Hong Kong Enters a New Era of Virtual Asset Regulation, CEO of Fully Licensed Exchange HashKey Exchange Interprets Market Prospects

On June 1, a new era of virtual asset regulation began in Hong Kong. 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 global cryptocurrency exchanges announced the withdrawal of their applications for the Hong Kong Virtual Asset Trading Platform (VASP) license, causing a strong reaction in the market. 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.

Regarding the industry situation after the regulatory deadline and the development prospects of the virtual asset industry in Hong Kong, we interviewed Hashkey Exchange CEO Ong Xiaoqi.

The Impact of Regulatory Deadlines on the Market

Weng Xiaoqi stated that, according to official disclosures, a total of 28 institutions applied for exchange licenses, of which two have officially received licenses, and 11 have obtained qualifications pending issuance of licenses. Among the applying institutions, there are mainly two types: one is cryptocurrency platforms that have emerged from mainland China, and the other is derivative institutions of local Hong Kong companies engaged in traditional finance such as securities and payment.

From the perspective of the qualifications for issuance, local institutions with no historical risk burden, familiarity with Hong Kong regulatory rules, and traditional financial experience and capabilities have gained more preference. This has sparked some controversy, as some institutions that chose to go to Hong Kong due to policy declarations may find themselves in a wait-and-see approach or even withdraw.

Weng Xiaoqi believes that regulatory agencies face complex trade-offs. Regardless of the choices made, there will be certain controversies. However, Hong Kong has at least clarified a development path, which is to allow trusted financial institutions to play a leading role and pursue a path of integration between traditional finance and new sectors.

He anticipates that Hong Kong may make breakthroughs in the following areas:

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 barriers for traditional financial enterprises.
5. Accelerate the entry of RWA/STO to promote the integration of traditional finance and Web3 in assets.

User Groups and Market Share

Hashkey Exchange currently has the largest user base and market share among licensed exchanges in Hong Kong. Users mainly come from the local Hong Kong area and global overseas Chinese. After the regulatory deadline, customers of unlicensed platforms will gradually be phased out, and most are likely to turn to licensed institutions.

Weng Xiaoqi stated that HashKey applied for a license starting in 2019 and only received a principle approval in April 2022, officially obtaining the license and completing retail upgrades in 2023. During this process, they explored and navigated many paths from 0 to 1 together with regulatory authorities.

Application Cost and Market Structure Expectations

Regarding the cost of obtaining a license, Weng Xiaoqi stated that the costs during the preparation of the licensing materials and the operational phase are different. For HashKey, which has already been in actual operation, the total investment in the entire exchange sector has indeed reached tens of millions of dollars, but the platforms still in the licensing stage are not expected to invest as much.

Regarding the market structure after May 31, Weng Xiaoqi expects a shift from non-licensed exchanges to licensed exchanges. They observed that the number of activated customers recently increased by 267% compared to last week. Currently, HashKey Exchange’s customer assets have exceeded $500 million, and a total of HKD 440 billion in transactions has been completed.

Judgment on the Cryptocurrency Bull Market

Weng Xiaoqi believes that we are currently in a typical institutional bull market. From a traditional finance perspective, Hong Kong itself is an institutional market rather than a retail market. The issuance of ETFs in the United States this year has brought in a large influx of new funds. Although the first wave of ETF issuance in Hong Kong has not been as hot as the market expected, it has already secured a place in this field.

He expects that if the market further breaks through, institutions from Hong Kong and the entire Eastern market may enter on a large scale. Currently, many Eastern capital firms are intensively studying how to enter, at what scale to enter, and the potential risks and prospects.

From the perspective of the Web3 industry, although the pace of entry for Chinese institutions seems to be a bit slow, it is actually much faster compared to their past behavior patterns. Hong Kong has issued the world’s first Ethereum spot ETF that supports physical subscription and redemption in major financial markets, which helps to better integrate traditional “old money” and “new money.” Weng Xiaoqi expects that in the second half of this year, as the market further breaks through, this acceleration trend will become even more evident.