Which market offers the most favorable environment for virtual assets? This distinction remains highly contested, with various financial centers competing to become leading hubs for digital assets, aiming to attract innovation, investment and jobs. In Asia, two of the most prominent players in this space are Hong Kong and Singapore.

Hong Kong’s regulatory environment will be the lynchpin to its success. The right regime will not only provide guidelines to stakeholders but attract them in the first place. And though entrepreneurs and corporations are often the focus of such policy-making, regulators need to give as much attention to retail and institutional investors. After all, investors provide the financial backing that businesses need to succeed in what is typically a capital-intensive market.

Why investors need a safe and regulated crypto market

Investors across the world have suffered the brunt of negative effects from the Wild West days of crypto. We see this pattern at play from Mt. Gox to FTX and other exchanges in between: When they go belly up due to a hack or other issues, investors have little recourse or hope of ever getting their funds back.

The same is true for individual coins: the failure of some tokens, like TerraUSD and Luna, has led to the financial ruin of many investors. And there are other scammers across the world of crypto, from pig butchering operators passing off fake mining operations, to phishing scams targeting users of regulated crypto exchanges, to schemers who even purport to specialize in the recovery of these funds.

Hong Kong’s competitive edge in digital asset regulation

Although the digital assets sector has been unforgiving to investors, it is the role of regulators in Hong Kong to make sure that crypto becomes investor-friendly.

The regulators here are already off to a great start. The main agency responsible is the Securities and Futures Commission, which regulates and licenses what it deems to be virtual asset trading platforms (VATPs). These businesses are subject to strict policies that protect investors, including everything from KYC and AML to custodianship and risk disclosures.

While many markets have enacted frameworks for cryptocurrency, Hong Kong has one major advantage: speed. For example, Hong Kong was one of the first markets in the Asia Pacific region to approve bitcoin and ether exchange-traded funds (ETFs) with in-kind subscription, a mechanism that allows investors to directly subscribe to ETF shares using the underlying crypto assets instead of cash. Beyond that, the territory is constantly scanning the horizon for other possible policies to refine its regulatory guidelines.

Hong Kong also has a robust sandbox program for stablecoins and discretionary accounts that it is regularly improving upon. To this end, the SFC has approved several licensed fund managers to provide discretionary management account services for virtual assets. This feature enables fund managers to execute the unique investment mandate of each investor on pre-approved exchanges from end-to-end, including buying and selling virtual assets, as well as provide other services like derivatives trading, reporting, and portfolio monitoring and rebalancing.

How Hong Kong can strengthen its crypto framework

To further innovate upon its robust foundational regulatory framework, Hong Kong can focus on these three pillars.

1. Market education. It’s not enough for regulators to give investors access to digital assets — they must also provide educational resources to maximize their investments. Digital assets, after all, come with unique risks. The most obvious is volatility, but there are others, such as security, liquidity and sustainability.

Hong Kong regulators should provide education about digital assets and their risks, and continue requiring its VATPs to do the same. After an assessment of each prospective investor, VATPs must provide not only disclosures and warnings but also educational materials to improve investors’ understanding of digital assets. Informed and educated investors will benefit the individual VATPs and Hong Kong as a whole, resulting in fewer failures and similar issues to deal with.

2. Investor-friendly assets and features. While digital assets are often discussed in monolithic terms, coins are very different when examined from an investor standpoint. On one end, there are digital assets that are not investor-friendly. Examples include memecoins that have extreme volatility, such as Shiba Inu or Pepe Coin, or privacy coins like Monero.

On the other end, there are digital assets that are very investor-friendly. The most notable recent example is spot bitcoin exchange-traded funds (ETFs), which give investors exposure to $BTC without having to go through the hassle of buying it directly, jotting down their private keys and securing it in a cold or hot wallet. In addition to encouraging VATPs to focus on similar investor-friendly assets, Hong Kong should also authorize the development of platform features that simplify and streamline the investor experience. Their north star is clear: What assets or features will make it easiest for investors to support projects and enterprises in crypto?

3. Transparent regulatory environment. Regulatory clarity is not always a priority of agencies. We saw this principle at play in the United States, where the Securities and Exchange Commission (SEC) began prosecuting crypto exchanges and other institutions for offering what it deemed to be unregistered securities. The law cited for these violations was not a crypto framework, but the Howey Test, which originated from a 1946 Supreme Court case involving the SEC. This enforcement naturally discouraged other crypto investors, businesses and stakeholders from setting up shop in the U.S. because they were afraid of getting punished due to the lack of regulatory clarity. While President Trump is establishing a pro-crypto administration, the damage may already be done: Businesses in the space may prioritize other markets.

Hong Kong should continue its culture of transparency and collaboration, as evident in the recent proposal for a Stablecoins Bill by the Hong Kong Monetary Authority (HKMA). While the bill only made the headlines recently, the HKMA had been consulting with stakeholders about its structure for more than a year. This transparency — organizations know what laws may be coming, how they will be applied and even have a say in their execution — will allow investors and businesses to align their own plans with what will be allowed in the regulatory environment.

Poised to lead Asia’s crypto future

Crypto regulations are racing ahead in 2025, but Hong Kong can distinguish its own crypto regime by emphasizing market education for all investors, investor-friendly assets and exchange features, and a transparent regulatory environment that empowers stakeholders to plan their actions well in advance of policy changes. If Hong Kong can continue this three-pronged approach, it will seize the mantle as Asia’s premier crypto hub — not only because it’s investor-friendly, but because it’s investor-first.