Hong Kong has positioned itself as a major financial hub, and now it is carefully navigating the world of cryptocurrency regulation. Unlike other regions that rushed to establish regulatory frameworks, Hong Kong is taking a more measured approach. According to Duncan Chiu, a member of the Legislative Council (LegCo), this patience is a strategic advantage that allows the city to learn from others’ mistakes and craft more effective regulations.
Crypto Regulation in Asia: A Competitive Landscape
Asia has become a battleground for crypto regulation, with major financial centers like Hong Kong and Singapore competing to become the leading hub for digital assets. While Singapore has been more proactive in implementing policies, Hong Kong benefits from its common-law financial system, making it one of the most open economies globally.
A recent report from a Canadian think tank even labeled Hong Kong as the “freest economy in the world,” with Singapore close behind. However, in the crypto space, Hong Kong has been slower to act, a move that Chiu believes will ultimately pay off.
The Benefits of a Late-Mover Strategy
Chiu argues that being a “late mover” in crypto regulation provides clarity. Singapore, for example, initially regulated crypto under its Payment Services Act, treating digital assets as payment tools rather than investment vehicles. Similarly, Japan made early regulatory decisions that later required revisions as decentralized finance (DeFi) and tokenization evolved.
By waiting, Hong Kong has had the opportunity to observe these missteps and refine its approach accordingly. Chiu highlights how Bitcoin, initially designed as digital cash, has evolved into more of a commodity, aligning with the stance of the U.S. Commodity Futures Trading Commission (CFTC). This evolving market behavior underscores the need for adaptable regulations.
Defining Digital Assets for Effective Regulation
One of Chiu’s key priorities in LegCo is ensuring that digital assets are properly classified. He advocates for clear distinctions between:
- Cryptocurrencies
- Stablecoins
- Memecoins
Chiu suggests that some assets, like stablecoins, should be regulated similarly to securities, while others, like memecoins, should be considered collectibles—similar to Pokémon cards or stamps. Since memecoins lack smart contract functionality, he sees no justification for regulating them as financial products.
The Role of Global Regulatory Alignment
As crypto is a borderless industry, Chiu emphasizes the importance of regulatory alignment with global markets. He believes that working closely with international regulators will prevent fragmentation and ensure Hong Kong’s rules remain competitive.
Having clear definitions and common standards across jurisdictions will reduce uncertainty for businesses and investors, making Hong Kong an attractive destination for digital asset innovation.
Should Hong Kong Have a Dedicated Crypto Regulator?
Unlike Dubai, which established the Virtual Assets Regulatory Authority (VARA), Hong Kong has decided to keep crypto oversight under its existing financial regulators:
- The Securities and Futures Commission (SFC) for digital assets
- The Hong Kong Monetary Authority (HKMA) for stablecoins
Chiu initially supported the idea of creating an independent “eSFC” for digital assets but has since accepted the government’s approach ofstrengthening existing institutions instead. He points out that the SFC has been expanding its digital asset team, even as the broader government calls for budget cuts.
LegCo’s Crypto Regulation Priorities
Chiu sees several pressing areas for crypto regulation:
- Over-the-counter (OTC) trading and custody regulations – Establishing secure frameworks for crypto storage and direct trading.
- Crypto derivatives and leveraged trading – Leaving regulation to exchanges and the SFC rather than introducing new laws.
- Balancing investor protection and market growth – Avoiding excessive restrictions while preventing fraud and exchange collapses.
Challenges in Legislative Focus
Despite Chiu’s strong support for crypto, not all LegCo members share his enthusiasm. Many lawmakers prioritize economic recovery, real estate stabilization, and geopolitical issues over crypto regulations.
Hong Kong’s economic challenges include:
- A weak job market
- A real estate sector facing potential corrections
- Growing U.S.-China trade tensions affecting financial stability
Given these competing concerns, crypto regulation is only one of many pressing issues on the legislative agenda.
Hong Kong’s patient approach to crypto regulation may seem slow, but it offers a major advantage. By observing other jurisdictions and crafting well-informed policies, the city can avoid the mistakes of early adopters. With strong financial institutions and a commitment to global regulatory alignment, Hong Kong is well-positioned to become a leading digital asset hub in Asia.
