Hong Kong is looking to embrace digital assets with both arms wide open. According to a Financial Times article, its aim is to become a dominant digital assets hub.
It’s a bold move, especially after last year’s downtrend in the cryptocurrency markets. It reveals that Hong Kong foresees the proliferation of digital assets in the future despite the recent tumult.
Most recently, the country opened up the trading of digital currencies. The timing is auspicious, given that leading cryptocurrency bitcoin is up over 40% so far in 2023.
“Hong Kong has pushed ahead with plans to let retail investors trade cryptocurrencies as it vies with Singapore for supremacy as a digital assets hub,” the article said.
Regulatory measures, or the lack thereof, have been plaguing the U.S. when it comes to the cryptocurrency market’s place within the confines of the legal structure. The Securities Exchange Commission (SEC) is looking to play a more active role in digital assets oversight, while Hong Kong is adding a regulatory framework from the get-go.
“Under plans launched on Monday by the Hong Kong Securities and Futures Commission, the industry’s two largest crypto tokens — bitcoin and ether — would be opened up to retail customers, and licensed exchanges would be required to ensure clients have ‘sufficient knowledge of virtual assets’ before they are allowed to trade,” the article added. “All digital asset trading platforms operating in Hong Kong or actively marketing to Hong Kong investors would need to be licensed by the SFC.”
Thank Institutional Investors for Correlation
As investors continue to turn up the risk-on dial despite rising interest rates, cryptocurrencies and stocks are both benefiting. As mentioned, bitcoin is up over 40%, while the S&P 500 is up over 6% year-to-date.
This type of correlation was seen last year when both asset classes were trending lower. The recent correlation could be pinpointed to the influx of institutional money.
“Digital assets are losing their hedging benefit just as more institutional investors enter the crypto world. In fact, allocators may be the cause,” an Institutional Investor article said, noting that a research study from Georgetown University shows that the correlation has been increasing over time.
The Georgetown study also revealed that during times of heavy market fluctuations, the correlation was even higher. This was seen in data during the height of the COVID-19 pandemic and during Russia’s invasion of Ukraine.
“The recent increase in the correlation coefficient between the crypto asset market and the S&P 500 may reflect the increased participation of institutional investors,” according to the paper.
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