework that can woo firms and protect investors.
The consultation paper didn’t specify particular crypto indexes as a reference point for a taxonomy of allowable tokens. The onus would be on exchanges to monitor listed assets to ensure they qualify for trading by individual investors.
The government has already allowed exchange-traded funds investing in CME Group Bitcoin and Ether futures and this month sold inaugural digital green bonds.
Digital-asset executives are increasingly being drawn to the friendlier policy stances of places like Hong Kong, Dubai and Europe as a spate of crypto probes in the US cloud that country’s position as an industry heartland.
‘Next Bull Run’
Hong Kong’s pivot could also open up a conduit to mainland Chinese investment if Beijing one day loosens the ban on most things crypto on the mainland.
Cameron Winklevoss, co-founder of the crypto exchange Gemini, tweeted Sunday that his “working thesis” is “the next bull run is going to start in the East.” Brian Armstrong, chief executive officer of Coinbase Global Inc., has alluded to Hong Kong as among the jurisdictions now leading in digital assets.
Hong Kong’s ambitions still face many obstacles, including a downturn in the virtual-asset industry that’s seen thousands of jobs cut. Crypto markets have only partially rebounded from 2022’s bust.
Companies may be hesitant to commit scarce investment until the contours of Hong Kong’s policy landscape become clearer.
The city’s current regime for crypto exchanges is a voluntary one that restricts them to clients with portfolios of at least HK$8 million ($1 million). HashKey Group and BC Technology Group’s OSL bourse are the only two with permits.
