The annual Hong Kong Fintech Week is here as scheduled, coinciding with the second anniversary of the release of the Hong Kong Web3 Declaration. What is the development of Web3 in Hong Kong like, and is the future prospect still worth looking forward to?
As a business card of Hong Kong's Web3 industry, HashKey is undoubtedly one of the most authoritative institutions. With these questions in mind, PANews interviewed Livio Weng, CEO of HashKey Exchange, Hong Kong's largest compliant virtual asset exchange.
As a veteran in the crypto space and a pioneer of Web3 in Hong Kong, Livio Weng had an in-depth discussion with PANews on the current status of Hong Kong's Web3 development over the past two years, the impact of regulatory policies, and HashKey's business strategy. He shared his unique insights into Hong Kong's policy environment, analyzed the integration trend between traditional financial institutions and Web3 companies, and looked forward to the future direction of the crypto market.
Regarding the current development status of Web3 in Hong Kong, Livio Weng said, "Hong Kong has taken a differentiated route, allowing regular players to enter the market and integrate with Web3 companies, with traditional institutions playing a more important role. In this way, Web3 is no longer an independent industry, but is deeply integrated with traditional finance."
Regarding HashKey’s unique development path, Livio Weng revealed, “We do not rule out the possibility of allowing users to purchase Hong Kong stocks or other assets on HashKey Exchange through cooperation in the future. We have considered packaging traditional assets into real-world assets (RWA) and providing them to customers so that funds do not need to leave the crypto field.”
"The market is in a vacuum period of lack of 'killer applications'. The popularity of MEME coin is more of a short-term effect, filling this gap. Once real big applications are implemented, long-term capital will return to mainstream projects, and MEME coin will not always be the main theme." When talking about the current differences in the market, Livio Weng expressed his long-term optimism about mainstream projects.
The following are the details of the interview.
Crossing the river by feeling the stones, Hong Kong Web3 has just entered the formal development stage
PANews: First, let's discuss the current status of Web3 development in Hong Kong. Since the policy was launched, announced, implemented, and officially issued this year's license, everyone has high expectations for Hong Kong. However, there are still some differences in the industry regarding the current status of Web3 development in Hong Kong. Some people think that the Hong Kong government's policies are very good and full of expectations; others think that the speed is too slow and there are big differences. In the past two years, as a practitioner who has been deeply involved in Hong Kong, how do you feel about the development of Web3 in Hong Kong?
Livio Weng: I think Hong Kong’s development cycle is indeed two years, and it is currently at a critical turning point. The first two years were more of a policy brewing stage. The government had the intention to support the industry and issued a policy statement, but at that time it was still exploring how much strength it should use and what groups of people should be targeted. Therefore, the industry did not really start to develop at the beginning.
Hong Kong’s real start should be on November 1 last year, when HashKey Exchange released the first licensed trading app in Hong Kong’s history. People mainly traded through the app, which was the official start. It has been exactly one year now. During this year, the government, especially the Securities and Futures Commission (SFC), has been studying how to regulate this industry, and is actually crossing the river by feeling the stones with us. Therefore, Hong Kong emphasizes steady development, and is mainly cautious in the early stage. Now, I think it has entered the state of formal development.
Some people may question that the development speed is not fast enough and the choice is conservative. I think this is inevitable, because the Web3 field is full of changes and the development speed is fast, accompanied by a lot of unknowns and risks. Since the policy declaration, many once popular projects, such as Layer 2 and NFT, have gone from being popular to a trough. Including the hot Bitcoin ecosystem Ordinals last year. This wait-and-see attitude is actually beneficial, and it can let some bubbles pass first.
From 0 to 1, the strategy adopted by Hong Kong is cautious. As regulators, they need to consider how to effectively protect retail investors from being affected. A conservative attitude may lose some opportunities, but it also avoids a lot of risks. In the long run, there is no problem with the measures in the initial stage.
Now, Hong Kong has explored a route to allow regulated traditional financial institutions with long-term regulatory experience to enter the market and merge with Web3 companies like ours to form a more stable long-term development route.
