Hong Kong Leads Crypto Innovation with New Trading Rules and Tax Breaks

In the crypto space, Hong Kong is accelerating and moving to regulate crypto trading, stablecoins, and virtual asset custody. At the opening of Hong Kong Fintech Week, officials laid out a sweeping regulatory agenda to encompass digital assets, including regulations for stablecoins by this year and discussions next year on asset custody. The Treasury has pledged to increase structured virtual asset oversight by 2025 when it will review that which covers over-the-counter (OTC) crypto trading venues.

With rising virtual asset adoption, the Securities and Futures Commission (SFC) is keen on younger crypto traders, which differs significantly from the traditional stock trading demographic. While stock traders are over 40 on average, according to SFC officials, crypto traders are usually in their twenties, an indicator of generational turnover. The SFC has already licensed three virtual asset trading platforms to further this interest, and there are 14 more applications in process, indicating the rising tide of interest in Hong Kong’s fast-growing crypto environment.

The SFC’s regulatory approach applies the ‘same risks, same rules’ principle to mitigate risks while allowing regulated entities to grow. Pending applicants are inspected to ensure platforms meet the SFC’s exacting standards before granting restricted operation licenses. Virtual asset trading platforms also must receive third-party reviews for unrestricted licenses under the SFC’s strengthened regulatory framework.

Hong Kong Eyes Tax Incentives for Crypto Investment

The Hong Kong government also considers tax incentives to encourage more private credit and virtual asset investment. Under its unified fund regime, there are tax exemptions for certain classes of assets (e.g., shares managed by privately offered funds or family-owned investment holding vehicles). The government wants to extend these exemptions to private credit and crypto virtual assets and give crypto holders new fiscal advantages.

They also align with Hong Kong’s objective to expand these incentives to attract increasingly sophisticated digital asset investors and enhance Hong Kong’s standing as a financial centre. Treasury hopes to create a favourable environment to attract investments from global and local family offices to channel their assets. While the city is planning these tax breaks, it’s also positioned itself as a destination for elite investors looking for an innovative but regulated place for virtual assets.

This tax strategy is expected to bring sophisticated investors to Hong Kong’s regulated virtual asset market and help fuel the sustainable growth of the local financial ecosystem. These incentives are expected to ensure Hong Kong remains at the forefront of virtual asset investment and attract investors seeking more certainty in the ever-changing regulatory environment.

Hong Kong Expands Digital Finance with Tokenized Assets

Project Ensemble — the workforce CBDC and its digital assets initiative — is a flagship of the HKMA as it rapidly progresses tokenization. The interbank settlement of tokenized deposits and tokenizing of other financial assets are significant steps in the 2030 digital agenda for Hong Kong, which Project Ensemble supports. One of those roles, according to HKMA CEO Eddie Yue, involves its role in developing tokenized asset classes, especially for investment and electronic bills of lading (eBLs).

Tokenizing eBLs via Ant’s blockchain collaborates with Global Shipping Business Network to streamline trade and logistics, and Project Ensemble has already started. The financial infrastructure of Hong Kong will be advanced by tokenization, and the HKMA foresees traction from investors that will gravitate towards its creation. Project Ensemble launches a sandbox with various tokenization use cases in a controlled environment to present extraordinary financial solutions.

HKMA’s latest initiatives aim to support the city’s progress in the virtual asset market and address regulatory challenges related to virtual asset regulators. Project Ensemble builds on Hong Kong’s resolve to lead the way in digital finance and develop a robust framework for tokenization across multiple sectors. The SFC’s licensing progress and the Treasury’s tax incentives constitute Hong Kong’s strategic pursuit of a mature virtual asset ecosystem.