Opportunities and Limitations of the Hong Kong Crypto Market from the Perspective of Guotai Junan's Acquisition of a Hong Kong Encryption License

In the past few days, the news that domestic brokerage firms' overseas companies have obtained Hong Kong encryption asset trading licenses has been widely hyped in both the domestic and Hong Kong markets, with the high level of interest also driving a big pump in the stocks of related companies in the Hong Kong and A-share markets.

What has caused a sensation is that Guotai Junan International, under Guotai Haitong, has officially been approved to provide encryption asset trading services in Hong Kong. This is the first licensed company among Chinese-funded securities firms.

Unlike those well-known compliant Chinese background exchanges (like HashKey), this company has a brokerage origin. The acquisition of an encryption license by the brokerage is an expansion of its existing business, which increases the imaginative space for the business; furthermore, the name "Guotai Junan" easily leads one to wonder if this news implies that mainland China is beginning to loosen up in certain areas?

I still have a cautious view on this.

Whether it was the previous speculation on companies related to stablecoins or the hype surrounding this news, in my opinion, it is more about the release of optimistic sentiment and an elevation of expectations for the future.

People are optimistic and hopeful that Hong Kong, based on its status as a global free port, can occupy a place in the global encryption ecosystem and attract participants from around the world.

If Hong Kong wants to compete in the global encryption ecosystem, its direct competitor is the United States. And currently, the United States is superior to Hong Kong in terms of regulation and user base.

In terms of regulation, the regulatory policies in the United States are clearly much more lenient than those in Hong Kong, and the infrastructure of the encryption ecosystem is also much better.

In terms of user volume, the domestic users in the United States are sufficient to support applications with ample imagination, while Hong Kong certainly does not rely on local user volume.

In this case, Hong Kong can only strive to attract a potential user base---I believe this is the fundamental of the optimism and expectations mentioned above.

The core projection group of this optimism and expectation is the 1.4 billion population of mainland China.

However, the constraints of foreign exchange control in mainland China make it difficult to truly release the expected dividends.

A few days ago, direct cross-border transfers between mainland and Hong Kong banks were opened up in China. This has been hyped by many media outlets as a "loosening" of regulations. In fact, this is just an improvement in transfer efficiency and a reduction in costs; the limits on cross-border transfers have not changed.

In the past two years, residents from the mainland could directly apply for an account at HSBC bank offline and receive a Hong Kong card on the same day. However, offline applications have now been halted, and it seems that one can only apply online and cannot receive a Hong Kong card on the same day.

These details show that foreign exchange controls have not been relaxed.

In addition, the encryption trading in Hong Kong has always been very strict, and the scrutiny of account holders' identities has never been relaxed.

For example, the most well-known compliant exchange, HashKey, only allows Hong Kong residents, permanent residents, and mainland residents with legal status overseas to apply for accounts.

For example, even if residents from the mainland apply for a Hong Kong card and use asset trading services provided by Hong Kong banks, there are strict restrictions on the trading of encryption assets.

There are currently no signs of loosening regulations in this area, and I estimate that there will not be any loosening in the near future.

With no changes in foreign exchange control and identity verification, the 1.4 billion population of the mainland is just a "moon in the water, a flower in the mirror," something to be hoped for but unattainable.

Of course, this is not to say that these policies in Hong Kong are useless; they are certainly useful and can greatly assist the business expansion and extension of relevant financial institutions. However, the impact and effect are significantly different from the fully anticipated effects that one might imagine. This gap always leaves people feeling regretful.

Moreover, when I see countries on the other side of the earth racing on this track, while the free port right in front of me always feels constrained, there is always a sense of inexplicable frustration in my heart.