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Source: FT Chinese
On June 1, Hong Kong’s virtual asset supervision entered a new era.Under the Combat Money Laundering and Terrorist Funding Ordinance (AMLO), any institution that has not obtained a “virtual asset service provider” license issued by the Hong Kong government will be prohibited from operating in Hong Kong.
A few days ago, many large global cryptocurrency exchanges that had previously applied for Hong Kong Virtual Asset Trading Platform (VASP) licenses announced their withdrawal of applications, including OKX, Gate, Huobi, etc., which aroused strong response in the market.At the same time, Hashkey Exchange, one of the two institutions that have previously obtained a VASP license in Hong Kong, announced that it has obtained an AMLO license issued by the Hong Kong Securities Regulatory Commission and has become a Hong Kong full-license virtual asset exchange.In response to the situation of “ice and fire” after the regulatory deadline and the development prospects of Hong Kong’s virtual asset industry, FT Chinese Editor-in-Chief Wang Feng interviewed the company’s CEO Livio Weng at the Hong Kong headquarters of Hashkey Exchange. The following is the full text of the interview.
Wang Feng, editor-in-chief of FT Chinese: Thank you very much for accepting our interview.First of all, I would like to ask you to talk about the “May 31st Regulatory Term” in Hong Kong.HashKey is a Hong Kong virtual asset full license unicorn, what impact do you expect the regulatory deadline to have on the market?
Weng Xiaoqi:According to the official disclosure of the Hong Kong Securities Regulatory Commission, a total of 28 institutions had previously applied for exchange licenses. In addition to the two officially licensed companies, 11 were awarded the qualification to be issued (deemed-to-be-licensed).
After Hong Kong issued a virtual asset policy declaration in 2022, high expectations were placed.In the entire virtual asset industry, Oriental Power is at least half of the country.From a global perspective, the top 20 exchanges, except for a few such as Coinbase, who “collect money under the order” in regional markets with compliance barriers (due to the long-arm jurisdiction of the United States and recent regulatory crackdowns, they cannot enter the US market)Most global exchanges still have a lot to do with Oriental Power.Many cryptocurrency platforms that have spilled from mainland China saw that Hong Kong Web3 may have a future, so they chose to apply for a license in Hong Kong.Another force of the license application institutions is the derivative institutions in Hong Kong engaged in traditional financial companies such as securities and payments, which are roughly the same in terms of the number of license application.
In terms of the ownership of the licensed qualification this time, it can be clearly felt that local institutions without historical risk burden, familiar with Hong Kong regulatory rules, and have traditional financial experience and capabilities have gained more tendencies, which has also triggered the migration.The Native Web3 people coming to the place are controversial to a certain extent.On the weekend, I had informal exchanges with many heads of applicant institutions, and generally felt a sense of disappointment.Some institutions that choose to go to Hong Kong due to the 2022 Hong Kong Policy Declaration may fall into a wait-and-see or even leave.
The root cause behind this status quo, according to market observations and evaluations, the CSRC may not be equipped with enough personnel to conduct a comprehensive review of all Native Web3 institutions.Because many institutions have a long history of development, it is difficult to substantively verify these issues that the CSRC is concerned about in order to avoid similar FTX incidents and ensure that there are no customers in sensitive areas.If a choice is made hastily, it may pose hidden risks in the future.If you choose one and give up the other, it will be difficult to form a clear standard.
Because you can’t see the risks clearly, you will resist them.However, all new tracks and new opportunities are risks, and it is unrealistic and undesirable to innovate without risk.Here is a very complex game and trade-off between risks and opportunities.
However, from another perspective, no matter what choice the regulatory makes for licensed institutions, it will cause some controversy:
Selecting all Native Web3 institutions will make local companies dissatisfied;
Selecting some Native Web3 institutions will cause doubts about the unselected Native Web3 institutions;
If you choose all of them, you will be dissatisfied with the institutions that have already won the cards and will also cause worries about the fact that all applicants have more monks and less porridge;
If you don’t choose anything, everyone will criticize it.
Different choices are just about changing different groups to create dissatisfaction and debate.
On the contrary, I personally have another expectation for Hong Kong’s subsequent development: Hong Kong has at least clearly embraced a development route, which is better than the previous stage of crossing the river by feeling the stones and being afraid of taking advantage of the mouse.Hong Kong regulators finally took a key step from the difficulties of “doing or not” and “how to do it”, changing their thinking and focusing on choosing “who to do it” – let financial institutions with trusted foundations become the main force and follow the tradition.The development path of cross-circle integration of finance and new tracks.As for whether this decision is correct, it will be left to time to verify.
