Is Hong Kong’s new regulatory framework really “crypto-friendly”?


In recent days, the crypto community has been buzzing with news that Hong Kong is “pivoting”, allowing people to access crypto. More broadly, according to analysts, behind this is the possibility of China reopening to crypto after the ban that rocked the entire market in 2021.

This development paints a beautiful scenario that money from China, Hong Kong and Asia will quickly flow into the crypto market, bringing the market into a new bull season. That is the reason that the FOMO community, directly pushes the price of “Chinese coins” to fly.

It is also easy to understand why the community reacts so strongly, because Asian or more specifically Chinese users have long been famous for their “playable, willing to pay” and easy FOMO.

However, temporarily putting aside the rosy picture, let’s dive into whether Hong Kong’s proposed regulations are really “open” and become a promised land for crypto!

Details of Hong Kong’s draft policy

A draft of Hong Kong’s new crypto-related regulations was published this week.

The draft is open to the public for discussion and comments until March 31. And then it will be finalized for the last time to be decided by Hong Kong authorities whether to approve or not.

Next, if approved, those regulations will take effect from June 1 this year.

The more than 300-page draft has been analyzed and summarized by prominent legal analyst in the crypto community, Adam Cochran, with the following main ideas:

About the object


If passed, the regulation will apply to:

  • entities providing services in the Hong Kong market;
  • entities that advertise to Hong Kong users.

So basically, this regulation covers all exchanges and platforms that want to provide crypto services licensed in Hong Kong and with foreign exchanges targeting Hong Kong users.


The regulation also covers all tokens, not just “tokens classified as securities” as before.

Therefore, the new regulation completely covers the entire crypto market and is not limited to a single group of tokens.

About exchange requirements

To be licensed to operate in the Hong Kong market, an exchange must meet the following conditions:

– Have 2% of assets stored in hot wallets. The remaining assets must be stored in cold wallets.

– Yield Farming, Earning, Staking, etc. services are not provided. >> Thus, the main features that users use on an existing exchange are not allowed to operate in Hong Kong.

– Must have cover insurance for all assets stored on the exchange >> Meanwhile, there are very few insurance companies that provide insurance for the cryptocurrency segment.

– The exchange must require users to KYC details such as ID, financial status, investment experience, must pass a risk knowledge test, etc. before depositing and performing transactions.

– Do not concurrently hold multiple roles that lead to conflicts of interest such as OTC or market maker (MM, price driver, market maker).

– Futures contracts are not offered.

With the above requirements, it can be seen that an existing crypto exchange is difficult to pass the regulation of Hong Kong. In order to be granted a license to operate, the exchange must KYC users extremely strictly, only providing a number of extremely limited features. OTC, staking, yield farming futures trading,.., activities that bring high profits are not allowed.

About the requirements for tokens to be listed on the exchange

Suppose there is an exchange that meets the above requirements to be licensed to operate in Hong Kong. Then here are the requirements for a token to be listed on the exchange:

– The project team fully publicizes its identity, has a “reputable” background >> Contrary to the current situation when crypto projects have anonymous teams, using only virtual identities.

– If the list is for individual investors, the coin must be in at least 2 indexes that are accepted by reputable data providers >> In the market only BTC and ETH meet the requirements. Thus, individual investors in Hong Kong can only trade BTC and ETH.

– That token must not be considered a security >> With current Hong Kong law, stablecoins can be classified as securities -> not listed on the exchange -> the exchange can only accept fiat currencies with traditional payment system.


As you can see, Hong Kong’s upcoming regulation is not “friendly” to crypto exchanges and projects today. This set of regulations only benefits users, helping to protect investors.

Exchanges have strict KYC requirements, are more tightly regulated than traditional stock exchanges and are not provided with inherent features such as staking, derivatives trading, OTC, farming, etc. operating is higher, but the revenue is much lower than in other countries, so it is difficult to operate in the long term.

Thus, the law analyst Adam Cochran eventually came to the conclusion that:

– Exchanges should register to operate in other countries, not Hong Kong.

– Asian money flow is difficult to “open the valve” strongly but just like “drip” flowing into the market because of too strict regulations.


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