The annual Hong Kong FinTech Week has arrived as scheduled, coinciding with the second anniversary of the Hong Kong Web3 Declaration. What is the current state of Web3 development in Hong Kong, and is the future still worth looking forward to?

As a representative of Hong Kong's Web3 industry, HashKey is undoubtedly one of the most authoritative institutions. With these questions in mind, PANews interviewed Livio Weng, CEO of HashKey Exchange, Hong Kong's largest compliant virtual asset exchange.

As a veteran in the crypto field and a pioneer in Hong Kong's Web3 space, Livio Weng engaged in an in-depth discussion with PANews about the development of Web3 in Hong Kong over the past two years, the impact of regulatory policies, and HashKey's business strategy. He shared unique insights into Hong Kong's policy environment, analyzed the trend of integration between traditional financial institutions and Web3 companies, and looked ahead to the future direction of the crypto market.

Regarding the current state of Web3 development in Hong Kong, Livio Weng stated, "Hong Kong has taken a differentiated approach, allowing traditional institutions to enter and integrate with Web3 companies, where traditional institutions play a more important role. Thus, Web3 is no longer an independent industry but is deeply integrated with traditional finance."

On HashKey's unique development path, Livio Weng revealed, "We do not rule out the possibility of allowing users to purchase Hong Kong stocks or other assets through cooperation on HashKey Exchange in the future. We have considered packaging traditional assets as real-world assets (RWA) to provide options for customers, allowing funds to remain within the crypto domain."

"The market is currently in a vacuum lacking 'killer applications'; the popularity of MEME coins is more of a short-term effect, filling this gap. Once a truly significant application is launched, long-term capital will return to mainstream projects, and MEME coins will not be the permanent mainstream." When discussing the current market divergence, Livio Weng expressed a long-term optimism for mainstream projects.

Here are the detailed contents of this interview.

Treading Carefully, Hong Kong's Web3 Has Just Entered a Formal Development Stage

PANews: First, let's discuss the current state of Web3 development in Hong Kong. Since the introduction of policies, the declaration, the implementation of policies, and the formal issuance of licenses this year, expectations for Hong Kong have been high. However, there are still some divergences within the industry regarding the current state of Web3 development in Hong Kong. Some believe the government's policies are excellent and full of promise, while others feel the pace is too slow, leading to significant differences. Over the past two years, as someone deeply involved in the local scene, how do you feel about Hong Kong's development in Web3?

Livio Weng: I believe Hong Kong's development stage indeed follows a two-year cycle, and we are currently at a critical turning point. The first two years were more about policy formulation; the government had the intention to support the industry and issued policy declarations, but at that time, they were still exploring how to effectively promote it and to whom. Therefore, the industry did not truly begin to develop initially.

The real start for Hong Kong should be November 1 of last year when HashKey Exchange launched the first licensed trading application in Hong Kong's history, allowing users to trade primarily through the application, marking the official beginning. It has now been exactly one year. During this year, the government, especially the Hong Kong Securities and Futures Commission (SFC), has been studying how to regulate this industry, effectively treading carefully alongside us. Thus, Hong Kong emphasizes steady development, initially focusing on prudence. Now, I feel we have officially entered a development phase.

Some may question the speed of development and view the choices as conservative. I think this is also a necessity because the Web3 field is full of changes, with rapid development accompanied by many unknowns and risks. Since the policy declaration, many once-popular projects, such as Layer 2 and NFTs, have transitioned from being in vogue to a trough. This includes the previously hot Bitcoin ecosystem, Ordinals. This wait-and-see attitude can actually be beneficial, allowing some bubbles to pass first.

From 0 to 1, Hong Kong's strategy has been cautious. As regulators, they need to consider how to effectively protect retail investors. A conservative attitude may miss some opportunities but also avoids many risks. In the long run, the measures taken in the initial stage are not problematic.

Now, Hong Kong has explored a route that allows regulated traditional financial institutions with long-term regulatory experience to enter and collide with Web3 companies like ours, forming a more robust long-term development path.

