The Hong Kong Securities and Futures Commission (SFC) has experienced a significant uptick in crypto license applications, with 18 exchanges, including Huobi HK, Crypto.com, OKX, Bybit, and DFX Labs, seeking virtual asset trading platform licenses since mid-November 2023.
Increasing Interest in Licensing
On Feb. 20, Huobi HK joined the list of applicants for a virtual asset trading platform license with the Hong Kong SFC. This surge in applications reflects growing interest from both local and global players in establishing a foothold in Hong Kong's crypto market.
Stringent Licensing Requirements
Applicants for these licenses must undergo rigorous due diligence checks, including traditional financial audits that exceed proof-of-reserves (PoR) standards. Meeting these requirements entails significant investment, with Web3 firms reportedly spending up to $25 million to develop their license applications.
Traditional Brokerages Enter the Fray
Hong Kong's clarified regulatory framework has attracted traditional brokerages like Tiger Brokers, which upgraded its Type 1 SFC license in January to include crypto trading. John Fei Zeng, Tiger Brokers' CFO, highlighted the importance of diversifying into crypto as an emerging asset class.
Spot Bitcoin ETF Application
In addition to exchange licenses, Hong Kong received its first application for a spot Bitcoin exchange-traded fund (ETF) on Jan. 26 from Harvest Hong Kong, signaling further developments in the region's crypto landscape.
Insurance Requirements and Security Measures
To safeguard investors' assets, licensed crypto exchanges in Hong Kong are required to maintain a minimum insurance coverage of 50%. OSL Exchange, for example, has partnered with Canopius, a Lloyd's of London underwriter, to provide insurance coverage for 95% of its users' assets over a two-year period.
Anticipating Crypto Adoption
With regulatory clarity and increasing interest from both crypto firms and traditional financial institutions, Hong Kong is positioning itself as a hub for crypto innovation and investment, paving the way for broader adoption of digital assets in the region.
