A New Chapter in Hong Kong's Virtual Asset Regulation: SFC Releases Major Roadmap

On February 19, 2025, the Hong Kong Securities and Futures Commission (SFC) officially announced the "Virtual Asset Roadmap," aimed at addressing various challenges faced during the development of the virtual asset trading market in Hong Kong.

The roadmap, known as "A-S-P-I-Re," starts from the five pillars needed for the development of the virtual asset market in Hong Kong: Access, Safeguards, Products, Infrastructure, and Relationships. It puts forward 12 key measures, outlining a comprehensive development and regulatory blueprint for investors and institutions in the virtual asset field in Hong Kong over the coming years.

Background of Roadmap Development

Hong Kong, as one of the global financial centers, began exploring the regulatory framework for virtual assets as early as 2018. In 2023, the SFC took the lead in incorporating virtual asset trading into the regulatory scope, requiring virtual asset trading platforms (VATP) to obtain licenses and introducing investor protection measures consistent with traditional finance. In April 2024, Asia's first virtual asset spot exchange-traded funds (ETFs) were successfully listed on the Hong Kong Stock Exchange.

However, the virtual asset market in Hong Kong still faces some challenges in its development so far:

1. Market Activity: Despite the surge in global virtual asset market capitalization and trading volume in 2024, the scale of the virtual asset market in Hong Kong remains limited. As of December 6, 2024, the total trading volume of cryptocurrency spot ETFs in Hong Kong exceeded $58 million, setting a new historical high, but there is still a gap compared to the global market.

2. Market access restrictions: As the Asia-Pacific financial center with the highest participation of Chinese investors, the identity access of mainland investors is restricted, resulting in the largest potential investor group being unable to participate in compliance.

3. Product Categories: The categories in the Hong Kong virtual asset trading market are limited, mainly focusing on mainstream currencies such as Bitcoin and Ethereum. Licensed trading institutions have developed relatively few innovations in the derivatives field.

In the face of these challenges, Hong Kong needs to find new breakthroughs between 2025 and 2027 to cope with the competition in the global virtual asset market.

Overview of the "A-S-P-I-Re" Roadmap: Five Pillars Supporting a New Ecosystem for Virtual Assets

1. Pillar A (Access) - Simplify market access and provide a clear regulatory framework

Objective: To establish a clear and transparent licensing framework that attracts high-quality virtual asset service providers to operate in Hong Kong.

Measures:

• Consider establishing a licensing system for OTC trading and asset custody services.
• Allow the establishment of a two-tier market structure that separates trading from custody, facilitating the entry of institutions and liquidity providers into the Hong Kong market.

2. Pillar S (Safeguards) - Strengthening Compliance and Risk Control

Objective: Provide clear regulatory guidance to align the virtual asset market with the traditional financial (TradFi) framework.

Measures:

• Researching the regulatory framework for new token listings and virtual asset derivatives trading aimed at professional investors
• Clarify investor access requirements and product classification
• Adjust the ratio requirements of hot and cold wallets, and introduce diversified insurance and compensation mechanisms.

3. Pillar P (Products) - Expand product categories, investment tools, and service innovation

Objective: To provide multi-level and differentiated investment tools based on the risk tolerance of different investors.

Measures:

• Explore new coin listings and virtual asset derivatives trading exclusively for professional investors.
• Explore the collateral financing requirements for virtual assets
• Consider providing staking and lending services under clear custody and operational guidelines.

4. Pillar I (Infrastructure) - Upgrade Regulatory Infrastructure

Objective: Enhance market supervision capabilities, utilize advanced data analysis and monitoring tools, and improve inter-agency collaboration and market monitoring capabilities.

Measures:

• Deploy a data-driven blockchain monitoring platform
• Promote cross-border cooperation with global regulatory agencies

5. Pillar Re (Relationships) - Promoting communication and education among investors

Objective: To enhance investors and industry participants' awareness of virtual assets and their risk management capabilities through extensive information exchange and educational training.

Measures:

• Build a cooperation mechanism with financial influencers to standardize investor promotion channels.
• Establish a sustainable industry communication and talent cultivation network

Professional Opinion

In 2024, the global virtual asset market underwent a key reshaping of its landscape. Factors such as the significant rise in technology stocks, the continuous expansion of payment channels, and changes in global liquidity conditions intertwined, generating numerous new market reactions, while also gradually bringing to light the hidden issues in the new situation.

From the perspective of the participants, the market shows a coexistence of institutional investors and retail investors. However, some "whales" with excessively high positions have brought risks of market manipulation. The top 2% of Bitcoin wallet addresses actually control about 95% of the supply, further exacerbating the imbalance in the market.

In terms of trading models, the phenomenon of differentiation is quite serious. Centralized exchanges (CEXs) occupy half of the global trading volume, but the market structure has already taken shape, with mainstream exchanges in a dominant position, making it difficult for new entrants to get a share. Although decentralized exchanges (DEXs) can meet specific needs, they lack standardized protective measures, leading users to face risks such as smart contract vulnerabilities and scams.

Looking ahead to 2025, the virtual asset market is about to open a new chapter. Hong Kong, as the financial center of the Asia-Pacific virtual asset trading market, has previously suffered from the outflow of industry elites, leading to a shortage of talent, capital, and industry. Nevertheless, its industrial scale is still relatively limited, and the market has not yet fully opened, thus urgently needing to seek new breakthroughs and transformations in the context of global competition.

The "A-S-P-I-Re" roadmap released by the SFC this time has many new initiatives that balance regulation and promotion:

1. Regulatory efforts have been comprehensively strengthened, including considering the establishment of a licensing system for custodians to achieve comprehensive regulatory coverage of virtual asset trading platforms.

2. Measures to promote the market have been proposed, such as considering allowing virtual asset staking, which will create a triple benefit of capital appreciation, enhanced asset liquidity, and increased cash flow returns.

3. Emphasize the importance of investor education, which has been overlooked by many regulators in the past but is extremely important.

If all measures and goals in the "A-S-P-I-Re" roadmap can be successfully implemented, Hong Kong is expected to create a more active market, with diverse and updated investment strategies, and a more transparent and secure regulatory environment for virtual asset investment in the coming years. From its global ecological position, Hong Kong is also expected to occupy an important position in the global virtual asset layout and lead the innovation and development of the global virtual asset market.