PANews: Can you elaborate on some specific changes?

Livio Weng: For example, the banking sector in Hong Kong has always held a conservative attitude towards cryptocurrency companies, making it difficult for them to open accounts. However, as Hong Kong's largest licensed exchange, we have had more interactions with the banking sector. In the experimental process, they have gradually moved from initial skepticism to discovering that our KYC, KYT, and anti-money laundering measures are not inferior. Therefore, we have become the best channel for deposits and withdrawals in Hong Kong. The launch of zero freeze cards is also a result of long-term mutual trust established with the Hong Kong banking sector.

The securities industry is similar; currently, securities firms provide clients with four cryptocurrencies available for retail trading, including Bitcoin and Ethereum. Although they were previously conservative, they have also keenly sensed changes in the market. They want to provide trading services for clients but are concerned about potential issues. Ultimately, they chose to cooperate with us, where clients' assets are custodied by us, and we provide trading services, allowing them to offer related services to clients. This cooperation model is unique globally, as Hong Kong brokers can directly offer virtual currency trading within their applications. Some banks are also planning to launch similar services, and more banks will join. Additionally, we are collaborating with traditional fund companies to issue virtual currency ETFs. All of this shows that Hong Kong is gradually opening up, and many institutions awaiting licenses have traditional regulatory experience.

Hong Kong has taken a differentiated approach, allowing traditional institutions to enter and integrate with Web3 companies, where traditional institutions play a more important role. Thus, Web3 is no longer an independent industry but is deeply integrated with traditional finance.

Traditional securities, finance, and banking sectors in Hong Kong are fully embracing Web3. Web3 companies are organically integrating with them, forming new business models, and in the long run, everyone will merge into one.

In summary, Hong Kong spent the first year in preparation, the second year in experimentation, and the third year beginning to push for development. It is foreseeable that Hong Kong has entered the second stage of development: expanding from past regulation of exchanges to regulation of the entire ecosystem, first integrating with traditional industries, and then in the Chief Executive's recent policy address, we see the expansion from a single trading link to the entire ecosystem, including virtual banks, virtual insurance, mobile payments, stablecoins, and more. The next step will expand into more fields.

Due to the good track record and history of traditional institutions, this has given the government more confidence to support multi-track development from various aspects. Of course, exchanges remain the core central link, including the issuance and circulation of stablecoins primarily conducted through exchanges. Therefore, our exchange, including real-world assets (RWA), payment support, etc., will play a key role.

Exchanges lead the way, expanding to the entire ecosystem, which is also a promising aspect for Hong Kong's future.

The Real Competition in Hong Kong Has Yet to Arrive

PANews: Currently, there are three licensed exchanges in Hong Kong, and more licenses may be issued soon. For HashKey, will these new competitors become increasingly numerous, and will this challenge become significant?

Livio Weng: I believe that in the short term, especially from the perspective of this bull market, the newly licensed exchanges may not catch up. After obtaining their licenses, they still need to undergo various technical system audits, reporting, and a significant amount of talent recruitment, as well as improving their operational and risk control models. All of this takes time. From obtaining the license to formal operation, we also took about a year; they likely won't be faster than that. Therefore, they may not catch up in this bull market.

Secondly, we believe that competition in Hong Kong has not truly begun. Everyone is more focused on working together to push regulatory agencies to lift various restrictions and expand market space. Currently, HashKey has long been advocating for regulation, but often, the voice of multiple institutions is more persuasive than that of a single entity. This makes it easier to distill industry commonalities, allowing the Hong Kong Securities and Futures Commission (SFC) to feel more credible and fair in its decision-making.

Thus, in the medium to short term, we hope to have more institutions join us in advocating for policy openness, making Hong Kong's market ecosystem more prosperous and diverse. However, in the medium to long term, competition may arise. If policies do not open further and there is insufficient profit space, competition may begin on fees, leading to price wars. Just like in the past, the predecessor of the Hong Kong Stock Exchange was seven exchanges with minimal differentiation, leading to fierce market competition where no one was profitable, resulting in several closures, and the remaining few merged under government coordination to form today's stock exchange.