PANews: Could you elaborate on some of the specific changes?
Livio Weng: For example, the banking industry in Hong Kong has always been conservative towards cryptocurrency companies and it is difficult to open accounts for them. But as the largest licensed exchange in Hong Kong, we have more intersections with the banking industry. During the trial, they gradually discovered from initial suspicion that we were not inferior in terms of user KYC, KYT, anti-money laundering and other measures. Therefore, we have become the best deposit and withdrawal channel in Hong Kong. The launch of the zero-freeze card is also the result of a long period of mutual trust with the Hong Kong banking industry.
The same is true for the securities industry. Securities companies currently provide customers with four currencies such as Bitcoin and Ethereum for retail trading. Although they were more conservative before, they are also keenly aware of changes in the market. They want to provide trading services to customers, but they are worried about potential problems. In the end, they chose to cooperate with us, and the user's assets are managed by us, and the trading services are provided by us, so that they can provide relevant services to customers. This cooperation model is unique worldwide. Hong Kong brokers can provide virtual currency transactions directly in their own applications. Some banks are also planning to launch similar services, and more banks will join. In addition, we are also working with traditional fund companies to issue virtual currency ETFs. All of this shows that Hong Kong is gradually opening up, and many institutions waiting to be licensed have traditional regulatory experience.
Hong Kong has taken a differentiated approach, allowing regular players to enter the market and integrate with Web3 companies, with traditional institutions playing a more important role. In this way, Web3 is no longer an independent industry, but is deeply integrated with traditional finance.
Hong Kong's traditional securities, finance, and banking industries are all embracing Web3. Web3 companies are organically integrated with them to form a new business model. In the long run, everyone will be integrated.
In general, Hong Kong spent the first year in preparation, the second year in experimentation, and the third year in development. It is foreseeable that Hong Kong has entered the second stage of development: from the past supervision of exchanges to the supervision of the entire ecosystem, first of all, the integration with traditional industries, and then in the Chief Executive’s recent policy address, we saw that from a single transaction link, it has expanded to the entire ecosystem of virtual banks, virtual insurance, mobile payments, stablecoins, etc. The next step will be to expand to more areas.
Since traditional institutions have a good track record and history, this gives the government more confidence to support the development of multiple tracks from multiple aspects. Of course, exchanges are still the core hub, including the issuance and circulation of stablecoins. Therefore, our exchanges, including real world assets (RWA), payment support, etc., will play a key role.
The exchange takes the lead and then expands to the entire ecosystem. This is also something to look forward to in Hong Kong in the future.
Real competition in Hong Kong is yet to come
PANews: There are currently three licensed exchanges in Hong Kong, and more licenses may be issued in the future. For HashKey, there will be more and more new competitors. Will this challenge become huge?
Livio Weng: I think in the short term, especially from this round of bull market, the later licensed exchanges may not be able to catch up. Because after they get the license, they still need to conduct various technical system audits and filings, and a large number of talents need to be recruited, as well as improve the operation and risk control model. All these take time. It took us about a year from getting the license to formal operation, and they may not be faster than this. Therefore, they may not catch up in this round of bull market.
Secondly, in Hong Kong, we believe that competition has not really arrived yet. Everyone is more likely to work together to push regulators to relax various restrictions and expand market space. At present, HashKey has been promoting regulation for a long time, but the power of one company alone is often not as convincing as the joint voice of multiple institutions. This makes it easier to extract the commonality of the industry, making the Hong Kong Securities and Futures Commission (SFC) feel more credible and fair when making decisions.
Therefore, in the short and medium term, we hope that more institutions will join us in promoting policy opening, so that Hong Kong's market formats will be more prosperous and diversified. However, in the medium and long term, competition may emerge. If the policy is not further opened up, everyone will not have enough profit margins, and they may start competing on rates and engage in price wars. Just like the predecessor of the Hong Kong Stock Exchange, there were seven exchanges with little differentiation and fierce market competition. No one was profitable, and finally a group of them went bankrupt. The remaining few merged under the coordination of the government, and only then did we have today's Stock Exchange.
