The crypto market is set to undergo a major shift, with Hong Kong opening the door to crypto trading for retail investors. As I reported on Feb. 21, China is quietly encouraging the move, using Hong Kong as a testing ground for what safe crypto trading might look like.
This move marks a stark contrast to the enforcement approach taken by the SEC in the US recently, which risks stifling innovation and driving crypto businesses out of the country.
By embracing crypto firms with open arms, Asian nations are preparing themselves to lead the next crypto revolution. The action may prove to be the impetus needed to boost the value of cryptocurrencies, with some speculating that a bull market has already begun, spurred on by a spike in tokens with ties to Asia. Yet, the numbers disprove expectations of an Asian-led market resurgence.
Debunking the China-led market rally
Thus far in 2023, most of the peak trading hours for Bitcoin (BTC) have occurred during American trade hours, suggesting that the West is now driving the cryptocurrency industry’s main asset.
Interestingly, the 2021 trend was not as pronounced as usual since China didn’t ban crypto trading until late that year. South Korea’s reputation for investing in cutting-edge technologies has made it a hub for altcoin trading in the area.
Yet, the data demonstrates that the market has not been driven by activity in Asia when considering the larger market dynamics across all tokens and exchanges.
Since China banned cryptocurrencies at the end of 2021, Binance has widened its volume lead over Asian exchanges. It makes sense for Asian markets, not just Hong Kong, to welcome back investors.
Hong Kong’s regulatory guidelines
The Securities and Futures Commission (SFC) of Hong Kong has provided some important warnings for ordinary people considering buying cryptocurrency.
They have dropped hints that they will only be trading a subset of the biggest coins, which should be included in at least two vetted benchmarks.
What big cap means and which indexes would be sanctioned are still up in the air. Yet, the rules assist in reducing the number of possible tokens.
As the year has progressed, the amount of tokens associated with Asian cryptocurrency initiatives has lagged well behind that of Bitcoin. Nevertheless, certain tokens are included in three or four of the five indexes.
These tokens include Bitcoin Cash, Litecoin, and Polkadot. Caution is warranted since not all of these tokens are likely to trade as actively as large-cap assets.
The market capitalization of a token on its own is an inadequate statistic by which to evaluate its worth; additional measures, especially liquidity, must be taken into account.
In conventional finance, index creation often takes liquidity into account; the cryptocurrency space should do the same. There has to be a more robust method of index creation that takes liquidity into consideration in addition to market capitalization.
Hong Kong’s decision to let individual investors into the cryptocurrency market, with China working behind the scenes, is a big deal for the sector.
This change has more intriguing long-term market dynamics, and once the more welcoming legislation goes into place, a small number of tokens may experience an influx of fresh capital.
