Hong Kong Triggers the Crypto Wave in the East, Will the Next Crypto Bull Run Start in China?

TL；DR

🔹 On February 20, the Hong Kong Securities and Futures Commission (SFC) launched consultations on the regulation of the crypto trading platform.

🔹 Hong Kong may open mainstream crypto trading for retail investors.

🔹 The positive news in Hong Kong drove the “Hong Kong concept sector” up sharply, with CFX up more than 500%.

🔹 Hong Kong’s regulatory policy and the Chinese Mainland policy are polarized, which may form a complementary power to help China open a new crypto narrative.

Hong Kong Securities and Futures Commission Plans to Open Crypto Trading for Retail Investors

Extending reading: Hong Kong New Crypto Policy | Will Spring Come to Hong Kong Again?

Source: official website of the Hong Kong Securities and Futures Commission

On February 20, the Hong Kong Securities and Futures Commission launched consultations on the recommendations for the regulation of the virtual asset trading platform. The published Consultation Paper mainly consulted the Hong Kong industry on ten questions:

🔹 Shall the licensed platform be allowed to provide services to retail investors on the premise of taking the recommended appropriate investor protection measures?
🔹 Do you have any suggestions on the inclusion criteria for general tokens and specific tokens?
🔹 If the SFC allows retail investors to use the licensed trading platform, what other provisions should be implemented from the perspective of protecting investors?
🔹 Do you have any opinion on the proposal to allow the use of funds allocated by the third-party insurance and licensed platform operators or the companies affiliated with the same company group? Do you have any other suggestions?
🔹 Do you have any suggestions on how the licensed platform operator should allocate such funds (for example, to the company account of the licensed platform operator, or to set up escrow arrangements)? Please explain in detail the arrangement you proposed and how the protection provided by the relevant arrangement can provide the same level of protection as the third-party insurance.
🔹 What technical solutions can effectively reduce the risks related to the custody of customers’ virtual assets (especially the holding of virtual assets via online storage)? Do you have any suggestions?
🔹 If the licensed platform operator can provide virtual asset derivatives trading services, which business model would you recommend adopting? What kind of virtual asset derivatives do you recommend for investors to buy and sell? What kind of investors will be targeted?
🔹 Do you have any opinions on how to improve the other provisions in the Terms and Conditions of Virtual Asset Trading Platform while incorporating them into the Guidelines for Virtual Asset Trading Platform?
🔹 Do you have any opinion on the provisions on virtual asset transfer or any other provisions in Chapter 12 of the Guidelines on Combating Money Laundering Applicable to Licensed Corporations and Virtual Asset Service Providers Licensed by the SFC?
🔹 Do you have any comments on the Guidelines for Disciplinary Fines of the SFC?

The above ten questions mainly focus on “whether to provide crypto trading services for retail investors” and “how to protect investors”. The consultation ended on March 31. Two months later (June 1), the new licensing system for crypto trading platforms was implemented in Hong Kong. All crypto trading platforms operating in Hong Kong or promoting to Hong Kong investors need to be licensed by the Hong Kong Securities and Futures Commission.

Presently, China ranks first and Hong Kong second in the “Bitcoin“ search popularity - Source: Google Trends

If Hong Kong Leads the Mainstream, the Project Will Go Viral

Presently, the market sentiment is rising rapidly, and various projects related to the Hong Kong concept have started the “surge” mode, in which the performance of CFX is the most prominent. According to CoinGecko data, CFX is the largest winner of all cryptocurrencies in the past 7 days, with an increase of up to 500.1%. As of 17:00 on February 21, CFX quoted $0.31 and the 24-hour trading volume was $909854679.

Last year’s bear market depressed investors for too long, and the positive sentiment even burned the local projects in China. Tokens for old projects such as NEO, VET, Qtum, and KEY have performed surprisingly in the past two days.

However, currently, the definition of the “Hong Kong concept sector” is unclear. Many people take the opportunity to blur the project background and try to LINK it with the “Hong Kong concept”. In fact, the main crypto projects in Hong Kong are distributed in CeFi, games, service facilities, and other fields. The figure below shows some crypto projects in Hong Kong.

Main projects in Hong Kong - source RootData

From the staking sector of Ethereum at the beginning of the year, to the AI sector led by chatGPT, and to the current concept sector in Hong Kong, the market seems not to dare to stop for a moment, for fear of returning to the atmosphere of death in 2022. Sentiment can neither bring industry development nor bring long-term benefits to the project. For investors, it may be the most important way to distinguish between emotional speculation and future trends,

When It Is Dark In the West, It Is Light In the East

The US government is still hesitating on the issue of how to regulate the crypto market. When the SEC cracked down on Kraken, BUSD issuers Paxos and Binance, this move in Hong Kong undoubtedly raised hopes for the chaotic crypto market, allowing investors to start keeping an eye on Hong Kong, Singapore, and other eastern countries/regions again. From the market changes after the release of the Consultation Paper, we can also see investors’ confidence migration.

On February 21, the market value of the crypto market reached the highest value since the middle of August last year - Source: CoinGecko

Hong Kong’s move undoubtedly took an important step towards the goal of becoming an Asian crypto hub. Cameron Winklevoss, the co-founder of Gemini, tweeted “the next bull run of cryptocurrency is going to start in the East.”

Source: Twitter@Cameron Winklevoss

The founder of Uniswap also expressed the prediction that China would bring the next crypto bull in Chinese directly on Twitter.

Source: Twitter@Scott_eth

Singapore, another country that competes with the cryptocurrency center of the East, has roughly the same policy line as Hong Kong, which is mainly open and inclusive, supplemented by supporting regulatory measures. However, Hong Kong is backed by the Chinese Mainland, which banned crypto trading in 2021. It is hard to imagine what such a different policy will bring to the market and the “East”. The difficulty of the current global crypto regulatory policy is largely due to the “degree” of the regulation. The policy difference between the Chinese Mainland and Hong Kong may form a good complement: while grasping major development opportunities, it ensures the smooth operation of the market and minimizes risks, so as to ensure that China has sufficient competitiveness in this technological change.

Perhaps the next round of the crypto narrative will start in China.