Hong Kong has learned from its historical mistakes in the securities industry, and I believe they will not make the same errors again. However, there may still be a few licenses issued before the end of the year, but these institutions may miss this bull market and may need to wait another four years for the next bull market to see if there are development opportunities. Therefore, the current situation we face is relatively favorable and advantageous. This is mainly because we acted early, complied with regulations, and developed steadily.

PANews: The entire crypto market in Europe and the United States is still dominated by native projects, which have historically been the mainstay of the crypto world. In the past year or earlier, due to compliance reasons, some native Web3 projects left Hong Kong, while some traditional capital and established players began to enter. What do you think of this change? Will Hong Kong become the domain of traditional capital in the future? Or will native projects gradually return to Hong Kong in another form after the compliance wave?

Livio Weng: I believe this is a two-way choice. On one hand, traditional finance indeed needs to embrace this significant trend change; they need to choose to integrate with Web3, or part of them will transform into Web3. On the other hand, Web3 companies will also observe the changes in Hong Kong and its rise, entering this market in different identities or forms.

Currently, there still seems to be a clear distinction between traditional finance and Web3, but as integration occurs over the next three to five years, these boundaries will become increasingly blurred. You have me, and I have you; it may become difficult to discern whether a company is traditional or new. Companies will have both traditional and new components. For example, in our company, we hold a VASP license and also have SFC licenses 1 and 7, which are traditional licenses, and we can even issue securities. Therefore, gradually, there will not be a strong sense of distinction regarding whether something is traditional.

PANews: Based on the current development situation, do you think Hong Kong has met expectations over the past two years?

Livio Weng: I believe the industry has different expectations from various perspectives. Before Hong Kong fully integrates, this diversity of expectations is quite normal. The traditional financial sector may feel that development is too rapid, with so many licenses issued within a year, showing significant encouragement and support for Web3. However, from the perspective of the rapidly changing Web3 community, they may feel that the pace is not fast enough. Therefore, the Hong Kong Securities and Futures Commission (SFC) is constantly seeking a balance to better meet the needs of these two different viewpoints.

From our own expectations, we certainly hope for faster development. In recent months, we have indeed seen significant acceleration. The reason is that during the past phase of moving from 0 to 1, everyone was relatively conservative. After one or two years of preliminary experience, everyone knows how to proceed, especially after the industry became licensed and operated for a long time without issues, so the pace is becoming increasingly rapid. For us, we certainly hope for a faster and bolder pace, with more open policies being introduced.

PANews: Yesterday, the Hong Kong government also launched several Web3-related policies. From your perspective, what will be the next focus of development in Hong Kong? Is it stablecoins, or will it be to broaden more areas?

Livio Weng: I believe one aspect is to broaden more categories, such as the issuance of stablecoins and various other directions. In the absence of significant policy risks, there should be encouragement for multi-directional attempts and breakthroughs.

Secondly, from the practitioner's perspective, it is necessary to bring in traditional financial institutions and encourage them to integrate with the industry. Now, institutions have been mobilized. First, brokers are leading the way, followed by banks, and then payment companies, utilizing stablecoins for global cross-border settlement and payments. Subsequently, fund companies will enter the market, issuing real-world assets (RWA) and security token offerings (STO). Expanding from both product categories and practitioners, I think there is still a lot of imagination.

Asian Capital is a Step Behind the U.S. Market

PANews: Next, let's discuss the topic of ETFs in Hong Kong. Hong Kong has also launched Bitcoin and Ethereum ETF products, but there is a noticeable gap in trading volume compared to the U.S. How do you view the lack of trading volume in Hong Kong ETFs compared to our expectations of large volumes like in the U.S.?

Livio Weng: I believe there are several reasons.

