Promising destinations for cryptocurrency investments: Hong Kong - YB Case 2024

Promising destinations for cryptocurrency investments: Hong Kong

Promising destinations for cryptocurrency investments: Hong Kong

Promising destinations for cryptocurrency investments: Hong Kong

The Hong Kong government is striving to recognize the city as a crypto hub in the Asian region. Hong Kong has a reputation as a dynamic financial center and offers a business-friendly environment that attracts investors and cryptocurrency startups. In 2023, Hong Kong introduced a new regime for regulating virtual assets.

The new regime will cover all cryptocurrencies and tokens that provide a means of exchange, investment, or store of value. From now on, cryptocurrency exchange operators must obtain a crypto license in Hong Kong and strictly comply with anti-money laundering legislation and security requirements.

Hong Kong's new cryptocurrency regulatory regime also requires exchanges and platforms to provide trading limits for individual investors to minimize risks and protect consumer interests.

Overall, the introduction of the new virtual asset regulatory regime in Hong Kong represents the local authorities' commitment to creating a stable and reliable infrastructure for the development of digital assets, considering the requirements of security and consumer protection.

How does Hong Kong stand out from other crypto-friendly jurisdictions?

Hong Kong is one of the largest crypto-friendly jurisdictions in the world and has several features that set it apart from other countries:

  • In Hong Kong, cryptocurrencies are legal and not prohibited. Moreover, Hong Kong is recognized as one of the largest international financial centers and has a developed cryptocurrency market. In Hong Kong, there is a regulator, the SFC (Securities and Futures Commission), which supervises cryptocurrency platforms. However, some restrictions, such as restrictions on exchange transactions in fixed-price cryptocurrencies, have been introduced to ensure the safety and protection of investors.
  • In China, the situation on the virtual currency market is more complex. In 2017, the Chinese government issued a ban on ICOs (Initial Coin Offerings) and closed crypto exchanges in the country. Restrictions have also been introduced on the use of cryptocurrencies for transactions to strengthen controls over capital flows.
  • Developed financial system. Hong Kong has one of the most developed financial systems in the world, with capital flowing in from various sources. The country is home to many financial institutions, venture capitalists and investment funds. This makes it attractive to cryptocurrency projects that are looking for third-party funding.
  • Progressive regulatory approach. The city authorities are actively working to create a regulatory framework and regulate the cryptosphere, while simultaneously supporting innovation.
  • Tax benefits. Hong Kong offers attractive tax conditions for business. The country has a progressive tax system, and dividend payments are not subject to taxes. This may be attractive for crypto companies that are looking for optimal conditions for their activities. This allows you to increase the share of return on investment in cryptocurrencies.
  • Entering international markets. Hong Kong is an important route to other major markets in the region. This makes it an attractive place to launch international cryptocurrency projects that want to expand their presence in the Asia-Pacific region.
The legalization of cryptocurrency transactions in Hong Kong confirms the government’s desire to restore Hong Kong to the status of an international financial center. Virtual currencies are becoming increasingly popular among consumers and investors. They represent great potential for the development of innovative financial technologies.

The introduction of a new crypto regulatory regime in Hong Kong could attract large amounts of investment and encourage innovation in the financial industry. This is expected to help Hong Kong maintain its reputation and competitiveness in the global economy.

VASP license in Hong Kong: requirements for licensees

Requirements for applicants to obtain a cryptocurrency license in Hong Kong

  1. Financial resources, qualifications, and experience:
    • Suppliers must provide proof of their eligibility.
    • They must also have relevant qualifications and experience in the field of cryptocurrencies and blockchain.
  2. Management of risks:
    • Providers must develop and implement risk management policies that enable them to effectively identify, assess, monitor and manage the risks associated with their crypto services.
    • They must also ensure effective financial planning and management to minimize the risks associated with potential customer losses.
  3. Financial reporting and disclosure:
    • Suppliers must provide regular and accurate financial reporting, including profit and loss statements, balance sheets and cash flow statements.
    • They must also disclose sufficient information about their activities, including company structure, management personnel and partners.
  4. Removing Conflicts of Interest:
    • Suppliers must develop and maintain strict policies and procedures to prevent and resolve conflicts of interest.
    • They must establish mechanisms to ensure transparency in their operations and prevent potential abuse of information or market manipulation.

Reforming crypto licensing in the country

Starting from June 2023, centralized crypto platforms in Hong Kong are required to obtain a crypto license. This requirement was introduced to increase the level of regulation and oversight of cryptocurrency transactions in the country. New licensing rules in Hong Kong apply not only to companies, but also to their responsible employees and representatives.

Under these regulations, employees, and representatives of virtual asset service providers (VASPs) must meet certain criteria to be able to work in the industry. This is a measure designed to increase transparency and reliability in the crypto industry and ensure the protection of the interests of investors and clients. This, in turn, will increase the trust and confidence of users when working with crypto platforms.

It is also known that the Hong Kong government has reached out to banks and encouraged them to support licensed crypto platforms. This demonstrates the growing importance of the cryptocurrency sector and its recognition by the Hong Kong government. Support from banks can boost innovation and provide a more sustainable environment for crypto startups in Hong Kong. However, details and support measures may vary depending on each individual bank.

Major changes to Hong Kong's VASP licensing regime

Companies and investors who are interested in obtaining a VASP license in Hong Kong will find it useful to familiarize themselves with the following innovations:

  • Private investors are allowed to engage in cryptocurrency transactions. Until June 2023, only professional investors were allowed to carry out cryptocurrency transactions in Hong Kong. But following the introduction of a new VASP regulatory and licensing regime in Hong Kong, retail investors are now allowed to trade cryptocurrencies.
  • Hong Kong allows applications to be issued for the issuance of ETFs (exchange-traded currency exchange-traded funds) involving futures and certain major virtual asset indices. This can be an important step because an ETF allows investors to easily gain exposure to different assets and diversify their investments.
  • The Hong Kong government has allowed ownership of tokenized assets and recognized the legality of smart contracts. As a result of these decisions, blockchain technology and the use of cryptocurrency in Hong Kong are gaining greater legitimacy and support from government authorities. This opens up new opportunities for investors.
  • In 2024, it is planned to introduce a regulatory regime for stablecoins in Hong Kong. Stablecoins are digital assets whose value is tied to the value of certain assets, such as fiat money or commodities. The Hong Kong Monetary Authority recognizes the growing popularity of stablecoins and their potential in the financial technology space. Regulating stablecoins will help provide investor protection, reduce risks and prevent potential abuses. These measures also help maintain the stability and soundness of Hong Kong's financial system. The Monetary Authority has already begun discussions and consultations with stakeholders, including representatives of the financial sector and technology companies. They will analyze potential risks and apply best practices to develop an effective system for regulating stablecoins.
If you are interested in entering the Hong Kong crypto market, then enlist the support of specialists who have extensive experience in supporting cryptocurrency projects in Hong Kong.
YB Case's specialized experts are well-informed about the latest developments in the Hong Kong crypto industry and stand ready to provide comprehensive support throughout the process of registering a crypto company in Hong Kong. This support can be invaluable in navigating the regulatory landscape and ensuring a smooth and compliant entry into the Hong Kong cryptocurrency market.
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