Hong Kong has suffered losses in the history of the development of the securities industry, and I believe they will not make the same mistake again. However, there may be several more licenses issued before the end of the year, but these institutions may miss this bull market and may need to wait for another four years until the next bull market to see if there are any development opportunities. So the situation we are facing now is still relatively good, and relatively speaking, we have a lot of advantages. This is mainly because we acted early, followed compliance, and developed steadily.
PANews: The entire crypto market in Europe and the United States is still dominated by native projects, and the main force of the crypto world in the past was also these native projects. Last year or before, due to some compliance reasons, some native Web3 projects left Hong Kong, and some traditional capital and regular troops began to enter the market. What do you think of this change? Will Hong Kong become the world of traditional capital in the future? Or will native projects slowly return to Hong Kong in a different identity after the compliance trend?
Livio Weng: I think this is a two-way choice. On the one hand, the traditional financial industry does need to embrace this big trend change. They need to choose to merge with Web3, or part of them will transform into Web3. On the other hand, Web3 companies will also observe the changes in Hong Kong and its rise, and they will enter this market in different identities or forms.
Now it seems that there is still a clear difference between traditional finance and Web3, but with the integration in the next three to five years, this boundary will become more and more blurred. You are in me, I am in you, and you may not be able to tell whether a company is traditional or new. Companies have both traditional parts and new parts. For example, our company holds an AMLO license, as well as the CSRC No. 1 and 7 licenses, which are traditional licenses, and we can even issue securities. So, slowly, there will be no strong sense of definition as to whether it is traditional or not.
PANews: Judging from the current development situation, do you think Hong Kong has met expectations in the past two years?
Livio Weng: I think the industry has different expectations from different perspectives. Before Hong Kong is fully integrated, such diverse expectations are normal. The traditional financial industry may feel that it is developing too fast. So many licenses have been issued in one year, and the encouragement and support for Web3 are very strong. But from the perspective of Web3 people who are changing with each passing day, they may feel that the speed is not fast enough. Therefore, the Securities and Futures Commission (SFC) of Hong Kong is also constantly looking for a balance point to better meet the needs of two different perspectives.
From our own perspective, we certainly hope to develop faster. We have indeed seen significant acceleration in the past few months. The reason is that in the past, when we were in the stage from 0 to 1, everyone was relatively conservative. After one or two years of initial experience, everyone knows how to do it, especially after the industry has been licensed and has been running for a long time without any problems, so the pace will be faster and faster. For us, we certainly hope to be faster and bolder, and more open policies will be introduced.
PANews: Yesterday, the Hong Kong government also launched several Web3-related policies. From your perspective, what will be the next development focus of Hong Kong? Will it be stablecoins, or will it expand into more areas?
Livio Weng: I think on the one hand, we should expand more categories, such as the distribution of stablecoins and other directions. In the absence of too much policy risk, we should encourage attempts and breakthroughs in multiple directions.
Second, from the perspective of practitioners, it is necessary to allow regular troops and traditional financial institutions to enter the market and encourage them to integrate with the industry. Now, institutions have been mobilized. First, securities companies took the lead, then banks, and then payment companies, using stablecoins for global cross-border settlement and payment. Subsequently, fund companies entered the market and issued real world assets (RWA) and security token issuance (STO). I think it is still very imaginative to expand from the two directions of product categories and practitioners.
Asian capital is half a beat slower than the US market
PANews: Next, let's discuss the topic of Hong Kong ETFs. Hong Kong has also launched ETF products for Bitcoin and Ethereum, but it is obvious that there is still a big gap in trading volume compared to the United States. What do you think about the fact that after the launch of Hong Kong ETFs, there was no trading volume as large as we expected in the United States?
Livio Weng: I think there are several reasons.
