Hong Kong’s careful pace in developing cryptocurrency regulations offers strategic advantages over competitors rushing to establish rules, according to Legislative Council member Duncan Chiu.

As Asian financial centers compete to become the region’s cryptocurrency hub, Hong Kong’s methodical approach to regulation may ultimately prove more effective than the rapid moves made by rivals like Singapore and Japan.

“Being a late mover is a good thing sometimes because you have a clear picture,” said Chiu, who chairs LegCo’s Technology and Innovation committee, in a recent interview with CoinDesk.

Chiu pointed to Singapore’s early decision to regulate cryptocurrencies under its Payment Services Act as an example of moving too quickly. Singapore initially treated crypto as a payment tool rather than an asset class, requiring later revisions as the market evolved. Japan made similar early regulatory choices that needed updating in 2024 as decentralized finance and tokenization gained prominence.

“While Hong Kong started late, the good thing is there were clearer patterns of how these products were being used,” Chiu explained.

He noted that while bitcoin’s original whitepaper described it as “electronic cash,” market behavior has transformed it more into a commodity – a perspective shared by the U.S. Commodity and Futures Trading Commission.

Classification priorities

One of Chiu’s key legislative priorities is developing clear classification systems for various digital assets while ensuring Hong Kong’s regulations align with global standards.

“We need clear definitions and segmentation,” Chiu said. “Some assets should be regulated like securities, while others should remain unregulated, like memecoins.”

He compared memecoins to collectible items like Pokémon cards or stamps, arguing they don’t warrant the same regulatory treatment as financial products because they lack functionality and don’t utilize smart contracts.

Regulatory structure

While Chiu had previously advocated for a dedicated digital version of the Securities and Futures Commission (SFC) – an “eSFC” – Hong Kong’s government has chosen to maintain crypto oversight under existing financial regulators.

The SFC currently handles most digital asset regulation through a dedicated team, while the Hong Kong Monetary Authority (HKMA) oversees stablecoins. Chiu expressed satisfaction with this arrangement, particularly as the SFC expands its staffing even during government-wide austerity measures.

“The government’s intention is to keep everything under the SFC. They will have a team inside the SFC, and they’re hiring. We just approved that in LegCo,” he said.

Looking ahead, Chiu identified establishing regulations for over-the-counter trading and custody services as the next major priorities, while leaving rules for crypto derivatives and leveraged trading to be developed by the SFC and exchanges.

Competing priorities

Though Chiu ranks crypto regulation among his top five legislative priorities, he acknowledged that not all LegCo members share this view. Some colleagues prefer focusing on strengthening investor protections first, particularly following the collapses of crypto exchanges FTX and JPEX, which caused significant financial losses across Hong Kong and Asia.

However, legislative bandwidth remains limited as Hong Kong faces multiple economic challenges, including a weak job market and a real estate sector on the verge of correction. The territory is also caught between the United States and Mainland China in Donald Trump’s renewed trade tensions.

“Some LegCo members are big supporters of virtual assets, but not all, of course,” Chiu noted. “They all have different priorities.”

Hong Kong’s careful balancing act between innovation and protection continues as it works to establish itself as a leading cryptocurrency hub in Asia.