The collapse of FTX in November 2022 sent shockwaves across the global crypto landscape. Once ranked among the world’s largest cryptocurrency exchanges, FTX fell almost overnight due to liquidity issues and revelations of misappropriated customer funds funneled to its sister trading firm, Alameda Research. With over a million creditors affected and founder Sam Bankman-Fried arrested by December, the fallout plunged an already struggling Web3 sector deeper into crisis.
As regulatory scrutiny intensified worldwide and generative AI began drawing investor attention elsewhere, the broader blockchain industry faced a harsh winter. Yet amid this turbulence, strategic shifts emerged—particularly in Hong Kong. While grappling with the ripple effects of FTX and later the controversial JPEX incident, Hong Kong doubled down on its ambition to become a global Web3 and virtual asset hub through coordinated policy, regulation, and innovation.
But how has the city navigated these dual crises? And what does the future hold for its digital economy ambitions?
The Ripple Effects of FTX on Hong Kong
Although FTX was headquartered in the Bahamas at the time of its collapse, its roots trace back to Hong Kong. This deep connection meant the territory couldn’t remain insulated. Many local crypto firms had direct or indirect exposure as clients or partners. Even Tether, the leading stablecoin by market cap, operates under a Hong Kong-registered parent company, iFinex.
👉 Discover how regulatory clarity is reshaping Asia's crypto landscape.
The aftermath was swift. In mid-November 2022, Genesis Block—one of Hong Kong’s prominent OTC crypto service providers—halted operations. The firm had operated a network of Bitcoin ATMs across the city but exited before selling its assets to third parties.
By January 2023, Animoca Brands, a Hong Kong-based gaming and venture firm at the forefront of Web3 development, slashed its Web3 fund target from $2 billion to $1 billion. Co-founder Yat Siu emphasized that while financial losses were manageable, the real damage lay in eroded trust—especially among institutional investors in the U.S.
Further setbacks followed. Amber Group, a Singapore-based crypto unicorn with a significant presence in Hong Kong, reduced its compliance team from 20 to just 5 members and eliminated its audit division entirely. Meanwhile, Babel Finance restructured after reportedly losing around $766 million from unauthorized use of client funds—highlighting systemic risks still prevalent in the sector.
Regulatory Clarity Amid Crisis: SFC Takes Charge
Even before FTX’s downfall, Hong Kong had signaled its intent to regulate virtual asset platforms rigorously. In December 2022, the territory passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance, mandating that all crypto exchanges operating locally must obtain a license from the Securities and Futures Commission (SFC).
From June 1, 2023, a new statutory framework for Virtual Asset Service Providers (VASPs) took effect. Under this regime, any centralized custodial exchange serving Hong Kong investors—whether based locally or offshore—must secure SFC approval.
HashKey Exchange became one of the first fully licensed platforms to offer retail trading in Bitcoin and Ethereum, albeit with restrictions: individual investors may allocate no more than 30% of their total portfolio value to crypto assets.
Regulators also issued warnings about misleading claims. In August 2023, the SFC cautioned that some unlicensed platforms falsely claimed to have submitted VASP applications—a clear precursor to the JPEX scandal that erupted shortly after.
Additionally, senior officials clarified that decentralized finance (DeFi) platforms aren’t exempt. If a DeFi protocol facilitates trading of tokens classified as securities under Hong Kong law, it may require a Type 7 license—demonstrating the regulator’s broad interpretation of oversight responsibilities.
HKMA Steps In: Banking Support and Stablecoin Roadmap
While the SFC focused on enforcement, the Hong Kong Monetary Authority (HKMA) adopted a more supportive stance—particularly toward banking access for compliant crypto firms.
In April 2023, the HKMA urged banks not to apply blanket denials when virtual asset companies sought accounts. Deputy Chief Executive Nelson Chow stressed a “risk-based” approach to due diligence, discouraging discriminatory practices against regulated players.
This proactive signal contrasted sharply with U.S. regulators’ increasingly hostile posture toward crypto-friendly banking relationships.
