As Hong Kong takes steps to facilitate cryptocurrency trading for individual investors, local authorities have emphasized that retail trading of stablecoins is not yet permitted.
Hong Kong has not yet established regulations for stablecoins like Tether (USDT) or USD Coin (USDC). This means that retail investors are currently prohibited from trading these particular digital assets, according to statements made by Secretary for Financial Services and the Treasury, Andy Hui.
Hui discussed Hong Kong's approach to cryptocurrency regulation during an online investment committee meeting on October 6, as reported by local news agency Ming Pao.
He noted that stablecoins like USDT are commonly used as the primary trading assets by cryptocurrency service providers because they are designed to maintain a stable value by being pegged to assets like the U.S. dollar or gold. However, Hui pointed out that certain stablecoins have experienced significant volatility issues and even crashes in the past. He added that the management of reserves for stablecoins has a significant impact on the stability of the prices and investors' ability to redeem fiat currencies.
Hui stated that due to these risks, retail trading of stablecoins will not be permitted until Hong Kong establishes official regulations for these digital assets.
Hui also mentioned a recent case involving the closure of a local cryptocurrency exchange called JPEX. The exchange was suspected of offering services without the necessary license in the region and was implicated in serious fraud cases. This incident highlights the importance of strengthening supervision and oversight in the cryptocurrency market. JPEX halted certain services on its platform in mid-September 2023, citing a liquidity crisis resulting from what it described as "unfair treatment" by some institutions in Hong Kong. The JPEX case drew significant attention in the industry, with Hong Kong authorities launching an investigation after receiving over 2,000 complaints from JPEX users who reported losses totaling nearly $180 million.
The JPEX incident occurred just weeks after Hong Kong regulators officially allowed retail investors to trade cryptocurrencies like Bitcoin in early August 2023. The Hong Kong Monetary Authority is expected to release regulatory guidance for the stablecoin market by the end of 2024.
