Tiger Moquan Jia Shi readies itself, Hong Kong Web3 climbing guide at a glance
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Tiger Moquan Jia Shi readies itself, Hong Kong Web3 climbing guide at a glance
If we don't hurry, a large number of institutions will fall behind.
Navigating Web3 tides with focused insightsAuthor: IQ Tax Bureau
"Want to hike in Hong Kong—not Victoria Peak, but Web3." Ever since Hong Kong began aggressively promoting Web3, institutions have rushed in droves to "climb the mountain."
Recently, Tiger Brokers upgraded to Hong Kong's Type 1 license, allowing them to launch virtual asset trading services—though only for professional investors. Harvest Fund also made a move, filing an application for Hong Kong’s first Bitcoin ETF.
As established institutions storm in with great fanfare, Hong Kong's Web3 scene has become bustling. But beneath the surface excitement, nearly all institutions face a critical barrier: failing to obtain VASP/VATP licenses means missing out on Web3’s most profitable business—running exchanges.
Since the birth of cryptocurrency, exchanges have sat atop the food chain—and this remains true today. Even though giants like BlackRock launched spot BTC ETFs, their profitability pales in comparison to Binance. Despite its might, BlackRock still falls behind Binance and Coinbase in the virtual asset arena.
The same script is unfolding in Hong Kong. Institutions that don’t act quickly will fall behind. Times have changed. Traditional financial players have enjoyed decades of equity market windfalls, now largely exhausted. Virtual assets are set to trigger a major reshuffling—an opportunity for pioneers, a crisis for conservatives.
Hong Kong Institutions Are Losing Their Minds!
With the U.S. launch of spot BTC ETFs, the rise of virtual assets has become an undeniable trend. Gold boasts a $10 trillion market cap; BTC stands at just $1 trillion—ample room for growth. Regulated exchanges serve as the gateway ticket for "old money" to enter, and their value is clear to see.
OSL and Hashkey have already secured licenses. Victory Securities became the first brokerage to offer VA services. Futu’s Panthertrade is applying. The crossroads of innovation and transformation has arrived. Many brokers, asset managers, and funds realize they must act—but don’t know how.
Running an Exchange Is Harder Than It Seems
When new policies were announced last year, over 180 institutions reportedly expressed interest in applying for exchange licenses. Yet by the end of February, only 19 had formally submitted applications—all mostly newcomers. These firms may lead Hong Kong’s future VA industry, but for now, they’ve merely obtained a backup seat at the table.
Other institutions want in but don’t know where to start—they’ve oversimplified the challenge. Before submitting an application, they must first answer several fundamental questions:
Asset Custody: Storing money in a bank is simple—but how do you securely store crypto?
Traditional Finance: When opening a brokerage account, funds are actually held in banks, which act as custodians providing a “gatekeeping” function.
Virtual Assets: Exchanges must consolidate numerous traditional financial custody functions—banking, custody, etc.—into a single compliant entity. This demands far more sophisticated software and hardware capabilities than traditional brokerages, plus integration with cryptographic systems.
Key Personnel: Applicants must appoint individuals with at least three years of senior management experience in virtual assets—a scarce talent pool.
For example: A star player—"Crypto A"—who spent years in finance mastering traditional operations and compliance. He dives into virtual assets and spends another three years researching and expanding expertise in digital currency trading and management. He knows not only how to score on-chain, but also how to skillfully avoid regulatory "fouls," becoming the compliance superstar every virtual asset exchange dreams of hiring.
Cybersecurity: Lost bank funds can often be recovered; lost crypto usually cannot.
On-chain: Guard against hackers exploiting vulnerabilities in smart contracts from multiple angles to carry out malicious actions.
Off-chain: Protect internal corporate networks from attacks, ensure secure and private data transmission, and verify that all user devices meet security standards to minimize potential threats.
Anti-Money Laundering (AML): On-chain AML differs fundamentally from traditional banking AML.
On-chain accounts are anonymous; one person can control countless addresses, making fund flows vastly more complex. Since compliance permeates every stage of transactions, it’s not enough to verify customer identity and fund safety during deposit (KYC)—every transaction must also be scrutinized for legitimacy in source and destination (Travel Rule).
Engaging repeatedly with regulators is time-consuming and costly.
Currently, only three firms have actual licensing experience—the sample size and accumulated knowledge remain too small. This scarcity creates pricing flexibility in consulting services. High compliance standards force companies to repeatedly refine every step of the exchange launch process. Time, operational costs, and even complete business model overhauls may be required—with no guarantee of final approval. Many efforts end up as wasted labor, driving license-related expenses ever higher.
A Miss Is as Good as a Mile
Applying for a virtual asset exchange license is like climbing a treacherous cliff. Many enterprises set sail across the vast sea of compliance, only to crash against the rocks due to minor oversights. The regulatory net is tightly woven—every detail must be perfected, with zero margin for error.
Internal capability is a massive systemic project: defending against on-chain hacker attacks, building front-end user authentication systems, establishing enterprise-level cybersecurity, endpoint protection, emergency response mechanisms, and deciding on technical architecture for custody solutions.
Donald Day, COO of Hong Kong-based digital asset platform VDX, advises: "Partner with consultants who have personally gone through this process to guide document preparation and review. Ensure all staff, processes, systems, documentation, organizational structures, and decision-making workflows meet licensing and regulatory requirements—avoiding costly mistakes and delays."
External pressure comes from regulatory scrutiny: Compliance cannot be superficial. Regulatory rules and management systems must be clearly implemented. Any small oversight could derail the entire application.
Qiao Zheyuan, partner at JunHe Law Offices, notes: "The SFC’s regulation of virtual asset trading platforms is extremely strict. Platforms must submit detailed financial reports, risk control measures, and more. Clear guidelines exist for client asset protection, transaction monitoring, and token listing review processes. Furthermore, with the implementation of OTC trading regulations, compliance costs are expected to rise further."
Conclusion
Hong Kong’s market capacity is limited—the coming competition will be fierce. With 19 virtual asset exchanges in the race, how will they rise amid the halving cycle? Will established players hold steady, emerging stars surge forward, or will an underdog break through to claim the top spot?
In our next article, we’ll dive deep into the leading contenders and their winning strategies—navigating this thrilling battle. Which exchange will weather policy guidance and market tests, ride the waves, and ultimately lead Hong Kong’s virtual asset exchange race?
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