It is optimistic that after setting the risk control water level, supervision will enter a new stage. Now, the “stable and prudent period” of “stable and prudent development” has ended in phases and entered a development period.After all, development is the hard truth. If Hong Kong does not develop Web3, the future of the entire city requires more people to find direction.
Next, Hong Kong is expected to try to break through at a faster pace:
Launch more mainstream currencies to break the embarrassing situation where retail investors can only invest in BTC and ETH;
Promote the implementation of low-risk derivatives of BTC and ETH, such as low-multiple leverage, contracts, etc., to meet non-speculative reasonable trading needs such as hedging and futures arbitrage;
Market rumors are that it is possible to launch Ethereum spot ETFs that support Staking;
Significantly lower the entry threshold for traditional financial enterprises, accelerate the upgrade speed of licenses for licenses 1, 4 and 9, and allow local financial giants such as securities and banks to accelerate entry of the market;
Accelerate the entry of RWA/STO, give full play to the advantages of institutions that are to be obtained, and accelerate the integration of traditional finance and Web3 in assets.
Wang Feng: What is the current situation of Hashkey users?What is the regional distribution?
Weng Xiaoqi:Now among the licensed exchanges in Hong Kong, we have the largest user scale and market share.Our main user group is still two parts, one from local customers in Hong Kong, and the other is overseas Chinese customers around the world.
After “5.31”, customers of Hong Kong’s unlicensed platforms will be gradually cleared, and most of them will enter licensed institutions. Overall, “5.31” will be beneficial to the currently licensed exchanges.
During the first round of license plate application, the two licensed exchanges paid a lot of costs, first building a compliant structure, and also invested a lot of manpower and financial resources in materials and processes during the license plate application process.Running out of the chaos also bet on the future and hope.The predecessors plant trees and then enjoy the cool air. There are traces to follow-up institutions for applying for cards, and the certainty is much higher, but many steps still need to be advanced to complete after the process.
Wang Feng: Many institutions applying for the application complain that they have been waiting for too long now.
Weng Xiaoqi:HashKey may have been waiting for a longer time to apply for cards back then.It took the application from 2019 to 2019, and it was not until April 22 that it received the AIP (principle approval), and it took 23 years for formal registration and retail investors to be upgraded.Whether it is SFO or current AMLO licenses, including the process of business trial operation and the process of formal implementation, we have also explored and explored with the regulators, and have taken many detours from 0 to 1.In comparison, in fact, the institutions that apply for cards later are faster.But we empathize with this feeling of anxiety about whether we can get a card and whether we can realize commercial value.
In essence, everyone is looking forward to the future of Hong Kong in different dimensions and forms.
Wang Feng: There is a rumor in the market that if all the application costs are included, it will be at the level of tens of millions of dollars?
Weng Xiaoqi:Tens of millions of dollars are not certain, tens of millions of Hong Kong dollars are definitely there.The cost corresponding to the operating stage is different from the preparation and the corresponding cost of the license plate review stage.For HashKey, which has actually been operating, our entire exchange sector has indeed invested tens of millions of dollars, but there are not expected that there are so many platforms that are still in the card application stage.
Wang Feng: After 5.31, what kind of structure do you expect the next market will be?When do you think the next wave of licenses may be issued?
Weng Xiaoqi:Before May 31, the actual situation in the Hong Kong market is still the main force of non-licensed exchanges, although we are the largest market share among licensed exchanges.Globally, our CoinGecko rankings are stable in the TOP10 (ranked 7th on June 2), but to be honest, the actual scale is still dominated by non-licensed ones.However, the more this happens, the more it means that the market still has potential.
Especially this time, non-licensed institutions face a round of clearance, because non-licensed institutions, or those who have not obtained the license this time, or who have given up their license, must choose to clear out Hong Kong customers.Trading will be suspended on June 1st, and all customer assets will be cleared on August 31st, so from June to August it will be a clearance period. Correspondingly, the licensed exchange will receive dividends to accept customers.We can see significant changes from the recent data. Our number of activated customers this week exceeded 267% year-on-year, and the number of newly activated customers has more than tripled.
