Hong Kong’s attempt to become a hub for cryptocurrency trading is facing a major hurdle: its strict licensing regime. The system, implemented in June 2023 by the Securities and Futures Commission (SFC), is being criticized for stifling market confidence and driving away major players.
One key issue is the SFC’s requirement for licensees to exclude mainland Chinese users. Traditional offshore exchanges, a mainstay of the crypto industry, find this impossible to enforce. This regulation led to the unsuccessful attempt by OKX, a leading exchange, to form an industry alliance against the rule.
Lawmaker David Chiu, a vocal critic of the system, points out that even exchanges willing to comply struggle to turn a profit. He emphasizes the low number of licenses granted despite numerous applicants. While 18 applications remain under review, only OSL and HashKey have secured formal licenses.
The one-year transition period ending in June 2024 has seen a significant exodus. As of now, 11 operators have withdrawn applications, including heavyweights like Gate.io, Huobi, and OKX. This exodus raises concerns about the long-term viability of the system.
Critics argue that the licensing criteria are overly cautious, failing to attract established players like Coinbase. The strictures, they say, limit the flexibility and competitiveness of Hong Kong crypto market. This sentiment is further fueled by the recent withdrawal of major exchanges, leaving the remaining applicants dominated by smaller players with potentially limited experience.
Chiu worries that even if licenses are granted, the current system may not facilitate the development of profitable business models. The loss of major players has undeniably shaken investor confidence. He urges the SFC to expedite licensing decisions to restore trust and calls for a more balanced approach that prioritizes investor protection alongside innovation.
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Chiu emphasizes the importance of embracing new ideas and fostering a culture of calculated risk-taking. “Innovation requires action,” he states, “We can’t advocate for it while fearing failure. The key is to learn from mistakes, not play it safe from the start.”
Hong Kong’s crypto ambitions hang in the balance. Only time will tell if the SFC can adapt its approach and attract the industry heavyweights it needs to succeed.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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