Yesterday, 28 August 2023, may be remembered in history as a pretty important day in the crypto sector: the Hong Kong crypto exchange HashKey became the first ever to open trading to retail investors in a fully licensed and regulated manner.
To fully understand the magnitude of this event, it is necessary to trace the entire history of the relationship between China and cryptocurrencies.
However, it is worth remembering that although Hong Kong is now an integral part of China, it is still an autonomous territory with its own laws, even if those laws cannot conflict with those of mainland China.
In other words, what happens in Hong Kong happens in China, albeit in a particular territory where real tests are sometimes attempted, such as the one underway for cryptocurrencies.
Summary
China, Hong Kong, and crypto with HashKey
China was not initially opposed to crypto trading. In fact, at first it seemed that they wanted to ride the blockchain wave.
However, they soon discovered that the absolute freedom generated by decentralization was at odds with China’s highly centralized authoritarian regime, so much so that this contrast still appears irreconcilable today.
As a result, China made the decision a few years ago to close itself off to the crypto sector, even going so far as to ban crypto mining and trading completely.
However, the ban did not turn out to be very effective, so much so that, for example, already a year later many Chinese miners had reopened operations, obviously in secret.
Chinese authorities at first tried to oppose it, to curb the proliferation of illegal mining farms, but without achieving significant results across the board.
Last year there seems to have been a change in China’s approach to cryptocurrencies.
In particular, the autonomous territory of Hong Kong was chosen to do an experiment, namely to completely remove the ban on crypto trading.
This is an experiment confined to Hong Kong, and aimed only at local residents. However, it is possible to imagine that, if successful, it could be extended to the entire Chinese territory as well.
The HashKey experiment
HashKey is a Hong Kong-based crypto exchange that has always provided services to a business (i.e., professional) clientele. However, with China’s ban on crypto trading, it could not provide services to retail customers (ordinary citizens investing for personal purposes) as well, until this year’s end of the ban.
As reported yesterday by local source South China Morning Post, HashKey has officially started accepting retail customers so that they can trade Bitcoin and Ethereum.
The actual trading will be allowed within a week or two, and the exchange said it aspires to register 500,000 to 1 million users by the end of this year, with the goal of reaching 10 million in 2025.
These numbers make it clear that its target audience is not only Hong Kong residents, but that it is also targeting overseas customers, or perhaps even residents of mainland China. The company has specified that it will initially target primarily retail customers residing in Hong Kong.
To date, HashKey is the only crypto exchange in Hong Kong that accepts retail clients, and there is only one other (OSL) that has received a license from the local authority (Securities Futures Commission, SFC) to be able to offer virtual asset trading services.
In other words, this is for all intents and purposes an experiment, but one on which there are many expectations.
In fact, Chinese retail investors have never really stopped trading cryptocurrencies, except that until now they were forced to do so illegally, in secret. Now, however, they should apparently be able to get back to doing it openly as well.
Note that at this stage local law prohibits trading stablecoin and crypto derivatives.
The rest of China
This story highlights both the shift in China’s approach toward cryptocurrencies and the outright opening that has been taking place since last year.
Indeed, after taking note of the fact that the ban was not working, the only alternative seemed to be to invest enormous resources to combat a phenomenon that was so much spreading anyway, and at that point we might as well accept it and incorporate it within the regulatory fence.
For now, from a strictly technical point of view, this opening does not affect the whole of China, but only the very small territory of Hong Kong. However, it is unthinkable that if this experiment is successful, the opening will not be extended to the rest of the territory as well.
Then again, the real problem of the ban failing to be enforced lies not in Hong Kong, but in the most populous areas of the entire country, and in those where there is availability of large amounts of cheap electricity for mining.
However, if the experiment proves problematic, a new setback can be expected.
It should not be forgotten that China is going through a difficult period, from a financial economic point of view, highlighted by the colossal bankruptcy of Evergrande. In such a situation it is plausible that they would want to find new sources of revenue, and the crypto sector could be part of the solution.
