Markets
OKX and seven other exchanges just said goodbye to Hong Kong: Here’s what it means for its crypto scene – DL News
- The abrupt start to Hong Kong trading highlights the difficulties involved in obtaining a license.
- The development raises new questions about the city’s plan to become a crypto hub.
- But the exodus could be good news.
A couple of days after arriving in Hong Kong last June, I attended my first crypto event. It didn’t disappoint.
The party organized by OKX and the Hong Kong fan club of Manchester City, the top English football club and corporate partner of the cryptocurrency exchange, was very lively.
The room was packed with people in light blue Erling Haaland T-shirts hovering over free food and drinks and half-listening to presentations from OKX executives.
OKX was clearly eyeing a bright future in the rejuvenated Hong Kong market as it prepared to apply for a license for its virtual asset trading platform.
Not long after the party, OKX CEO Lennix Lai told me how excited he was to consolidate the company in the city where it maintained its base of operations.
Then last week, OKX suddenly withdrew its license application from the Securities and Futures Commission.
Careful evaluation
The reason was “careful consideration” of its trading strategy, while assuring users in Hong Kong that their funds were safe. It will cease trading services by Friday.
At first glance, OKX’s departure would appear to be a major blow to Hong Kong’s aspirations to become Asia’s go-to crypto hub.
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With a daily trading volume of $3 billion, the centralized exchange is the fourth place platform worldwide, according to CoinMarketCap.
Additionally, OKX is just one of seven companies that withdrew their license applications after the deadline passed at the end of February.
Like OKX, all these companies – and any others serving Hong Kong customers who have not applied for a license – will have to close their services to the city’s residents by May 31.
In addition to OKX, branches of other international stock exchanges have also withdrawn from Hong Kong in recent weeks Gate.io and HTX, formerly known as Huobi.
HKVAEX, which the SCMP reported in October last year it was backed by Binance, also withdrawing its application.
Invest heavily
However, the departure of these firms could signal progress in regulators’ efforts to clean up Hong Kong’s freewheeling crypto scene.
Lai told me last year that getting licensed was not an easy process.
Finding qualified people to conduct the required audits may be difficult.
OKX has also had to invest heavily in talent hiring, innovation, technology, compliance and system security to prepare for demand. (A relationship from CoinDesk estimated the cost of applying for a license to be between $12 million and $20 million.)
The fact is that getting a license should be difficult. That’s the point. given that level of fraud In Hong Kong’s cryptocurrency markets, the SFC wants cryptocurrency exchanges to abide by strict rules.
The number of companies withdrawing applications is not necessarily unusual.
When Singapore introduced licensing for cryptocurrency service providers in January 2021, over 100 of the 170 applicants they withdrew or were rejected by the end of the year, second Nikkei Asia.
Even in the United Kingdom, 71% of applications submitted to the Financial Conduct Authority were withdrawn.
Angela Ang, senior policy advisor at TRM Labs, said this DL News it seems that the trend in Hong Kong is the norm.
“This could be a combination of higher regulatory expectations following events like FTX, and the fact that the cryptocurrency industry is relatively new to regulation,” he said.
Time and money
However, licensing applications are not a trivial undertaking and require a significant amount of time and money.
“No one is going to retire lightly after investing all that time and resources,” Ang added. “Those who withdrew probably did so only after it was clear that their request would otherwise be rejected.”
The timing of the withdrawals just before the closing date may also be an effort by the SFC to weed out those who fail to reach the presumptive agreement that will allow them to continue operating after June 1.
“It sends a very clear signal about the kind of crypto hub Hong Kong wants to be: tough,” Ang said.
Callan Quinn is DL News’ Asian correspondent based in Hong Kong. Contact us at callan@dlnews.com.