First, the global macro environment over the past two years has been affected by the U.S. dollar's interest rate hikes, leading to a significant capital inflow back to the U.S., which has made both the U.S. stock market and crypto market quite prosperous, while other global markets, including Hong Kong, have not performed well. This is a major reason. However, with the potential for interest rate cuts in the future, the situation may change. Global capital may flow back from the U.S. to other emerging markets, as there are many undervalued assets in emerging markets, such as Hong Kong stocks. Capital will rush into Hong Kong stocks seeking bottom-fishing opportunities, and after a period of market movement, it may consider other markets. If the crypto market performs well, capital may return to Hong Kong's crypto market.

Second, U.S. ETFs have a first-mover advantage, and the market is more mature with better liquidity. In financial markets, liquidity is king. Because U.S. ETFs have better liquidity, many Hong Kong institutions prefer to purchase ETFs in the U.S. market. This is similar to the USDT in the stablecoin market, where the first-mover advantage makes it difficult for later entrants to surpass. Therefore, Hong Kong now needs to consider launching differentiated ETFs that the U.S. does not have, such as Ethereum staking ETFs or Solana ETFs. If we can be the first to launch these products, we can gain a first-mover advantage and attract global capital to purchase in Hong Kong.

Third, local capital in Hong Kong or Chinese capital, as well as capital from the entire Asian region, is still a step behind the U.S. market. Currently, everyone is still in the stage of learning and education. In Hong Kong, at least more than half of the institutions have not fully understood Web3 and will need more time. Their decision-making cycles are longer because most decision-makers in large financial institutions are older. It will take some time for them to learn and feel confident enough to make decisions.

The Secret to HashKey's Growth: Hard Work

PANews: HashKey is now the largest compliant exchange in Hong Kong. What are the secrets to your growth?

Livio Weng: In terms of growth, there aren't many secrets. The main reason is that we started early. At a very early stage, our group's founder, Dr. Xiao Feng, believed that exchanges are a good business model but need to operate under compliance. Without a license, there will definitely be challenges at some point in history. This is what we have seen this year, with various unlicensed exchanges being shut down, criminally prosecuted, and fined in various places. Leading exchanges have gradually exited dozens of markets, and the future space is becoming increasingly limited.

So, when we saw that Hong Kong had a licensing policy in 2018, we quickly took action. The simplest idea at that time was to do the right thing first. HashKey is one of the few companies globally that is 100% licensed and focused on virtual assets. We adhere to honest licensing and uphold long-termism, which is our core secret to growth from a macro perspective.

From a micro perspective, talent is the most important strategic resource in the entire industry. We were the first to organically integrate financial talent, legal and risk control talent from Hong Kong with internet and technology talent from mainland China, as well as talent from the Web3 industry. Therefore, we have a strong combat capability. These are the two most important secrets to our growth; it is essentially about hard work, but it allows us to go far.

PANews: From the perspective of user demographics, are your users more institutional or retail?

Livio Weng: Our user structure is related to the characteristics of the Hong Kong market. Hong Kong has never been a market dominated by retail investors, including the traditional stock market. The main players in Hong Kong are still high-net-worth individuals and institutions, along with a portion of retail investors. Therefore, the user structure of HashKey Exchange is quite similar.

Our core clients are mainly high-net-worth individuals in Hong Kong, such as professional investors (PI), as well as some financial institutions. As mentioned earlier, various financial institutions from different industries are also our clients. They may themselves be large aggregators, pooling their trading volume and assets with us. Of course, we also have a portion of retail users and global Chinese users, all of which make up our core user demographics.

PANews: For institutions, compliance is certainly a very important prerequisite. But for ordinary users or retail investors, is compliance equally important?

Livio Weng: Compliance is also very important for retail investors, especially in two aspects.

First is asset security. The JPEX incident in Hong Kong and the global FTX incident have affected many clients, including friends around us. These events have made everyone realize that trading on unregulated exchanges, while it may yield significant profits, can also lead to a total loss overnight, rendering previous gains worthless. No one wants to bear such risks, so safety, stability, and reliability are paramount.

