Hong Kong’s Securities and Futures Commission (SFC) has announced that 11 cryptocurrency exchanges are a significant step closer to obtaining official licenses. This development comes one year after the city introduced a comprehensive digital-asset regulatory framework aimed at establishing Hong Kong as a major hub for the cryptocurrency industry.
Among the applicants “deemed to be licensed” are prominent platforms such as Crypto.com and Bullish, according to the SFC’s website on June 1. These platforms are notable for their substantial global trading volumes, marking a milestone in Hong Kong’s ambitious plan to foster a thriving digital-asset sector.
However, not all major players are participating. Exchanges like OKX and Bybit, which frequently dominate trading volumes, have withdrawn their license applications. Meanwhile, Binance Holdings, the largest crypto exchange globally, and leading US platforms Coinbase Global and Kraken, have opted not to apply for licenses.
The SFC had set a June 1 deadline for crypto exchanges to either secure or be “deemed to be” licensed. To continue operations and market services to local investors, firms must at least meet the “deemed” criteria and will be granted actual permits upon demonstrating consistent regulatory compliance.
Hong Kong’s pivot towards becoming a virtual-asset hub began in late 2022. This shift aims to rehabilitate the city’s reputation as a premier financial center, which suffered due to political crackdowns that unsettled global businesses and expatriate staff. The crypto-friendly initiatives include expanding the list of permitted exchanges, launching spot Bitcoin and Ether exchange-traded funds, and developing a regulatory framework for stablecoins and digital bond issuance via tokenization platforms.
The city faces stiff competition from other aspiring digital-asset centers like Dubai and Singapore. While Hong Kong’s stringent regulations aim to enhance investor protection and curb illicit activities like money laundering and terrorism financing, these measures also impose significant compliance costs and reporting obligations on businesses.
By the February 29 deadline, approximately two dozen companies had applied for licenses to operate crypto exchanges in Hong Kong. Currently, only two digital-asset exchanges, Hashkey Exchange and OSL Group, hold full licenses.
Hong Kong traditionally serves as a gateway to the wealth of mainland China. However, Beijing’s ban on digital-asset trading means mainland investors have limited access to Hong Kong’s crypto exchanges and exchange-traded funds (ETFs). Despite this, there are suspicions that some Chinese citizens are bypassing the crypto ban in search of alternative investments amid declining property prices or to circumvent overseas transfer restrictions. The quadrupling of Bitcoin’s value since early 2023 has further fueled this demand.
The cryptocurrency exchange industry is fraught with challenges, often operating in legal gray areas or worse. The collapse of FTX in the US, one of the largest frauds in American history, and Binance’s recent guilty plea to violations of US anti-money-laundering and sanctions laws, resulting in a $4.3 billion penalty, underscore the sector’s vulnerabilities.
Hong Kong also experienced turmoil with an alleged fraud at the JPEX crypto exchange last year. Regulating crypto trading remains a formidable task for officials, as users can employ virtual private networks (VPNs) to obscure their locations or engage in peer-to-peer crypto transactions, complicating oversight and enforcement efforts.
As Hong Kong advances its regulatory regime for crypto exchanges, the city’s success in becoming a global digital-asset hub remains to be seen, contingent on balancing robust regulatory oversight with fostering industry growth.