First, the global macro environment in the past two years has been affected by the US dollar interest rate hike, and a large amount of capital has flowed back to the United States, making the US stock market and the cryptocurrency market relatively prosperous, while other global markets, including Hong Kong, have not performed well. This is a major reason. However, with the possible interest rate cuts in the future, the situation may be different. Global funds may flow back from the United States to other emerging markets because there are many undervalued assets in emerging markets, such as Hong Kong stocks. Funds will flow into Hong Kong stocks to seek bargain hunting opportunities, and after the market has gone for a while, they may consider other markets. If the cryptocurrency market performs well, funds may return to the cryptocurrency market in Hong Kong.
Second, the US ETF has a first-mover advantage, the market is more mature, and the liquidity is better. In the financial market, liquidity is king. Since the liquidity of US ETFs is better, many Hong Kong institutions go to the US market to buy ETs. This is like USDT in the stablecoin market. The first-mover advantage makes it difficult for latecomers to surpass it. Therefore, Hong Kong now needs to consider launching differentiated ETFs that the United States does not have, such as Ethereum Staking ETFs or Solana ETFs. If these products can be launched first, they will have a first-mover advantage and attract global capital to come to Hong Kong to buy.
Third, Hong Kong’s local capital or Chinese capital, and even the entire Asian capital, is still a step behind the US market. At present, everyone is still in the stage of learning and receiving education. At present, at least more than half of the institutions in Hong Kong have not fully understood Web3, and it will take longer. Their decision-making cycle is longer because most decision-makers in large financial institutions are older. It takes some time for them to learn and dare to make decisions.
The secret of HashKey's growth: hard work
PANews: HashKey is now the largest compliant exchange in Hong Kong. What is the secret of its growth?
Livio Weng: In terms of growth, there are not many secrets. The main reason is that we started early. At a very early stage, our group founder Dr. Xiao Feng believed that exchanges were a good business model, but they needed to be carried out under the premise of compliance. If you are not licensed, you will definitely be challenged at some historical period in the future. This is what we have seen this year, with various unlicensed exchanges being arrested, criminally tried, and fined in various places. The top exchanges have successively withdrawn from dozens of markets, and there is less and less room for future development.
So, when we saw the licensing policy in Hong Kong in 2018, we acted quickly. The simplest idea at that time was to do the right thing first. HashKey is one of the few companies in the world that is 100% licensed in the virtual asset-based group. We insist on honest licensing and long-termism. This is our core growth secret, from a macro perspective.
From a micro perspective, the talents of the entire industry are the most important strategic resources. We took the lead in organically integrating the financial talents, legal talents and risk control talents from Hong Kong, the Internet and technology talents from mainland China, and the talents from the Web3 industry. Therefore, we have a strong fighting power. These are the two most important secrets to our growth. In fact, it takes hard work, but it can go a long way.
PANews: From the perspective of user portrait, are your users more institutions or retail investors?
Livio Weng: Our user structure is related to the characteristics of the Hong Kong market. Hong Kong has never been a market dominated by retail investors, including the traditional stock market. The main force in Hong Kong is still high-net-worth individuals and institutions, as well as some retail investors. Therefore, the user structure of HashKey Exchange is similar to this.
Our core customers are mainly high net worth individuals in Hong Kong, such as professional investors (PI), and some financial institutions. We mentioned earlier that different financial institutions in various industries are also our customers. They themselves may be aggregators of large groups, entrusting their trading volume and assets with us. Of course, we also have some retail users and Chinese people around the world, which constitute our core user profile.
PANews: For institutions, compliance is definitely a very important prerequisite. But is compliance equally important for ordinary users or retail investors?
Livio Weng: Compliance is also very important for retail investors, especially in two aspects.
The first is asset security. The JPEX incident in Hong Kong and the FTX incident around the world have affected many customers, including our friends. These incidents have made everyone realize that although you may make a lot of money on non-compliant and unregulated exchanges, it may also be zero overnight, and all previous gains will be wiped out. No one is willing to take such risks, so safety, stability and reliability are the top priorities.
