Hong Kong officially bans USDT and USDC, retail investors will be unable to legally trade mainstream stablecoins.

The Financial Secretary of Hong Kong, Paul Chan, explained the “Stablecoin Regulation” in writing to the Legislative Council, officially confirming that mainstream stablecoins such as USDT and USDC will face substantial bans in Hong Kong. According to the latest regulations, stablecoins that are not licensed by the Monetary Authority can only be offered to professional investors, completely excluding retail investors, and all stablecoin transactions must be conducted through five types of “recognized providers,” effectively cutting off traditional trading channels such as over-the-counter (OTC) and exchange stores.

Event Review: Stablecoins 'Judged' in Hong Kong

In the Legislative Council, Director Xu's response was quite direct:

· Channels like over-the-counter (OTC) and exchange shops can no longer exchange U for you.

· In the future, the buying and selling of stablecoins must go through compliant licensed channels.

Various rumors in the market before—such as “exchange shops can still secretly exchange USDT”—have all been put to rest. This decision has completely ended the gray area of Hong Kong's stablecoin market, drawing a clear line for the regulatory framework.

Stablecoins are divided into two categories: licensed vs unlicensed

The logic of the regulation is very clear:

· To retail investors and professional investors, it can be offered — provided that the stablecoin issuer has a license from the Hong Kong Monetary Authority.

· For professional investors, unregulated stablecoins can be provided.

The problem arises: USDT, USDC, and other commonly used stablecoins have not applied for licenses in Hong Kong. Therefore, they automatically fall into the “unregulated” category and can only be sold to professional investors. Retail investors who want to get involved? Forget it.

This regulation effectively excludes the vast majority of cryptocurrency users in Hong Kong from the mainstream stablecoin market, as becoming a “professional investor” in Hong Kong requires proof of assets of at least 8 million HKD, a threshold that ordinary investors find difficult to meet.

Only 5 types of “certified providers” can play with stablecoins

The regulations also define a “red line”: only 5 types of “authorized providers” can offer stablecoin exchanges:

· Licensed stablecoin issuers: Companies that issue stablecoins and have applied for and obtained a license from the Hong Kong Monetary Authority, for example, if a certain institution issues a “HKD pegged stablecoin” in the future and is approved, it falls under this category.

· Licensed Virtual Asset Trading Platform (VATP): Exchanges that have obtained a virtual asset trading platform license from the Securities and Futures Commission can provide regulated stablecoin exchange services for retail investors and professional investors.

· Licensed banks: Licensed banks approved by the Hong Kong Monetary Authority can provide stablecoin exchange, custody, and other services. After upgrades, banks may also directly participate in stablecoin business.

· Recognized payment institutions/e-wallet operators: Similar to Alipay Hong Kong and Octopus, if regulatory approval is obtained, they can engage in stablecoin transactions.

· Other financial institutions specially approved by the Financial Supervisory Commission or the Securities and Futures Commission: For example, trustee companies and licensed trust institutions can also be recognized after meeting the conditions.

This means that the street exchange shops, underground OTC, and coin dealers will completely exit the historical stage. The Hong Kong stablecoin market will be fully incorporated into the regulatory framework of the formal financial system.

Hong Kong's Choice: A Road to Darkness?

Some say that Hong Kong is aiming for “financial innovation” to create a compliant stablecoin center; others criticize that this is simply “self-defeating,” blocking USDT/USDC from entering, which is equivalent to kicking the market door shut.

After all, without licenses, mainstream stablecoins cannot be purchased by retail investors; it is also relatively difficult for compliant stablecoins to integrate into the crypto ecosystem in the short term, and the market will naturally cool down.

In the past, the issuer of USDT was born in Hong Kong and went global. But the current reality is: mainstream stablecoins in Hong Kong are really about to cool down.

Market Impact and Future Outlook

This policy will have a profound impact on the Hong Kong cryptocurrency market:

· Retail investors are forced to turn: Retail investors in Hong Kong may need to switch to compliant stablecoins or directly use fiat currency for trading, which will significantly change local trading habits.

· Exchanges facing adjustments: Hong Kong licensed exchanges need to adjust their stablecoin strategies, which may accelerate the development or introduction of compliant stablecoins.

· The emergence of new opportunities: For stablecoin issuers willing to adhere to the Hong Kong regulatory framework, this is an opportunity to enter the market.

· Changes in regional competitive landscape: Competitors like Singapore and Dubai may benefit from Hong Kong's strict policies, attracting more crypto business.

Hong Kong's decision is a choice made between regulatory safety and market vitality, and time will tell whether this is “financial innovation” or “self-defeating.” But what is certain is that the landscape of Hong Kong's cryptocurrency market will fundamentally change as a result.