Hong Kong’s securities regulator has announced that 11 cryptocurrency exchanges are close to finishing their licensing process, as part of a new digital-asset rulebook designed to make Hong Kong a central hub for the crypto industry. Among these exchanges are well-known names like Crypto.com and Bullish, which are now “deemed to be licensed,” according to the Securities & Futures Commission (SFC) website.

This advancement is a crucial step for these exchanges, allowing them to legally operate and market their services to local investors once they fully comply with SFC regulations. In contrast, notable exchanges such as OKX and Bybit have withdrawn their applications, while major players like Binance, Coinbase, and Kraken did not apply at all. By June 1, all crypto exchanges operating in Hong Kong must at least be deemed licensed.

Hong Kong’s Strategic Plans for Crypto Dominance

Hong Kong began its push to become a virtual-asset hub in late 2022, part of broader efforts to reclaim its status as a financial center after political unrest. The city’s crypto initiatives include increasing the number of licensed exchanges, introducing spot-Bitcoin and Ether exchange-traded funds (ETFs), and creating frameworks for stablecoins and digital bond issuance on tokenization platforms.

Hong Kong faces competition from Dubai and Singapore in its ambition to become a leading digital-asset center. The city’s strict regulatory framework is designed to enhance investor protection and prevent money laundering and terrorism financing, though it also brings significant compliance costs. So far, two exchanges, HashKey Exchange and OSL Group, have fully obtained licenses, and around two dozen companies applied to run crypto exchanges by the February 29 deadline.

Opportunities and Challenges in Tapping Mainland Wealth

Traditionally, Hong Kong acts as a key gateway for accessing wealth from mainland China. However, Beijing’s ban on digital-asset trading limits mainland investors’ access to Hong Kong’s crypto exchanges and ETFs. Despite these restrictions, Chinese citizens reportedly continue to seek alternative investments through crypto, driven by falling home prices and limits on transferring money overseas. Bitcoin’s significant rise in value since early 2023 has further fueled this demand.

The crypto exchange industry, however, has a history of operating in uncertain areas, highlighted by high-profile cases such as the collapse of FTX and Binance’s recent legal troubles, including a $4.3 billion penalty for violating US laws. In Hong Kong, the JPEX crypto exchange scandal last year showed the challenges regulators face in overseeing the industry, especially as users can bypass restrictions using virtual-private networks and peer-to-peer trading.

In conclusion, Hong Kong’s approval of 11 new crypto exchanges marks a significant step in its ambition to become a leading digital-asset hub. While the city’s strict regulatory framework aims to protect investors, it also imposes high compliance costs. The city must navigate these challenges and opportunities to establish itself as a global center for cryptocurrency trading.