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Huobi, OKX Withdraw Hong Kong License Applications: Why Crypto Exchanges Are Backing Out of City

Last Updated June 3, 2024 9:49 AM
James Morales
Last Updated June 3, 2024 9:49 AM

Key Takeaways

  • Hong Kong’s crypto licensing framework went into force on Saturday.
  • Bybit, Huobi, OKX and HKVAEX have all withdrawn their applications.
  • The regulator asked offshore exchanges to make a difficult commitment.

On Saturday, June 1, Hong Kong’s virtual asset trading platform (VATP) licensing framework came into effect, marking an important milestone in the city’s journey to becoming a global crypto hub.

However, in the weeks before the new regime went live, HTX (Huobi), OKX, HKVAEX (thought to be a Binance proxy) and others all pulled their applications. But why?

Crypto Exchanges Withdraw Hong Kong License Applications

Between March and the end of May, a total of 11 crypto exchanges representing nearly a third of all applicants withdrew VATP license applications.

According to Hong Kong Lawmaker David Chiu, the mass retreat of crypto exchanges was driven by one of the regulator’s more controversial requirements: that would-be licensees commit to barring mainland Chinese users in any region.

As Chiu observed, the requirement is “impossible for traditional offshore exchanges to meet,” and has sparked criticism of the Hong Kong Securities and Futures Commission (SFC).

“The withdrawal of the licensing system has shaken the confidence of market participants in Hong Kong’s promotion of Web3 development,” he wrote.

Referencing the government’s failed attempt to allow food trucks in the city, Chiu warned that Hong Kong’s crypto ambitions could suffer a similar fate. Handicapped by what many condemned  as overly restrictive license requirements, after 5 years just 6 food trucks were in regular operation. And in 2022, the Tourism Commission shuttered  the scheme or good.

Which Crypto Exchanges Are Licensed in Hong Kong?

With the largest VATP applicants putting their applications on hold, only a handful of smaller, local firms remain.

As things stand, HashKey and OSL are the only 2 exchanges that have received a full license.  Meanwhile, there are 17 pending applications. Most of these belong to Chinese companies. 

The Silver Lining

Despite concerns over the SFC’s licensing regime, Hong Kong’s crypto industry still has reason to be optimistic.

For starters, the city has become a hotbed for crypto-backed securities, playing host to a string of Bitcoin and Ethereum Exchange-Traded Funds (ETFs).

Besides crypto trading, there is also a growing market for stablecoins and other related innovations.

In a recent interview, Tether Co-Founder Brock Pierce hinted that he could launch a new venture in the city to take advantage of links to mainland China. When it was founded in 2014, Tether was originally based in Hong Kong but later relocated to the British Virgin Islands.

Although he acknowledged problems with the VATP licensing regime, “I’m enthusiastic about what’s happening in Hong Kong,” Pierce told the South China Morning Post.

Although he didn’t expand on what the new venture may entail, he said “a Hong Kong digital dollar stablecoin has tremendous potential.”In March, the Hong Kong Monetary Authority (HKMA) launched a regulatory sandbox  for stablecoin issuers. The central bank is currently exploring options  for stablecoin regulation and the territory is expected to establish a new licensing framework for issuers in the coming months.

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