New Era of Virtual Asset Regulation in Hong Kong Exclusive Interview with HashKey Exchange CEO of Full License Exchange

On June 1, the regulation of virtual assets in Hong Kong entered a new phase. According to relevant regulations, institutions that have not obtained the "Virtual Asset Service Provider" license issued by the Hong Kong government will be prohibited from operating in Hong Kong. Previously, several major cryptocurrency exchanges that applied for the Hong Kong Virtual Asset Service Provider (VASP) license announced the withdrawal of their applications, triggering a strong market reaction. At the same time, Hashkey Exchange announced that it has obtained the AMLO license issued by the Hong Kong Securities and Futures Commission, becoming a fully licensed virtual asset exchange in Hong Kong. In light of the regulatory deadline and the development prospects of the virtual asset industry in Hong Kong, we interviewed Hashkey Exchange CEO Wong Siu-kee.

Impact of the "May 31 Regulatory Deadline"

According to the Hong Kong Securities and Futures Commission, a total of 28 institutions applied for exchange licenses, of which two have officially received licenses and 11 have obtained qualifications pending issuance. After the release of the virtual asset policy declaration in Hong Kong in 2022, a large number of institutions were attracted to apply for licenses. The applicants mainly come from two groups: one is cryptocurrency platforms that have overflowed from mainland China, and the other is local Hong Kong companies that have derived institutions from traditional finance.

In this round of qualifications for licensing, local institutions with no historical risk burdens, familiarity with Hong Kong regulatory rules, and traditional financial experience have gained more preference, which has sparked some controversy. Some institutions that chose to go to Hong Kong due to the policy declaration in 2022 may enter a wait-and-see approach or even withdraw.

The challenges faced by the Securities Regulatory Commission include how to avoid incidents similar to FTX and ensure that there are no clients from sensitive areas. Due to the difficulty of conducting comprehensive reviews of all institutions, the regulatory agency has opted for a relatively cautious approach.

Nevertheless, Hong Kong regulators have taken a critical step, shifting from the dilemma of "to do or not to do" and "how to do it" to focusing on "who should do it"—allowing trusted financial institutions to take the lead and pursuing a development path that integrates traditional finance with new sectors.

The directions that Hong Kong may attempt to break through next include:

1. Launch more mainstream cryptocurrencies
2. Promote the low-risk derivatives of BTC and ETH.
3. Possible launch of Ethereum spot ETF supporting Staking
4. Lower the entry barrier for traditional financial enterprises.
5. Accelerate the entry of RWA/STO to promote the integration of traditional finance and Web3 in assets.

About User Demographics and Regional Distribution

Hashkey is currently the platform with the largest user base and market share among licensed exchanges in Hong Kong. Users mainly come from two groups: local customers in Hong Kong and global Chinese expatriates. After "5.31", customers of unlicensed platforms will be gradually phased out, and most are likely to turn to licensed institutions.

About the cost and time of applying for a license

The cost of applying for a license is indeed not low, possibly reaching several tens of millions of Hong Kong dollars. The investment will vary from preparing the application materials to actual operations. For HashKey, which is already in actual operation, the total investment in the entire exchange sector has indeed reached several tens of millions of US dollars.

In terms of application time, HashKey applied from 2019 and only received a principle approval in April 2022, officially obtaining the license and completing retail upgrades in 2023. In contrast, the process for institutions that applied later may be faster.

Market Structure Expectations After 5.31

Before May 31, unlicensed exchanges still dominated the market. Now, unlicensed institutions face a round of liquidation, halting trading on June 1 and completing customer asset clearance by August 31. This will bring dividends to licensed exchanges. HashKey recently saw the number of activated customers increase by over 267% compared to last week.

Currently, HashKey Exchange's customer assets have exceeded 500 million USD and are growing rapidly. Since its official operation in August last year, it has completed a total of 440 billion HKD in transactions.

In the long run, Hong Kong will enter a fully licensed phase, providing greater protection for potential clients. The number of institutions that ultimately obtain licenses may vary according to the potential of the Hong Kong market.

Judgment on the Cryptocurrency Bull Market

This round is currently regarded as a typical institutional bull market. The issuance of ETFs in the United States this year has brought in a large influx of new capital. Although the first wave of ETF issuance in Hong Kong did not meet market expectations, there is still potential for the future.

If the market further breaks through, it is expected that new institutions, including those in Hong Kong and the entire Eastern market, will enter in large scale. Currently, many Eastern capital firms are researching how to enter, at what scale to enter, and the potential risks and prospects.

From the perspective of the Web3 industry, the pace at which Chinese institutions are entering the market has already been quite fast compared to their past behavior patterns. Hong Kong has issued the world's first Ethereum spot ETF that supports physical creation and redemption in major financial markets, which helps to integrate traditional "old money" and "new money". It is expected that in the second half of this year, as the market further breaks through, this accelerating trend will become even more apparent.