This time, we have also prepared a real-time “safe haven” event for users. New users who come to HashKey Exchange to trade can receive VIP experience, HSK, BTC and other rewards, which are also full of sincerity.
Currently, HashKey Exchange customer capital has exceeded US$500 million and is still growing rapidly.Since its official operation began in August last year, we have completed a total of HK$440 billion in transactions.We are also the only licensed exchange in Hong Kong that can conduct pending order transactions, and have achieved full licenses and full functions.
So although there will be some turmoil in the short term, it means that Hong Kong has officially entered a stage of full license, which is more guaranteed for potential customers who have not entered the venue.This round of policy promotion of “531” is also a broad education for the entire market, laying the foundation for the long-term development of Hong Kong Web3.
Currently, 11 companies on the list of deemed-to-be-licensed have not yet obtained a license, and may eventually be partially eliminated. The remaining part has obtained a formal license. The specific situation needs to be observed. The China Securities Regulatory CommissionFollow-up resolution.
One of the key factors here is that throughout history, exchanges have often achieved huge growth in bull markets.It is clear that the exchange that is already licensed can catch up with this bull market. It is hard to say that those who are not licensed are not, and there is a certain probability that they cannot catch up.The number of ultimately winning institutions must also be matched based on the potential of the Hong Kong market. It is not a good thing to approve a card. After all, in the traditional securities market, Hong Kong has also experienced the chaos of “Nine Sons Fighting for the Throne”, and finally passedThe merger became the Hong Kong Stock Exchange and gradually regulated the market.
Wang Feng: What are your judgments about this round of cryptocurrency bull market?
Weng Xiaoqi:This bull market is a typical institutional bull.From the perspective of traditional finance, Hong Kong is not a retail market, but an institutional market.This round of ETF issuance in the United States this year has brought about a huge influx of new funds in the market. Although the first wave of ETFs in Hong Kong was not as popular as the market expected, there are many internal and external factors, but they are sitting on the card.The table is important.
If the market conditions further break through in the future, it is also a predictable thing for new institutions, including institutions in Hong Kong and the entire Oriental market to enter the market on a large scale.We have invested a lot of our business energy recently to do industry knowledge and popular science for traditional finance and big families, because a large number of Oriental Capital are intensively studying and discussing how to enter the market, how large the scale to enter the market, where the potential risks are, and the prospects arewhere.
From the perspective of the Web3 industry, Chinese-funded institutions seem to be slower to enter the market, but compared with their past behavior patterns, it has been very fast.Previously, Hong Kong issued the first Ethereum spot ETF in major financial markets in the world, and supported physical redemption, which can better integrate traditional “old money” with “new money”.So from these perspectives, it is much faster than traditional finance.With the further breakthrough in the second half of this year, this accelerated trend will become increasingly significant.
Several major ETF funds in Hong Kong have come in. Now they are just stepping in with one foot. Once the bull market is further established, they may step in with both feet, and the scale they bring will be much larger than what they are now.
Wang Feng: What is the significance of physical redemption for those virtual assets accumulated in the mining industry?
Weng Xiaoqi:Originally, the Web3 industry felt that it was not popular in the mainstream world, but was more of a marginal and free state.Traditional finance used to think that Bitcoin and Ethereum were too risky, so stay away from it.This time, with ETFs and government policy encouragement, the traditional “old money” has begun to change its views, increase the sense of security and reliability, and increase asset allocation efforts.
For mining practitioners, being able to exchange BTC and ETH for physical products for ETFs is one of which has an identity benefit to them: if you are in Hong Kong, holding these ETFs can be regarded as investment, which is in line with the investment immigration policy introduced by the Hong Kong government.You can obtain Hong Kong identity through this.Another thing is that these ETFs can be sold through the stock market, which adds an industry’s deposit and withdrawal channel.In addition, if you want to buy some relatively medium- and high-risk products in many financial institutions in Hong Kong, you need to prove that you are a PI (professional investor), and holding these ETF assets can also be used to prove the identity of PI.
In the past, immigration status and PI status were extremely difficult to solve for the Web3 people. Now that there is a channel, Hong Kong will be more friendly to these Web3 practitioners.For the old “OG” and invisible rich people in the currency circle, after the ETF was released, we can observe that it has indeed gradually moved to Hong Kong.