Second, because we are a financial institution ourselves, our integration with banks gives us the best fiat deposit and withdrawal channels in Hong Kong. Currently, we have achieved a zero-freeze card situation for fiat deposits and withdrawals through our platform. This has also been a pain point in the past; many people made money on exchanges but could not withdraw it, and once they tried to withdraw, their accounts could be frozen. Now, through HashKey, we can achieve zero-freeze cards, which has earned us respect and trust from traditional banking. This is because we have done a lot of work in KYC, anti-money laundering, and other areas, gaining the trust of traditional finance. These two characteristics remain very important functions and advantages for the future.

PANews: HashKey also holds licenses 1 and 7. Is there a possibility in the future that retail investors can also buy Hong Kong stocks or other assets on HashKey's exchange?

Livio Weng: This possibility cannot be ruled out; we can achieve this through cooperation. In fact, we have previously considered packaging traditional assets, such as equities and money market funds, as RWAs (real-world assets) to provide options for clients. This way, clients' funds do not need to leave the crypto domain to complete transactions on our platform. Additionally, our integration with banks has another direction: we will issue debit cards in the future. If you hold cryptocurrencies like Bitcoin or USDT, you can use this card for online purchases and settle directly. These are all initiatives we are pursuing through integration, and they represent our compliance advantages.

Currently Still in the Early Bull Market, MEME is Just a Short-Term Effect

PANews: This year's market situation shows significant divergence. The entry of institutions like ETFs may have driven up Bitcoin prices, but even Ethereum has not benefited much. Additionally, some mainstream public chains have performed well this year, along with MEME coins. However, previous VC coins and some mainstream star projects have not seen much improvement in overall market prices. How do you view this phenomenon of divergence?

Livio Weng: I believe the market is currently in a vacuum lacking "killer applications" from a fundamental perspective. In the past, whether it was the inscriptions and runes on the Bitcoin ecosystem, NFTs, GameFi, or Layer 2, none of these have become mainstream at this stage. Even further projects, such as RWAs (real-world assets) and DePIN (decentralized physical infrastructure networks), have not yet gained traction at this stage.

Currently, the main reason is the development of Bitcoin and people's expectations of interest rate cuts in the U.S., leading to a large influx of capital into Bitcoin, driving up its price and creating a phenomenal market. However, more fundamentals have not yet materialized. For example, while Ethereum's TPS has increased, without a significant influx of DeFi, TPS is just a number.

PANews: Does the popularity of MEME coins bring more benefits or drawbacks to the market?

Livio Weng: At this stage, I personally view MEME coins more as a "blockchain lottery." It's like a scratch-off ticket; people invest a little money, and who knows, it might increase by 100 times. This is a speculative behavior conducted in the absence of better investment opportunities. Therefore, MEME coins are a lottery-style speculation and a phase phenomenon.

The popularity of MEME coins has more of a short-term effect on the market, filling the gap left by the lack of "killer applications." For example, in the last bull market, there was DeFi, which was a collection of "killer applications," but this time, none have emerged yet, although they are likely to come. Once a truly significant application is launched, long-term capital or larger capital will return to the right track. MEME coins will not be the permanent mainstream.

PANews: For the entire market, which stage do you think we are currently in?

Livio Weng: I believe we are in the early stages of a bull market. The beginning of interest rate cuts in the U.S. makes this bull market somewhat structural and different from previous cycles. From February to April this year, due to the unexpected approval of Bitcoin and Ethereum ETFs, a large amount of capital entered, pushing up a phase of the bull market that no one expected to break previous highs so easily. However, because the rise was too rapid, there will inevitably be a round of corrections, with profit-taking and a need to wash out positions. So, from April until now, we have been in a washout phase, and now it is starting to surge again.

