During the Hong Kong Fintech Week in the past week, Hong Kong is declaring its goal with practical actions - to reshape itself into a global financial center through prudent and open regulatory policies and an innovative atmosphere that supports Web3. The event attracted tens of thousands of participants from all over the world. The theme was "Lighting up a New Path for Fintech", which closely followed the latest trends in Web3 and blockchain, showing Hong Kong's firm support for crypto finance.
In fact, this FinTech Week is just a microcosm of Hong Kong's future vision: with the help of the Web3 wave, Hong Kong strives to no longer be just a traditional financial center, but a new hub in the era of digital economy and virtual assets. Next, the author will review the current status and trends of encryption development in Hong Kong from two aspects: market status and policy trends.
Current status of Hong Kong’s crypto market
In recent years, Hong Kong has attracted a large number of well-known crypto projects to settle in, both in terms of policies and user markets, and has quickly become an important hub for the global Web3 industry. The following are two highlights of the Hong Kong crypto market:
Well-known projects settled in
Under the strict regulatory environment of Hong Kong's crypto market, the entry of many well-known Web3 projects has provided innovative impetus for the development of Hong Kong's crypto ecosystem. For example, The Sandbox, as a decentralized metaverse platform, allows users to create, own and trade virtual assets, attracting the attention of users around the world; Alchemy Pay focuses on the payment track. As a payment bridge between cryptocurrencies and fiat currencies, its products cover more than 170 countries around the world, providing cryptocurrency and fiat currency conversion services, while supporting NFT settlement functions, facilitating Web3 projects to achieve payment circulation worldwide; in the mining track, Bee Computing is committed to the development of chips and mining equipment to provide high-performance crypto mining services; in the asset management field, HashKey Group operates multiple digital asset investment and management platforms in Hong Kong, has obtained license support from the Hong Kong Securities Regulatory Commission, and provides a wide range of digital asset trading and custody services; OSL is one of Asia's leading digital asset brokerage platforms, holding Hong Kong's Type 1 and Type 7 licenses, providing custody, brokerage and trading services to professional investors; in addition, MaiCapital is a blockchain-based hedge fund service, holding Type 9 and Type 4 business licenses issued by the Hong Kong Securities Regulatory Commission, focusing on digital asset investment management; and MANTRA in the infrastructure track provides a compliance framework for the tokenization of real-world assets (RWA), attracting investors who want to shift traditional assets to blockchain.
Number of users and market value
In Hong Kong's growing crypto market, both the number of users and the market size have shown significant growth. According to Chainalysis' 2024 report, Hong Kong's cryptocurrency adoption rate has achieved an annual growth of 85.6% in East Asia, making it one of the fastest growing markets in the region. This rapid expansion has not only driven an increase in the number of users, but also pushed Hong Kong to the forefront of the global crypto adoption list.
In addition, data from Statista predicts that Hong Kong's cryptocurrency market revenue will reach approximately US$183 million by 2024, with an expected average annual growth rate of 8.58% between 2024 and 2028, and the number of users is expected to reach 1.68 million by 2028. Hong Kong's user penetration rate is expected to reach 18.94% in 2024 and gradually rise in the next few years, showing the market's continued expansion potential.
As for the highly-watched Hong Kong virtual asset ETF, as of the time of writing, the transaction volume of all Hong Kong virtual asset ETFs was about HK$9.6 million. Such data reflects that with the active policy support in Hong Kong, the popularity and market value of cryptocurrencies have steadily increased, which has not only attracted a large number of professional investors, but also gradually aroused the interest of ordinary users in virtual assets and Web3.
Regulatory Status in Hong Kong
In recent years, Hong Kong has continuously improved its regulatory measures in the crypto market. Through a series of policies and innovative regulatory measures, it has attracted global Web3 projects to settle in and promoted the healthy development of the crypto market. At the 2024 Hong Kong Fintech Week, Hong Kong further strengthened its regulatory layout, laying a solid foundation for the future development of Web3. The following is an inventory of major policies:
Virtual Asset Trading Platform (VATP) Licensing System
The VATP licensing system implemented on June 1, 2023 requires all virtual asset trading platforms operating in Hong Kong to apply for a license from the Hong Kong Securities and Futures Commission (SFC) in order to protect the rights of investors and enhance market transparency. This policy allows Hong Kong to stay ahead in compliance supervision of the global crypto market. Currently, there are 3 licensed virtual currency exchanges, which are considered to be 11 licensed. Recent news shows that the SFC is expected to license a batch of exchanges by the end of this year, and then crypto users will have more trading options.
