(Adapted by Grok based on the series of articles of the same name on chainless.hk)
Core Thesis
The Hong Kong Securities and Futures Commission (SFC)’s regulatory framework for cryptocurrencies suffers from serious conceptual confusion, outdated definitions, and structural mismatch, making the principle of “same business, same risk, same rules” difficult to implement in practice. This ultimately drove away top-tier exchanges, causing Hong Kong to miss the opportunity to become a leading crypto hub.
Major Issue 1: Outdated Concepts and Definitions
- The term “virtual assets” is inaccurate The SFC continues to use “virtual assets” and claims they “generally lack any real value.” This ignores subjective/emotional value (e.g., meme coin community consensus) and deviates from Satoshi Nakamoto’s positioning of “cryptocurrency,” making the concept appear outdated.
- Lack of clear securities definition; ignoring the essence of equity securities SFC documents do not explicitly define securities, yet apply the outdated Howey Test to cryptocurrencies, triggering strong industry backlash. The author advocates returning to the fundamentals: the core of equity securities lies in the complete triad of ownership + control + profit rights.
| Project | Is it an equity security? | Reason Analysis |
| Bitcoin | No | Miners (hash power parties) have benefits but no full control; holders have no practical ownership form; the system is “ownerless.” |
| Ethereum | Borderline risk | After PoS, the Foundation gained full control, but lacks complete ownership + profit rights; needs a holders’ foundation for checks and balances. |
| Most meme coins | No | No clear controlling/owning party, and in some cases no system exists at all; more akin to gambling instruments. |
Current regulation treats most tokens as securities → suppresses them, yet allows meme coins to proliferate unchecked, proving regulatory failure.
A new adaptive framework is needed: most cryptocurrencies do not qualify as equity securities; meme coin oversight responsibility should shift to exchanges rather than the SFC (a global challenge; consider compensation mechanisms for Hong Kong residents).
Major Issue 2: Flaws in the “Same Business, Same Risk, Same Rules” Principle
Cryptocurrencies superficially resemble stock trading, but the business models are fundamentally different.
- Stock ecosystem: exchange + broker + central clearing + bank + users → multi-party checks and balances.
- Crypto exchanges: integrated (trading + brokerage + clearing + banking + user asset custody), with users self-custodying funds (Web3 ethos) → lack of checks and balances, amplifying human-risk factors.
The truly reasonable principle should be “same structure, same business, same risk, same rules”; the current framework ignores structural differences, leaving regulatory gaps.
Major Issue 3: Specific Policies Drove Away Top-Tier Exchanges
Hong Kong’s VASP licensing requirements were overly stringent and impractical, leading major exchanges to withdraw applications:
- Travel Rule: Requires recording and exchanging sender/recipient identities → conflicts with crypto’s anonymous origins; online KYC struggles to verify real-person ownership (fake IDs + IP unreliable).
- Ban on futures/derivatives → Without contracts, exchanges struggle to manage risk exposure and liquidity effectively. It also prevents certain profit models, one reason platforms avoided Hong Kong initially.
- Token listing restrictions: Require 12 months of liquidity history + listing on multiple indices (including traditional ones like Bloomberg) → limits to top 3–5 coins; severely restricts early high-risk/high-reward projects, contradicting the original spirit of Hong Kong’s Growth Enterprise Market (GEM) in encouraging innovation.
- Ambiguous definition of “active promotion”: Does attending Web3 conferences or YouTube videos count? This led exchanges to outright block Hong Kong IPs, while users continue via VPNs, rendering the policy ineffective in practice.
Result: Top-tier exchanges (many with Chinese heritage) preferred Dubai over Hong Kong.
Author’s Position Summary
Regulation should innovate rather than force-fit: return to conceptual fundamentals, acknowledge structural differences, draw from stock IPO systems instead of rigidly transplanting securities laws.
The current framework fails to curb meme coin proliferation while scaring away compliant major players, stalling Hong Kong’s crypto development.
Recommendations: Redesign regulation for crypto’s integrated structure, encourage Web3 self-custody ethos, and provide clear compensation pathways for Hong Kong residents.
Postscript
The original draft was completed at the end of 2024. Although top exchanges (e.g., OKX, Bybit) withdrew applications in 2024 due to the stringent requirements, hindering early development, the SFC has gradually shifted toward balance in 2025–2026 via the ASPIRe Roadmap (released February 2025): in November 2025, it allowed global shared order books to access international liquidity; on February 11, 2026, it formally released a high-level framework for VA Perpetual Contracts and guidance on VA Margin Financing (both limited to professional investors), along with permission for affiliated market makers. This has attracted new entrants. As of mid-February 2026, the SFC has 12 licensed VATPs.
