While Hong Kong profits from being the gateway to the Chinese mainland, this role will admittedly diminish as the mainland keeps opening its economy and financial system to outside players. Thus it would be wise for Hong Kong to diversify its economy as much as possible. It must therefore grab hold of any opportunity to do so. And Web3 is undoubtedly a great opportunity.

Related to this, on April 30, six spot bitcoin and ethereum exchange-traded funds (ETFs) made their debut in Hong Kong. This was indeed relevant since it was the first launch of spot cryptocurrency ETFs in Asia and, actually, it came only three months after the United States launched its first ETFs to track spot bitcoin.

According to a report issued by ChinaAMC, one of the issuers of the ETFs, these will follow the performance of the crypto indexes of the Chicago Mercantile Exchange. Actually, Hong Kong bitcoin and ethereum ETFs will differ significantly from their US counterparts. Regarding refunds, they can be made both in fiat money and in crypto funds. One of the most attractive aspects is that ChinaAMC cryptocurrency ETFs will be denominated in three currencies: the US dollar, the Hong Kong dollar, and the yuan. Investment asset manager BOCI-Prudential and crypto exchange OSL will serve as the custodians for the ETFs.

I should also emphasize the need for an internationally coordinated approach, given that governments, central banks and other financial regulators are limited to the specific territory of their jurisdiction. But the digital space is global, so a coordinated approach is needed

While I could write many pages about crypto ETFs and ETFs in general, about their potential as well as inherent risks, I think the key message we can obtain from this is actually quite straightforward: Hong Kong is at the forefront of digital currencies, and it is indeed becoming one of the world’s most important Web3 hubs.

Indeed, Hong Kong went through the Asian financial crisis, SARS, the global financial crisis, and also the COVID-19 pandemic without any evident significant outflow of capital and without diminishing its role as one of the world’s most important financial centers. And this was so because of Hong Kong’s strength, because of its resilient nature, but also because of how innovative Hong Kong is.

Hong Kong is never satisfied with what it has and thus is always trying to enhance its status by not only becoming stronger in the most “traditional” areas in which it excels, but also by embracing newer areas such as Web3, green finance and Islamic finance.

The city has also pulled out all the stops to strengthen its status as a global wealth management hub. According to a Deloitte study commissioned by the Hong Kong Special Administrative Region government, Hong Kong had over 2,700 single-family offices as of the end of 2023, which managed at least $10 million, while 885 of them had at least $100 million in assets.

Back to Web3: A few months ago, Financial Secretary Paul Chan Mo-po said he believed that the time is ripe for Hong Kong to invest in the Web3 digital economy despite recent volatility, as competent market players who survived a burst bubble can focus on innovation and make significant strides. Shortly afterward, Chief Executive John Lee Ka-chiu said that the city must “dare to become a leader” in Web3 innovation.

Last June, Hong Kong began taking applications to license virtual asset service providers and it is studying potential stablecoin regulations. “Our regulation will be tight,” said Hong Kong Monetary Authority Chief Executive Eddie Yue, indicating clear thought has already been given to the measures set to come into force.

Also, on June 30, authorities in Hong Kong announced the creation of a task force dedicated to promoting Web3 development. Chaired by the financial secretary, the task force comprises 15 nonofficial members from the relevant market sectors, with the participation of key government officials and financial regulators concerned.

Chan said, “The blockchain technology underpinning Web3 features characteristics in respect of disintermediation, security, transparency, and low cost. It has the potential to solve many difficulties and pain points encountered in finance, trade, business operations and even day-to-day life. Hong Kong is an international financial center and a metropolis attaching importance to innovation and technology, and embracing the megatrend of Web3 development.”

This approach is also consistent with the HKMA’s “Fintech 2025” strategy, which was unveiled in 2021 and aimed to encourage the financial sector to adopt fintech comprehensively by 2025, and in the words of HKMA chief Eddie Yue Wai-man, “promote the provision of fair and efficient financial services” for the benefit of Hong Kong residents and its economy.

In addition, “Fintech 2025” is aligned with the national 14th Five-Year Plan (2021-25), which recognizes Hong Kong’s economic potential at the national level.

Indeed, while the Web3 industry offers many opportunities, it also needs to be properly regulated, since the right regulations and effective governance protect investors, prevent fraudulent activities within the ecosystem, and provide clear guidance to allow companies to innovate in the crypto economy. I should also emphasize the need for an internationally coordinated approach, given that governments, central banks and other financial regulators are limited to the specific territory of their jurisdiction. But the digital space is global, so a coordinated approach is needed.

To sum up, the launch of bitcoin and ethereum ETFs in Hong Kong is further evidence that Hong Kong will definitely not only remain one of the world’s most important financial centers but further enhance its status by tapping into newer areas such as Web3, in which Hong Kong is clearly becoming a very important global hub; all this is in the midst of Hong Kong’s involvement in the Guangdong-Hong Kong-Macao Greater Bay Area and other relevant projects.

The author is a fintech adviser, researcher, and a former business analyst for a Hong Kong publicly listed company.

The views do not necessarily reflect those of China Daily.