I feel that once the interest rate cuts in the U.S. officially begin, the real benefits have not yet fully materialized. Only when a large amount of capital enters and pushes prices to break previous highs or even higher will the bull market be considered truly here. Therefore, we are currently in the early stages of a bull market. Looking ahead to the next year, we are still quite optimistic about the entire market.

PANews: What price do you think Bitcoin will reach in the future?

Livio Weng: As the head of a licensed exchange in Hong Kong, I am not in a position to directly predict the price of Bitcoin, but I can summarize some of the more mainstream views in the market. From 2022 to 2030, and even into 2032, many well-known figures predict that Bitcoin's price will exceed one million dollars, with some even suggesting it could reach over ten million dollars by 2050—there are all sorts of bold ideas.

In the short term, I have summarized different viewpoints. More neutral industry analysts believe that Bitcoin's price may center around $150,000. More optimistic predictions range between $180,000 and $200,000, while more pessimistic views hover around $100,000 to $120,000. Overall, there is a relatively consistent consensus that Bitcoin has the opportunity to break through $100,000. We also look forward to that day.

PANews: You have been in the industry for many years. What insights do you have from the changes in the crypto market over these years?

Livio Weng: I believe this is one of the best opportunities for young people to seize. The current market opportunities, aside from AI, are in Web3. However, not everyone can participate in AI. At least one-third of people can participate in Web3, and they can at least buy Bitcoin and Ethereum as a stable long-term investment, providing opportunities for wealth.

Especially with the devaluation of fiat currencies, I believe the collapse of fiat currencies in the future is inevitable. The U.S. national debt has reached $35 trillion, and from the perspective of U.S. industrial interests, they should maintain high interest rates to prevent capital outflow, but it has become difficult to sustain. The annual interest from $35 trillion in debt has already exceeded military spending, forcing them to lower interest rates.

After lowering interest rates, we may enter the next round of quantitative easing, which will require printing a large amount of money, leading to further devaluation of the dollar and driving down other global currencies. This is a long-term trend for humanity, and this cycle has already begun.

Looking back two or three decades, our parents earned only a few dollars a month, and a hundred dollars was a lot of money. Back then, having ten thousand yuan was equivalent to nearly a million today. This means that currency has been diluted by dozens or even hundreds of times. This trend will continue in the future, and money will become increasingly worthless.

Ordinary people can buy gold to hedge against inflation, while people in the new era can buy Bitcoin. Therefore, crypto will gradually replace gold in the future and even take on some of the roles of fiat currencies, becoming a fairer global currency. This is an inevitable long-term trend. Young people who can catch the wave of this era will likely believe in it and buy Bitcoin, just as people used to buy gold.

PANews: In my impression, in the past few cycles, making money through trading coins was relatively easy. But now, such opportunities are becoming rarer, and new projects are increasingly difficult to understand. For new users, the barriers may be higher. Do you think the current state of the industry still has the same wealth effect or opportunities as before?

Livio Weng: To some extent, the volatility of the industry has indeed decreased. Early investors in Ethereum could achieve returns of thousands of times because they got in early, at just one dollar. Early Bitcoin investors even saw returns of hundreds of thousands of times. As we moved forward, opportunities for a thousandfold or hundredfold return became rare. Now, it might be returns of dozens of times or a few times.

The overall certainty of the industry is increasing, and volatility is decreasing. This phenomenon has occurred in most financial industries; the further along we go, the lower the volatility, and the industry becomes more mature. Therefore, the earlier you join this industry, the greater the chance of seizing market opportunities.

But there are still opportunities. I believe the first half may not be over yet, and the second half has not yet begun. I started mining in 2010, when I could still mine with a laptop and GPU without needing professional equipment. I really started trading coins in 2013, but that was just a small-scale attempt. It wasn't until 2017 and 2018 that I made significant investments, but generally, those who make their first large-scale investments often get stuck. After experiencing one or two bull markets, they may be more accurate in seizing market opportunities. At that point, there may be significant returns. As time goes on, they may become even more precise. Generally, people are naive in the first bull market, may get stuck in the second, and only start making money in the third bull market.

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