Hong Kong is making a significant move to establish itself as a leading tech hub in Asia. With plans to issue more cryptocurrency exchange licenses by the end of 2024 and the introduction of its first set of AI policies specifically designed for the financial sector, the city is gearing up for a transformative shift.

The government’s push for tax-free gains on virtual assets, alongside regulations to manage the burgeoning AI landscape, highlights its ambition. However, a critical question arises: Is this bold strategy sustainable, and will it genuinely benefit Hong Kong’s financial ecosystem?

The potential of AI and cryptocurrency in Hong Kong

Hong Kong’s financial sector is well-known for its strong infrastructure, large markets, and dynamic opportunities, making it a prime candidate for the adoption of AI technologies. The government, under the leadership of Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, has acknowledged the dual nature of AI—its potential to revolutionise finance while also presenting certain risks. By taking a balanced approach, Hong Kong aims to encourage AI development while addressing the challenges that come with it.

The introduction of a unified framework for AI policy across various regulatory bodies is a significant advancement. This framework will facilitate a coordinated strategy for governing AI use in finance, ensuring that the technology is utilised effectively and safely. This initiative comes at a crucial time, as AI applications are rapidly expanding across industries, particularly in finance, where AI-driven algorithms are reshaping trading, risk management, and customer service.

On the cryptocurrency front, Hong Kong’s proposal to extend tax breaks on digital assets signals its intent to become a welcoming environment for crypto investments. By including virtual assets in existing tax incentives for family offices and private funds, the city aims to attract more investment in this growing sector. This move aligns with a broader global trend, as institutional interest in cryptocurrencies continues to rise, evidenced by the increasing number of crypto-focused investment funds and the growing market capitalisation of digital assets.

Navigating challenges and opportunities

Despite the promising outlook, Hong Kong faces significant hurdles in its quest to become Asia’s premier tech hub. One of the main concerns is the sustainability of the current cryptocurrency exchange license holders. Many of these exchanges are struggling to achieve profitability, raising questions about the wisdom of issuing more licenses. The cryptocurrency market is notoriously volatile, and the regulatory landscape is still evolving, which adds to the uncertainty.

In addition, access to popular AI services in Hong Kong is limited. Major US tech companies like OpenAI and Google do not offer their AI services locally, and accessing Chinese AI services from companies like Baidu and ByteDance can be complicated. This lack of access could hinder the adoption of AI technologies in Hong Kong, potentially stalling the city’s ambitions.

To tackle these challenges, the Hong Kong government is working on developing its own AI solutions. This initiative could provide a much-needed boost to the local AI ecosystem, fostering innovation and creating new opportunities.

Also Read: How to succeed as an expat entrepreneur in Hong Kong

Economic implications

The economic ramifications of Hong Kong’s initiatives are profound. By embracing AI and cryptocurrency, the city is positioning itself at the forefront of the digital economy. The potential benefits are significant, including increased investment, job creation, and enhanced competitiveness in the global market.

According to a report by PwC, AI could contribute up to US$15.7 trillion to the global economy by 2030, with the financial sector being one of the biggest beneficiaries. In Hong Kong, the adoption of AI in finance could lead to more efficient operations, improved customer experiences, and new revenue streams. Similarly, the cryptocurrency market is expected to continue its growth trajectory, with the global market capitalisation of digital assets surpassing US$3 trillion in 2021.

The path to realising these benefits is fraught with challenges. The regulatory environment must be carefully managed to ensure that AI and cryptocurrency are used responsibly and ethically. This includes addressing issues such as data privacy, cybersecurity, and the potential for market manipulation.

A personal reflection

From my perspective, Hong Kong’s ambitious move to embrace AI and cryptocurrency is both exciting and concerning. As someone who closely follows technology and finance, I see the potential for these innovations to transform the industry. However, I am also aware of the risks involved.

Also Read: What makes Hong Kong the fastest growing startup ecosystem in Asia?

The success of Hong Kong’s initiatives will hinge on the government’s ability to strike a delicate balance between fostering innovation and implementing necessary regulations. It is crucial that the city creates an environment that encourages experimentation and growth while protecting the interests of consumers and investors.

The sustainability of the cryptocurrency exchange market is a pressing concern. While issuing more licenses could stimulate competition and innovation, it could also lead to market saturation and increased financial instability. The government must carefully assess market dynamics and ensure that new entrants are well-capitalised and capable of operating sustainably.

Hong Kong’s initiatives are a testament to the transformative power of technology and the importance of forward-thinking policies in shaping the future of finance. Whether these efforts will ultimately pay off remains to be seen, but one thing is certain: Hong Kong is a city to watch in the coming years.

—

Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic.

Join us on Instagram, Facebook, X, and LinkedIn to stay connected.

The post Embracing AI and cryptocurrency: Is Hong Kong too ambitious? appeared first on e27.