Amid the current woes of the cryptocurrency market, Hong Kong regulators licensed another fintech firm to operate a virtual assets trading platform (VATP) in the territory.

Hash Blockchain Limited, a member of HashKey Group, secured a VATP licence from Hong Kong’s Securities and Futures Commission (SFC) on November 9, just as the Bahamas-based crypto exchange FTX was unravelling, leaving thousands of investors out of pocket.

HashKey Pro is the second VATP to be licensed in Kong Hong, following SFC’s approval of OSL Exchange two years ago.

Michel Lee, HashKey Group’s executive president, points out that the SFC follows strict standards for issuing a VATP licence, and it took HashKey Pro around two years to secure an approval.

The regulatory requirements are a good thing for the whole market, ensuring that investors understand the risks and trading platforms have sufficient transparency, Lee tells The Asset in an interview.

“I hope that regulation would basically make it easier for people to participate [in the virtual assets space], which is facing a hindrance up to now,” he says. “I think a lot of regulated institutions do not feel comfortable dealing with unregulated exchanges, but there are not many choices for the regulated.”

Hong Kong regulators used to hold a relatively conservative attitude towards virtual assets trading in view of its high-risk nature as the assets are not backed by physical assets or guaranteed by the government, and also because of concerns about money laundering and fraud. On top of that, Hong Kong is still in the early stages of virtual assets regulation: it was not until November 2018 that SFC formulated its regulatory approach towards VAs.

This year the market is seeing more regulatory clarity as Hong Kong pursues its ambition to be a virtual assets hub in the region. In January, the SFC and the Hong Kong Monetary Authority (HKMA) jointly issued a circular allowing SFC-licensed and registered intermediaries to offer trading of eligible virtual asset futures exchange-traded funds (ETFs), clearing the way for retail investors to gain access to virtual assets in Hong Kong.

The SFC on October 31 announced additional requirements for VA futures ETFs seeking to launch a public offering. Also, in the fourth quarter, Hong Kong launched a series of pilot projects on virtual assets, including the issuance of non-fungible tokens (NFTs) for the Hong Kong Fintech Week 2022, green bond tokenization, and the central bank digital currency e-HKD.

The accelerated activity in the virtual assets space in Hong Kong is happening against a backdrop of heightened volatility in the market. The FTX collapse has sent shockwaves across the crypto sector, with its market capitalization dropping to its lowest since January 2021 and investor confidence in tatters.

Lee remains upbeat on the sector, stressing that Hong Kong regulators are doing their utmost to build a safe and stable environment for virtual assets.

“The overall market globally is going to be obviously a bit challenging given the macroeconomic environment, but it's actually good for the ecosystem because people are now much more focused on building proper projects to market rather than short-term speculation, so I think it should be a more steady market next year,” he says.