Stablecoin issuance and RMB stablecoin exploration
At the "New Financial Ecology - Web3.0 Pilot" dialogue event of Hong Kong Fintech Week, Hong Kong Legislative Council member Qiu Dagen mentioned that the key application scenarios of stablecoins are in many fields such as international payments, and suggested exploring the issuance of RMB stablecoins as a potential direction. In addition, the regulatory framework for stablecoins is expected to be submitted to the Legislative Council next month, with the goal of completing the legislative process at the beginning of next year. At the same time, the Hong Kong Monetary Authority has set up a "stablecoin issuer sandbox" to provide a platform for potential issuers to test business plans and application scenarios.
Asset Tokenization and Cross-border Cooperation
Hong Kong is actively promoting the tokenization of real-world assets (RWA). During Fintech Week, the Hong Kong Monetary Authority (HKMA) announced that it will work with the central banks of Brazil and Thailand to carry out cross-border asset tokenization transactions, including supporting atomic settlement (DvP) and cross-border payments (PvP) for wholesale CBDC. This cross-border asset tokenization cooperation not only promotes global trade finance, but also allows Hong Kong to occupy an important position in the RWA track. In addition, the SFC has issued guidelines for tokenized securities, enabling financial institutions to provide tokenized products to investors legally and compliantly.
Virtual asset custody and over-the-counter (OTC) regulation
To ensure the safe management of virtual assets, Hong Kong plans to launch a virtual asset custody licensing system next year and implement over-the-counter (OTC) regulation after completing the second round of public consultation. These measures focus on the security and compliance of custody services, ensuring that the holding and management of virtual assets meet international standards.
Regulatory sandbox and innovation trials
Hong Kong's "regulatory sandbox" program allows crypto and Web3 projects to conduct innovative experiments within a compliance framework. At Fintech Week 2024, the Hong Kong Securities and Futures Commission announced new progress in the sandbox experiment under the Ensemble project, and a local bank successfully completed a simulation test of a tokenized money market fund. The success of these innovative experiments demonstrates Hong Kong's efforts to promote financial technology innovation.
Cross-border payments and digital RMB (e-CNY)
Hong Kong’s active exploration in the field of cross-border payments includes allowing users to purchase digital RMB (e-CNY) through local payment platforms such as Octopus, and conducting cross-border payment pilots with the mainland and multiple international markets. HKMA’s mBridge project further enhances Hong Kong’s role as a bridge in cross-border transactions and lays the foundation for the establishment of a future Web3 payment system.
Hong Kong Compliance Association established
Hong Kong announced the establishment of the Hong Kong Compliance Association at Fintech Week, which brings together compliance industry elites to support compliance innovation in emerging fields such as Web3, blockchain and artificial intelligence. The association will further promote Hong Kong's position in the global crypto industry through compliance culture promotion and professional education, and ensure that technological progress and risk management develop in tandem.
These policies demonstrate Hong Kong's inclusive and prudent attitude towards the crypto market, providing a stable and attractive market environment for global Web3 companies and investors. With its robust policy layout and innovative measures, Hong Kong is gradually consolidating its position as a hub for virtual assets and Web3 in Asia.
Future Outlook of Web3 in Hong Kong
The Hong Kong SAR government has repeatedly mentioned the strategic goal of developing blockchain and Web3 in the "Innovation and Technology Development Blueprint", hoping to build Hong Kong into a hub for Web3. This vision has also been reiterated in many international conferences. Currently, with its excellent regulatory framework, sound financial infrastructure and global vision, Hong Kong is gradually emerging in the Web3 field and is expected to play an important role in the Web3 wave.
However, although Hong Kong has the potential to further grow in the blockchain technology and crypto market, it still faces problems such as talent shortage and legal barriers. In the future, Hong Kong will need to continue to improve in these areas to cope with the competitive pressure in the international market.
It is worth believing that as Hong Kong’s importance in the global crypto market grows, it is expected to continue to be at the forefront of blockchain and crypto asset innovation and regain its glory as a key global financial market!