ZA Bank, Hong Kong’s largest virtual bank, responded by launching fiat-to-crypto conversion services. Later in September, HSBC partnered with HKUST to pilot e-HKD (digital Hong Kong dollar) usage on campus. Nearly 200 students and staff participated, using digital wallets loaded with HK$100 in simulated e-HKD for purchases at five on-campus vendors.
The HKMA also announced plans to introduce a dedicated regulatory framework for stablecoins between 2023 and 2024—a move aimed at enhancing financial stability and fostering innovation in tokenized money.
Real-World Progress: From ETFs to Tokenized Trade
Despite macro headwinds, tangible advancements marked Hong Kong’s Web3 journey:
- In late 2022, HKEX launched Asia’s first spot-based crypto ETFs tracking Bitcoin and Ethereum futures traded on CME.
- Forkast introduced an NFT index in Q1 2023, monitoring performance across 21 blockchains including Ethereum, Solana, and Polygon.
- Bloom, a Web3 rewards startup incubated at Cyberport, teamed up with CMHK to let Visa cardholders earn Bloom tokens on everyday spending—redeemable for Bitcoin, Ethereum, NFTs, or merchant vouchers.
- Global Shipping Business Network (GSBN) partnered with Ant Group’s ZAN to tokenize electronic bills of lading (eBL), aiming to digitize trade finance processes valued at $25 trillion annually.
These initiatives demonstrate how blockchain is moving beyond speculation into real-world utility—from trade logistics to consumer finance.
👉 See how tokenization is unlocking new financial frontiers in Asia.
First-Mover Advantage vs Geopolitical Risks
Hong Kong enjoys several advantages in the global race for Web3 leadership:
- Clear regulatory guidelines from both SFC and HKMA
- Strong legal infrastructure and low taxation
- Strategic location bridging East-West capital flows
- Growing talent pool and government-backed innovation zones like Cyberport
Even international players are taking note. Coinbase CEO Brian Armstrong praised Hong Kong’s regulatory clarity during the 2023 FinTech Week. Local lawmakers have actively courted major exchanges like Coinbase to establish regional headquarters in the city.
Yet challenges persist. A recent U.S. bipartisan bill proposes banning government officials from using Chinese-linked blockchain services—including Tether’s parent iFinex. While unlikely to pass, such moves underscore growing geopolitical friction that could complicate Hong Kong’s ambitions.
Frequently Asked Questions (FAQ)
Q: Is cryptocurrency trading legal for retail investors in Hong Kong?
A: Yes—but only through SFC-licensed platforms like HashKey. Retail access is permitted under strict conditions, including risk disclosures and portfolio limits (e.g., max 30% allocation to crypto).
Q: What is the VASP licensing framework?
A: The VASP regime requires all centralized crypto exchanges operating in or targeting Hong Kong users to obtain SFC approval. It covers anti-money laundering measures, custody standards, and operational transparency.
Q: How is Hong Kong supporting Web3 innovation beyond regulation?
A: Through public-private partnerships (e.g., e-HKD pilots), tax incentives, funding programs at Cyberport and Science Park, and support for tokenized real-world assets like trade documents and green bonds.
Q: Was JPEX licensed by the SFC?
A: No. JPEX was never authorized to operate in Hong Kong. Its claims of regulatory compliance were false—a key reason why authorities issued warnings prior to the platform's exposure as a suspected scam.
Q: Can foreign crypto exchanges serve Hong Kong customers?
A: Only if they comply with VASP rules and obtain SFC licensing. Unlicensed offshore platforms marketing to Hong Kong residents violate local regulations.
Q: What role do stablecoins play in Hong Kong’s strategy?
A: They’re central to future payment infrastructure. The HKMA aims to establish a robust regulatory framework by 2024–2025 to ensure stability, transparency, and interoperability in digital money systems.
With resilience tested by FTX and JPEX alike, Hong Kong has responded not with retreat but with resolve—strengthening oversight while accelerating adoption. The path forward hinges on balancing innovation with integrity, trust with transformation.
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