The Hong Kong Securities and Futures Commission (SFC) has recently granted initial approval to 11 cryptocurrency exchanges to continue operating in the city. 

This marks the first step towards issuing virtual asset trading platform (VATP) licenses since 2022. The move comes as Hong Kong aims to establish itself as a prominent crypto hub alongside global counterparts like Singapore and Dubai.

According to a South China Morning Post report, among the approved exchanges, Crypto.com, originally founded in Hong Kong and now operating from Singapore, stands out as the largest exchange “deemed to be licensed.” 

Notably, it is the only exchange within the top 20 by 24-hour trading volume measured by CoinGecko, still seeking a license in Hong Kong. Bullish, incorporated in Gibraltar but also operating from Singapore and New York, is the next significant exchange deemed licensed.

Under the new regulations introduced last year, cryptocurrency exchanges must obtain approval for the deeming arrangement to continue operating while awaiting full licensing approval. 

The deadline for exchanges not seeking a license to cease operations was June 1. However, some exchanges have withdrawn their license applications due to complications arising from the regulatory changes.

Several exchanges that withdrew their applications had ties to mainland China, where they were originally founded but left following Beijing’s crackdown on digital tokens. Notable exchanges include local affiliates of major platforms such as OKX, Binance, HTX, KuCoin, Gate.io, and, most recently, Bybit. 

The Hong Kong government has emphasized compliance with regulations, including measures to prevent mainland Chinese residents from accessing crypto platforms and the recently approved spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs) markets. 

Per the report, the withdrawals have raised concerns about Hong Kong’s progress in attracting crypto-related businesses and developing a thriving Web3 ecosystem. The city began its efforts to become a crypto hub in late 2022. 

Legislative Council member Duncan Chiu, representing the information technology sector, expressed in an opinion piece that the withdrawals had shaken market confidence in local Web3 development. Despite hopes of accessing mainland Chinese customers, Beijing maintains a strict ban on commercial crypto activities on the mainland.

The financial authority of Shenzhen, the city neighboring Hong Kong, recently issued a warning against cross-border cryptocurrency trading, emphasizing that such activities are “illegal and subject to criminal liabilities.” 

The notice also highlighted the dangers of crypto-related fraud and reiterated the illegality of providing internet services to mainland customers without approval.

Overall, Hong Kong’s granting of initial approval to exchanges represents a significant step in the city’s regulatory journey toward becoming an innovation hub. However, challenges remain, including withdrawing exchanges with mainland Chinese ties and Beijing’s strict commercial digital asset activity ban. 

The future of Hong Kong’s virtual asset market will depend on striking a balance between regulatory compliance, market confidence, and attracting businesses within the evolving global crypto landscape.

As of press time, the largest cryptocurrency on the market, Bitcoin, is trading at $69,200 after briefly climbing toward the $70,400 mark in the early hours of Monday’s trading session. 

Featured image from Unsplash chart from TradingView.com

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