The development of regional policies can still bring a lot of new space to licensed exchanges like ours.Hong Kong has entered a comprehensive compliance process after May 31, which is also an important part of the global regulatory trend, including the implementation of various policies around the world and the implementation of major infrastructure such as ETFs.
First of all, the United States has become clear in its regulatory stance and has begun to punish those institutions that do not follow rules; mainland China has decided to completely avoid doing the virtual asset industry after September 24, 2019, which is also a very clear policy; the other is the end of Hong KongThe transition period, entering the formal compliance period, represents the third policy route.
Major emerging markets in other parts of the world, such as Dubai, European MiCA (Crypto Asset Market Supervision Act, European cryptocurrency market regulation), and even Bermuda, Nigeria, etc., these were not originally major markets, and have all launched their own opinions..For example, Coinbase obtained the fourth license in Bermuda, while HashKey obtained the fifth license.
In the past, the world was just a game-making rule for some major players. Now, other countries around the world are gradually entering full compliance. The previous era of “regulatory arbitrage” is gone forever.In the future, everyone will have to operate with a license, obtain a license, abide by the rules, and ensure the safety of their customers’ assets. This method is increasingly becoming the mainstream in the world.We are now intensively obtaining global licenses and plan to surpass Coinbase on the licensed exchange track in the next five years, becoming the world’s largest licensed exchange cluster.
Wang Feng: The last question is about regulation. Now the world seems to be basically following the regulatory direction of the United States. Do you think Hong Kong will go out of a different regulatory direction from the United States in the future?
Weng Xiaoqi:There has actually been a difference.The license in Hong Kong is actually earlier than that in the United States.The United States has been using the commodity futures management regulations for a long time.For example, Ethereum, there are many uncertainties about whether it is a securities or a commodity, with regulatory disputes and litigation. The recent FIT21 Act (the 21st Century Financial Innovation and Technology Act passed by the U.S. House of Representatives on May 22) is also the United States.The situation of the SEC and the CFTC competing for regulatory power.
Although Hong Kong seems to be strict in regulation, it is clear that it tells you what can be done and what cannot be done. This is called native supervision.The United States has extended it from the original regulations, and that is called extended supervision.The recent acceleration of FIT21 may also be related to the pressure from Hong Kong.Including this time, Hong Kong first approved the issuance of Ethereum spot ETFs, which may have challenged the regulatory nerves of the United States. The industry originally expected that the United States might delay approval for a few more months, but it was approved in May.
Hong Kong and the United States actually have their own leading positions, but the characteristic of this bull market is that large US financial institutions have entered the market, further consolidating the United States’ position as the world’s largest single market and consolidating its pricing power, so its impactThe force must be greater.
香港接下来还是有一些能打的地方：比如以太坊现货ETF香港先做了，美国也跟上了，但是香港有一个大的机会是带staking权益的以太坊ETF，因为美国目前的监管态度是ETF holder staking is not supported.
Whether Hong Kong can stake while ensuring the safety of its customers’ assets may be a good topic.The advantage of staking is that it has safe and native returns, which will form an emerging species similar to “digital US debt”.If Hong Kong can take the lead in landing, it is expected to siphon the global ETF market, especially the Ethereum ETF market.In the past, people spent money on buying ETFs (subscription fees and transaction costs). If Ethereum ETFs can support staking, there will be profits, which may give birth to a new market that has not yet been formed.
In addition, the Hong Kong government currently hopes to further open RWA/STO to retail investors to accelerate the cross-circle integration of traditional finance and Web3.Because after the bull market reaches its peak, investors in virtual assets will consider allocating some traditional assets, but do not want funds to go out of the circle.RWA/STO is a good choice, helping the currency circle funds stay in the currency circle and invest in the traditional capital market.Such investment further revitalizes Hong Kong’s entire traditional financial ecosystem.Therefore, this group of people is still very important to Hong Kong. The development of Web3 is not just a slogan, but a real benefit, which is imperative.
Others include Hong Kong dollar stablecoins, as well as the store change license currently being planned by the Customs. After the implementation, it may further promote the retailization and diversification of Hong Kong’s crypto market.
So, if all these are implemented, we believe that Hong Kong is still worth looking forward to tomorrow.I firmly believe that the current attitude of the Hong Kong government is to first correct the source and then stimulate industrial development after having a clear route.
From the moment, it seems to be a “darkest moment”.But often, after experiencing darkness, it is better to come.After all, it’s just begun.We are still optimistic about the future.
