Regulation
Opinion | How Cryptocurrencies Can Help Restore Hong Kong’s Financial Glory
For those who are unfamiliar with cryptocurrency, this is an important milestone in Asia and around the world as it paves the way for cryptocurrency adoption and investment, moving the asset class from niche to mainstream. While the US allowed bitcoin spot ETFs in January, it only recently approved listing applications for ether spot ETFs; a second round of approvals will be required before the products can begin to be marketed. The U.S. decision on ether ETFs came a month after Hong Kong became one of the first in the world to approve them.
Hong Kong’s first-mover advantage could attract a new wave of fintech businesses and talent to the region, leveraging its forward-thinking regulatory framework. These steps have promoted the city as a global hub of digital assets.
Hong Kong already plans to maintain its lead over the United States by seeking strategic ways to continue developing as a cryptocurrency hub. It could do so by approving advanced financial products before the United States does. For example, Hong Kong could allow earning options such as staking the Ether ETF.
Cryptocurrency prices against the US dollar are displayed on a screen in Hong Kong on February 29. Photo: Bloomberg
Staking involves locking cryptocurrency tokens on a blockchain network for a set period of time to earn rewards, a practice the United States may be slower to approve. Hong Kong’s adoption of a progressive stance would not only represent a regulatory success, but an indirect support for the potential of decentralized finance. This momentum could attract fintech investment to the region.
Encouraging foreign direct investment is critical to Hong Kong’s economic recovery. A key move in this direction is the decision by Hong Kong’s Securities and Futures Commission to allow the tokenization of regulated securities and funds. This means that traditional financial assets, such as stocks and bonds, can now be represented digitally, making them easier to trade and manage. This approach has already attracted serious investment, with International holdings of the Bank of China issuing these digital securities worth approximately $28 million.
Hong Kong is also becoming a major destination for major cryptocurrency conferences, which are attracting foreign investment from venture capitalists to local cryptocurrency startups. In 2023, the Web3 Festival attracted a crowd of 50,000 attendees, including many investors from around the world. These events, which some have called “cryptocurrency tourism,” bring high-income people to Hong Kong, who stimulate the local economy through their spending and investments.
Overall, Hong Kong is proving to the world that cryptocurrency can be sensibly regulated while maintaining an innovative environment. This could impact Hong Kong’s broader financial position. Such regulatory clarity is likely to attract more startups and established companies, especially if cryptocurrency startups relocate from the United States in search of a friendlier climate to support their growth and innovation.
Furthermore, this regulated environment reassures global investors, which could strengthen Hong Kong’s reputation as a safe and innovative financial centre, spurring investment and job creation in related sectors and spurring further economic growth.
The development of the cryptocurrency sector could help alleviate Hong Kong’s talent shortage. Nearly three-quarters of Hong Kong’s employers are experiencing a talent shortage, exacerbated by a population decline of 1.6% by mid-2022. Hong Kong’s aging population, which is expected to 30% will be aged 65 or older by 2040, could further exacerbate this problem.
The Hong Kong government’s efforts, including the Top Talent Pass Programhave collectively attracted 90,000 skilled workers to the city in 2023. However, continued efforts to make Hong Kong a hub for cryptocurrency innovation, an industry primarily driven by young people, could help reverse the brain drain the city is experiencing.
Hong Kong’s rise as Asia’s cryptocurrency hub, while not guaranteed, is well supported by its progressive regulatory environment. Challenges such as bureaucracy in other jurisdictions and talent shortages persist, but the dynamic cryptocurrency sector could attract and retain talent. The recent US decision on ether ETFs highlights the growing adoption of cryptocurrency assets, making it even more important for Hong Kong to remain competitive.
As global institutions seek clarity and innovation, Hong Kong stands out as an ideal place to set up business. With its strategic initiatives, Hong Kong is poised to take a leading role in the evolution of the financial sector, attracting both businesses and professionals to the city.
Danny Chong is CEO and co-founder of Tranchess, a decentralized asset tracking and management protocol that improves returns