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OKX and Seven Other Exchanges Just Said Goodbye to Hong Kong – Here’s What That Means for Their Crypto Landscape – DL News
- The abrupt exit from Hong Kong exchanges highlights the challenges of obtaining a license.
- The development raises new questions about the city’s plan to be a crypto hub.
- But the exodus could be good news.
A few days after my arrival in Hong Kong last June, I attended my first crypto event. It didn’t disappoint.
The party organized by OKX and the Hong Kong fan club of Manchester City, the leading English football team and corporate partner of the cryptocurrency exchange, was buzzing.
The room was packed with people in sky-blue Erling Haaland shirts, bouncing between free food and drinks and half-listening 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.
Not long after the party, OKX Managing Director Lennix Lai told me how excited he was to consolidate the company in the city where it had its base of operations.
Then, last week, OKX abruptly withdrew its application for a license from the Securities and Exchange Commission.
Careful consideration
It presented its rationale as “careful consideration” of its business strategy, while assuring Hong Kong users that their funds were safe. It will cease commercial services by Friday.
At first glance, OKX’s exit would appear to be a blow to Hong Kong’s aspirations to become Asia’s leading crypto hub.
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With a daily trading volume of US$3 billion, the centralized exchange is the fourth ranked platform worldwide, according to CoinMarketCap.
Additionally, OKX is just one of seven companies that have withdrawn licensing applications since the deadline in late February.
Like OKX, all of these companies – and any others serving Hong Kong customers who have not applied for a license – will have to cease their services to the city’s residents by May 31.
In addition to OKX, subsidiaries of other international exchanges have withdrawn from Hong Kong in recent weeks, including Portão.io and HTX, formerly known as Huobi.
HKVAEX, which the SCMP reported in October last year it was supported by Binance, it also withdrew its application.
Investing heavily
However, the exit of these companies could signal progress in regulators’ efforts to clean up Hong Kong’s crypto-free landscape.
Last year, Lai told me that getting the license was not an easy process.
Finding qualified people to perform the necessary audits can be a challenge.
OKX also had to invest heavily in talent hiring, innovation, technology, compliance and systems 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 problem is that getting a license must be difficult. That is the question. Given the fraud level In Hong Kong’s crypto markets, the SFC wants crypto exchanges to comply with strict rules.
The number of companies withdrawing applications is not necessarily unusual.
When Singapore introduced licensing for cryptocurrency service providers in January 2021, more than 100 out of 170 applicants withdrew or were rejected until the end of the year, according to Nikkei Asia.
In the UK, 71% of requests made 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 normal.
“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 in terms of regulation,” she said.
Time is money
However, license applications are not a trivial task and require a significant amount of time and money.
“No one will give up lightly after investing all this time and resources,” Ang added. “Those who dropped out likely did so only after it became clear that they would otherwise have their applications rejected.”
The timing of the withdrawals just before the closing date could also be an effort by the SFC to weed out those who don’t make the cut for the deal that will allow them to continue operating after June 1.
“This sends a very clear signal about the kind of crypto hub Hong Kong wants to be: strict,” said Ang.
Callan Quinn is DL News’ Asia correspondent based in Hong Kong. Get in touch at callan@dlnews.com.