Second, because we are a financial institution, the integration with banks enables us to have the best fiat currency deposit and withdrawal channels in Hong Kong. At present, the fiat currency deposit and withdrawal through our platform has achieved zero card freezing. This was also the pain point of the industry in the past. Many people made money on the exchange but could not withdraw it. Once they withdrew it, their accounts might be frozen. Now, through HashKey, zero card freezing can be achieved, which has won the respect and trust of the traditional banking industry. Because we have done a lot of work in KYC, anti-money laundering and other aspects, we have gained the trust of the traditional financial industry. These two features are still very important functions and advantages in the future.
PANews: Hashkey also holds license No. 1 and license No. 7. Is it possible in the future for retail investors to buy Hong Kong stocks or other assets on the HashKey exchange?
Livio Weng: This possibility is not excluded, and we can achieve it through cooperation. In fact, we have also thought about packaging traditional assets, such as equity and money market funds, into RWA (real world assets) and providing them to customers. In this way, customers' funds can complete transactions on our platform without leaving the crypto field. In addition, there is another direction for our integration with banks, which is that we will issue debit cards in the later stage. If you hold cryptocurrencies, such as Bitcoin and USDT, you can use this card to swipe online for consumption and settle directly. These are all done by us through the integration route, which is also our compliance advantage.
The bull market is still in its infancy, and MEME is only a short-term effect
PANews: There are serious differences in the market this year. The entry of institutions such as ETFs may have driven the rise of Bitcoin, but even Ethereum has not benefited much. In addition, the prices of some mainstream public chains have performed well this year, including MEME coins. However, the overall market prices of previous VC coins and some mainstream star projects have not improved. What do you think of this phenomenon of divergence?
Livio Weng: I think the market is currently in a vacuum period lacking "killer apps" from a fundamental perspective. In the past, what everyone expected, whether it was inscriptions and runes in the Bitcoin ecosystem, or NFT, GameFi, Layer2, etc., have not become mainstream at this stage. Including more distant projects, such as RWA (real world assets) and DePIN (decentralized Internet of Things), have not yet formed a climate at this stage.
At present, mainly due to the development of Bitcoin and people's expectations of a US dollar interest rate cut, a large amount of funds have been injected into Bitcoin, pushing up its price and forming a phenomenal market. But more fundamentals have not yet been implemented. For example, Ethereum's TPS has increased, but without a large influx of DeFi, TPS is just a number.
PANews: Does the popularity of MEME coin bring more benefits or disadvantages to the market?
Livio Weng: At this stage, I personally think of MEME coins more as "blockchain lottery". Just like scratching a lottery ticket, everyone takes some money to invest, and maybe it will increase 100 times. This is a speculative behavior in the absence of better investment opportunities. Therefore, MEME coins are lottery-style speculation, which is a phased phenomenon.
The popularity of MEME coins has more of a short-term effect on the market, filling the gap of the lack of "killer applications". For example, in the last round of bull market, there was DeFi, which is a collection of "killer applications", but it has not appeared in this round yet, but it is very likely to come. Once there are real big applications, long-term capital or larger capital will still get back on track. MEME coins will not be the main theme forever.
PANews: For the entire market, which cycle stage do you think it is in now?
Livio Weng: I think we are in the early stages of a bull market. Because of the start of the US dollar rate cut, this round of bull market is somewhat structural and different from previous cycles. From February to April at the beginning of the year, due to the unexpected approval of Bitcoin and Ethereum ETFs, a large amount of funds entered, pushing up a staged bull market. No one expected that it would be so easy to break through the previous high. However, due to the rapid rise, there will inevitably be a round of correction, profit-taking will exit, and a wash will be needed. So it has been washed from April to now, and then it started to rush up again.
I think that after the official start of the US dollar rate cut, the real benefits have not yet been fully realized. The bull market will only truly arrive when a large amount of funds enter the market and push the price up to a position that breaks through the previous high or even higher. Therefore, we are currently in the early stages of the bull market. In the coming year, we are still optimistic about the entire market.
