Markets
OKX and seven other exchanges just said a lot to Hong Kong – here’s what it means for its crypto scene – DL News
- The abrupt departure of Hong Kong’s stock exchanges highlights the difficulties of obtaining a license.
- This development raises new questions about the city’s plans to become a crypto hub.
- But the exodus could be good news.
A few days after arriving in Hong Kong last June, I attended my first crypto event. It did not disappoint.
The party organized by OKX and the Hong Kong fan club for Manchester City, the top English football team and corporate partner of the cryptocurrency exchange, was very lively.
The room was filled with people dressed in sky blue Erling Haaland shirts who wavered between free food and drinks and half-listened to presentations from OKX executives.
OKX was clearly looking forward to a bright future in the rejuvenated Hong Kong market as it prepared to apply for its virtual asset trading platform license.
Shortly after the party, OKX CEO Lennix Lai shared with me his excitement about consolidating the company in the city where it had its base of operations.
Then last week, OKX abruptly withdrew its license application from the Securities and Futures Commission.
A careful examination
It cited a “careful review” of its business strategy as the reason, while assuring Hong Kong users that their funds were safe. It will cease commercial services by Friday.
At first glance, OKX’s departure appears to be a major blow to Hong Kong’s aspirations to become the go-to crypto hub in Asia.
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With a daily trading volume of $3 billion, the centralized exchange is the platform ranked fourth worldwide, according to CoinMarketCap.
Additionally, OKX is just one of seven companies that have withdrawn their license applications since the deadline at the end of February.
Like OKX, all of these companies – and any others serving Hong Kong customers that have not applied for a license – will have to end their services to city residents by May 31.
Besides OKX, subsidiaries of other international exchanges have withdrawn from Hong Kong in recent weeks, including Porte.io and HTX, formerly known as Huobi.
HKVAEX, that the SCMP reported in October last year, supported by Binance, he also withdrew his application.
Invest massively
Still, the departure of these companies could signal progress in regulators’ efforts to clean up Hong Kong’s freewheeling crypto scene.
Last year, Lai told me that getting the permit was not an easy process.
Finding qualified people to carry out the required audits could prove difficult.
OKX also had to invest heavily in talent recruitment, innovation, technology, compliance and system security to prepare for the application. (A report (CoinDesk estimated the cost of applying for a license to be between $12 million and $20 million.)
The fact is that getting a license is supposed to be difficult. That’s the point. Given the level of fraud In Hong Kong crypto markets, the SFC wants crypto exchanges to comply with rigorous rules.
The number of companies withdrawing their applications is not necessarily unusual.
When Singapore introduced licensing of cryptocurrency service providers in January 2021, more than 100 of the 170 applicants withdrew or were rejected by the end of the year, according to Nikkei Asia.
In the UK, 71% of requests to the Financial Conduct Authority were also withdrawn.
Angela Ang, senior policy advisor at TRM Labs, said DL News it seems that the trend in Hong Kong is the same.
“This could be a combination of higher regulatory expectations following events like FTX, as well as the fact that the crypto industry is relatively new to regulation,” she said.
Time and money
However, license applications are not a trivial task and require a lot of time and money.
“No one will walk away lightly after investing all this time and resources,” Ang added. “Those who withdrew probably only did so after realizing that they would otherwise have their applications rejected.”
Timing the withdrawals just before the shutdown deadline may also be an effort by the SFC to weed out those who fail to qualify for the deeming agreement that will allow them to continue operating after June 1.
“This sends a very clear signal about the type of crypto hub Hong Kong wants to be: strict,” Ang said.
Callan Quinn is DL News’ Asia correspondent based in Hong Kong. Contact us at callan@dlnews.com.