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Reviews | How crypto can help restore Hong Kong to financial glory
For those unfamiliar with cryptocurrencies, this is a major milestone in Asia and the world as it paves the way for adoption and investment in cryptocurrencies, making moving the asset class from niche to mainstream. Although the United States authorized spot bitcoin ETFs in January, it only recently approved listing applications for spot ether ETFs; a second round of approvals will be required before the products can begin to be marketed. The US decision on ether ETFs came a month after Hong Kong became one of the first in the world to approve them.
Hong Kong’s first-mover advantage could attract a new wave of fintech activity and talent to the region, leveraging its forward-thinking regulatory framework. These measures have made the city a global hub for digital assets.
Hong Kong is already planning to maintain its advantage over the United States by seeking strategic ways to continue growing as a cryptocurrency hub. It could achieve this by approving advanced financial products before the United States. For example, Hong Kong could allow yield-generating options such as ether ETF staking.
Cryptocurrency prices against the US dollar are displayed on a screen in Hong Kong on February 29. Photo: Bloomberg
Staking involves locking up cryptocurrency tokens on a blockchain network for a set period of time to earn rewards, a practice the United States may be slower to approve. Taking a progressive stance in Hong Kong would not only be a regulatory success, but also an indirect endorsement of the potential of decentralized finance. This momentum could attract fintech investments to the region.
Encouraging foreign direct investment is crucial to Hong Kong’s economic recovery. An important step in this direction is the decision of the Hong Kong Securities and Futures Commission to allow the tokenization of regulated securities and funds. This means that traditional financial assets, like stocks and bonds, can now be represented digitally, making them easier to trade and manage. This approach has already attracted serious investment, with Bank of China International Holdings issue approximately US$28 million worth of these digital securities.
Hong Kong is also becoming one of the main destinations for major cryptocurrency conferences, which attract foreign investment from venture capitalists to local cryptocurrency start-ups. In 2023, the Web3 Festival attracted a crowd of 50,000 attendees, including many investors from around the world. These events, which some have dubbed “cryptocurrency tourism,” attract high income earners to Hong Kong, who boost the local economy through their spending and investments.
Overall, Hong Kong is showing the world that cryptocurrencies can be reasonably regulated while maintaining an innovative environment. This will likely have an impact on Hong Kong’s overall financial situation. Such regulatory clarity is likely to attract more start-ups and established companies, particularly if cryptocurrency start-ups leave the United States in search of a friendlier climate to support their growth and innovation .
Additionally, this regulated environment provides reassurance to global investors, which could strengthen Hong Kong’s reputation as a safe and innovative financial center, driving investment and job creation in related fields and driving economic growth.
The development of the cryptocurrency sector could help alleviate the talent shortage in Hong Kong. Nearly three-quarters of Hong Kong employers are experiencing a talent shortage, exacerbated by a population decline of 1.6% by mid-2022. Hong Kong’s aging population, with 30% expected to be aged 65 or over by 2040, could further exacerbate this problem.
The efforts of the Hong Kong government, including Top Talent Pass Programattracted a total of 90,000 skilled workers to the city in 2023. However, continued efforts to make Hong Kong a hub for cryptocurrency innovation, an industry primarily driven by young people, could help reverse the brain drain that the city is experiencing.
Hong Kong’s rise as a cryptocurrency hub in Asia, while not guaranteed, is well supported by its progressive regulatory environment. Challenges such as red tape in other jurisdictions and talent shortages persist, but the dynamic cryptocurrency sector could attract and retain talent. The recent US decision on Ether ETFs highlights the growing adoption of cryptocurrency assets, making it even more important for Hong Kong to remain competitive.
As global institutions seek clarity and innovation, Hong Kong is emerging as an ideal location to establish a presence. Through its strategic initiatives, Hong Kong is poised to lead the evolution of the financial sector, attracting both businesses and professionals to the city.
Danny Chong is CEO and co-founder of Tranchess, a decentralized yield-enhancing asset tracking and management protocol.