A New Era of Virtual Asset Regulation in Hong Kong: Challenges and Opportunities Coexist

The regulation of virtual assets in Hong Kong entered a new phase on June 1. According to relevant regulations, institutions that have not been issued a "Virtual Asset Service Provider" license by the government will be prohibited from operating in Hong Kong. Previously, several globally renowned cryptocurrency exchanges announced the withdrawal of their applications for a Hong Kong Virtual Asset Service Provider (VASP) license, triggering a strong market response. Meanwhile, Hashkey Exchange successfully obtained a full license, becoming a fully licensed virtual asset exchange in Hong Kong.

In response to the situation, Hashkey Exchange CEO Wen Xiaoqi stated that the Hong Kong Securities and Futures Commission officially disclosed that a total of 28 institutions applied for exchange licenses, of which two have been officially licensed, and 11 have obtained the qualification for pending issuance. Regulatory agencies seem to prefer choosing local institutions that do not carry historical risk burdens, are familiar with Hong Kong's regulatory rules, and have traditional financial experience. This has sparked some controversy, especially from the Native Web3 community.

Weng Xiaoqi believes that Hong Kong's regulatory authorities have taken a crucial step from the exploration stage, choosing to let trusted financial institutions take the lead and pursue a development path that blends traditional finance with new sectors. He predicts that Hong Kong may attempt to break through in multiple areas in the future, including launching more mainstream cryptocurrencies, promoting the implementation of low-risk derivatives, potentially introducing a spot ETF for Ethereum that supports Staking, and lowering the entry barriers for traditional financial enterprises.

Regarding the user base, Hashkey currently has the largest user scale and market share, primarily coming from local clients in Hong Kong and global Chinese expatriates. As unlicensed platforms gradually withdraw their clients, it is expected that more users will turn to licensed institutions.

Weng Xiaoqi revealed that Hashkey applied for a license starting in 2019, and only received a preliminary approval in April 2022, with the official license obtained and retail upgrade completed in 2023. He stated that the application process did take a long time, but this is also an essential path for exploration.

Regarding market structure, Weng Xiaoqi expects that licensed exchanges will receive benefits after May 31. The number of activated customers at Hashkey has increased by 267% year-on-year in the past week. Currently, Hashkey Exchange's customer assets have exceeded 500 million USD, with a cumulative trading volume of 440 billion HKD.

Weng Xiaoqi believes that we are currently in an institution-led bull market. As an institutional market, Hong Kong may see more Eastern capital entering in the future. He stated that although Hong Kong has started slowly in terms of ETF issuance, it is already much faster than traditional financial markets. It is expected that in the second half of this year, as the market breaks through further, this trend will become even more apparent.

Overall, the virtual asset industry in Hong Kong is facing a situation of both challenges and opportunities. Stricter regulations have brought some uncertainties, but they also lay a foundation for the long-term healthy development of the industry. In the future, Hong Kong is expected to play a more important role in the global virtual asset market.