Under New Rules, Retail Investors In Hong Kong Can Trade Cryptocurrency From June 1st

On Tuesday, the minister overseeing financial services in Hong Kong announced that the city has decided to allow retail investors to trade cryptocurrency under its new regulatory framework. 

This decision comes as Hong Kong aims to establish itself as a significant digital asset hub, distinct from mainland China where cryptocurrencies have been banned since 2021. Starting from June 1, authorities will accept licence applications from cryptocurrency exchanges, enabling them to offer major tokens like bitcoin and ether to individual traders.

Christopher Hui, Hong Kong’s secretary for financial services and the treasury, emphasised that while virtual assets carry potential risks, they also possess fundamental value. He stated in an interview with AFP, “To harness these positive elements, it is crucial to permit these activities in a regulated manner.”

In light of recent failures in the cryptocurrency sector, regulators worldwide have heightened their scrutiny of cryptocurrencies. Initially hesitant to allow crypto exchanges to serve retail clients, Hong Kong responded to the significant interest in trading by adjusting its stance. Hui indicated that Hong Kong’s plans to open up crypto trading are in line with the emerging global consensus, explaining, “Different jurisdictions will adopt the right approach to their own market, and Hong Kong is no exception. We are an open market, so while different jurisdictions have different laws and requirements, we should base our actions on our strengths.”

Hong Kong’s shift towards cryptocurrency and fintech aligns with its reopening after enduring three years of stringent Covid policies, which resulted in international isolation and talent outflows. The city’s international business reputation suffered as Beijing tightened restrictions on political freedoms following mass democracy protests in 2019.

The announcement of new regulations for crypto exchanges has generated over 80 inquiries with Hong Kong’s investment promotion agency, according to the treasury chief. He noted that the return to normalcy is evident, stating, “One thing that has been very obvious is that Hong Kong is back to usual. We are back to business.”

During a public consultation that concluded in March, some crypto firms expressed concerns about the stringent proposals, which could lead to high compliance costs. Regulators made concessions, including reducing the insurance coverage requirement to 50 percent for virtual assets held in “cold storage,” a more secure offline method of storing cryptocurrencies. Hui justified this adjustment, stating that cold storage presents a lower risk of hacking for technical reasons, and the change reflects risks proportionately.

Under the new rules, crypto exchanges must evaluate a client’s risk tolerance and knowledge of cryptocurrencies while imposing risk-exposure limits. Hui emphasised the importance of investor education, stating that investors need to be well-informed about what they are getting into. However, authorities have yet to define the specific threshold of crypto knowledge required for retail investors to participate, as several implementation details are still being determined. Hong Kong’s securities regulators will provide guidelines on these matters at a later stage, Hui confirmed.

Exciting times globally for cryptocurrency!