What’s behind Hong Kong’s approach to crypto? Kaiko dives in

Hong Kong’s Securities and Futures Commission (SFC) has taken a fresh approach to the crypto industry. This new way of regulating the emerging sector could benefit the crypto market and bring a new wave of capital to the largest digital assets in the ecosystem.

On Monday, Hong Kong made clear its intention to open the door to crypto trading in the Asian region in what appears to be a completely different approach to enforcement actions taken by the U.S. Securities and Exchange Commission (SEC).

Provider of market data for digital assets the wharf commented on the matter in a recent blog post, noting that Asia appears to be positioning itself at the forefront of the next digital asset revolution by embracing the crypto business. Kaiko Research Analyst Conor Ryder said:

A tempting East could well be the next catalyst to push crypto prices higher, with some proclaiming that this run has already begun, fueled by an Asia-linked token rally.

Why Hong Kong’s Sudden Crypto-Friendly Policy?

After a turbulent year, low prices and debacles by exchanges and firms like FTX, why is Hong Kong and possibly other jurisdictions relaxing regulatory policies in the region? Kaiko analyst Conor Ryder suggests that given the SEC’s ‘carpet bomb’, now is the perfect time for Hong Kong to strike.

Monthly trading volume since. 2020 Source: Kaiko

The influx of new capital into Hong Kong and Asia could mean economic growth for the region and Asian bourses. Data compiled by Kaiko shows that Asian stock markets have benefited the most from the 2021 bull market. Since China banned digital assets in late 2021, Asia has lagged significantly behind other regions when looking at Binance trading volume.

According to the SFC’s proposal, they will allow trading of the “largest virtual assets” included in at least two approved indices.

Eligible crypto assets that meet the criteria of the SFC. Source: tier10k on Twitter

Perpetual futures markets reacted positively on the realization that listed tokens could see renewed inflows from Asia, with open interest in Bitcoin Cash, Litecoin and Polkadot rising 15% last week, according to Kaiko Research. Financing rates have also developed positively and have largely held up since the announcement.

Perpetual futures open interest and funding rates. Source: Kaiko

The announcement of a new regulatory approach from Hong Kong, with rumored support from China, could be seen as a long-term positive for crypto. In the meantime, the market is still deciding which direction prices will go for a continuation of the crypto winter or a new bull market. Conor Ryder concluded:

The timing of the announcement, while the SEC cracks down on crypto, looks intentional and could actually drive crypto business out of the US and into Asia over time.

The total market cap has decreased as seen on the daily chart. Source: TOTAL TradingView.

The total market cap as of this writing is $1.02 trillion, down -3.13% over the last 24 hours. Bitcoin’s market cap is $449 billion, with a 40.33% dominance.

The stablecoin’s market cap stands at $137 billion and accounts for 12.29% of the total market cap, according to CoinGecko data.

Featured image by Unsplash, chart by TradingView.