PANews: What do you think the price of Bitcoin will be in the future?
Livio Weng: As the head of a licensed exchange in Hong Kong, I cannot directly predict the price of Bitcoin, but I can summarize the more mainstream views in the market. From 2022 to 2030, or even to 2032, many celebrities predict that the price of Bitcoin will exceed one million US dollars, and some even believe that it may reach more than ten million US dollars by 2050. There are all kinds of bold ideas.
In the short term, I have summarized different opinions. The more neutral industry analysts believe that the price of Bitcoin may be concentrated around $150,000. The more optimistic forecast is between $180,000 and $200,000, while the more pessimistic view is around $100,000 to $120,000. Overall, the consensus is that Bitcoin has a chance to break through $100,000. We also look forward to this day.
PANews: You have been in this industry for many years. What insights do you have into the changes in the crypto market over the years?
Livio Weng: I think this is one of the best opportunities that young people can seize. The current market opportunities, in addition to AI, are Web3. But AI is not something that everyone can participate in. At least one-third of people can participate in Web3, and at least they can buy Bitcoin and Ethereum as a stable long-term investment, which brings wealth opportunities.
Especially with the depreciation of fiat currency, I think the collapse of fiat currency in the future is inevitable. Because the US national debt has reached 35 trillion US dollars, from the perspective of the interests of the US industry, they should maintain high interest rates to prevent capital outflows, but it is already difficult to maintain. Because the annual interest brought by the 35 trillion debt has exceeded military expenditures, they have to cut interest rates.
After the interest rate cut, the next round of quantitative easing may begin, and a large amount of money will be printed, which will lead to a further depreciation of the US dollar and other currencies around the world. This is a long-term trend of mankind, and this cycle has already begun.
Looking back at 20 or 30 years ago, our parents only earned a few yuan a month, and 100 yuan was a lot of money. A household with a monthly salary of 10,000 yuan at that time was equivalent to nearly 1 million yuan today. In other words, the currency has been diluted dozens or even hundreds of times. This trend will continue in the future, and money will become less and less valuable.
Ordinary people can buy gold to protect against inflation, while people in the new era can buy Bitcoin. Therefore, Crypto will gradually replace gold in the future, and even replace some of the functions of legal currency, becoming a fairer global currency. This is a long-term inevitable trend. Young people can catch up with the wave of this era, and I think those who believe in it will buy Bitcoin, just like people in the past bought gold.
PANews: In my impression, it was relatively easy to make money by speculating in cryptocurrencies in the past few cycles. But now, there are fewer and fewer opportunities to copy such projects, and new projects are becoming more and more difficult to understand. For new users, the threshold may be higher. Do you think that the current situation in this industry is still as rich as before?
Livio Weng: To some extent, the volatility of the industry is indeed decreasing. The earliest investment in Ethereum can get a return of 10,000 times, because it was early enough, and one dollar was enough. Early investors in Bitcoin even got hundreds of thousands of times the return. Later, the opportunity of a thousand or a hundred times return was rare. Now, it may be dozens or even several times the return.
The certainty of the entire industry is getting higher and higher, and volatility is decreasing. This phenomenon has occurred in most financial industries. The later it is, the lower the volatility is, and the more mature the industry is. Therefore, the earlier you join this industry, the greater the possibility of obtaining market opportunities.
But there are still opportunities now. I think the first half may not be over yet, and the second half has not started yet. I started mining in 2010, when I could still use laptops and GPUs to mine, without professional equipment. I really started to speculate in cryptocurrencies in 2013, but it was just a small-scale attempt at that time. It was not until 2017 and 2018 that I really invested on a large scale, but generally people who invest on a large scale for the first time will be stuck. It may be more accurate to seize market opportunities after experiencing one or two bull markets. At this time, there may be big returns. Later, it may be more accurate. Most people are ignorant in the first bull market, may be stuck in the second round, and start making money in the third bull market.
