Hong Kong Stablecoin Regulation Risks for USDT OTC Traders

Published: 2025-08-25 07:27:36 |

Hong Kong stablecoin regulation took effect on August 1, 2025. It mainly targets the issuance and promotion of designated stablecoins. The law’s core concept of “offer” remains vague. This ambiguity poses compliance risks for USDT OTC traders. Licensed entities must hold one of five approved licences to offer designated stablecoins. Unlicensed OTC trading may incur severe penalties. Organisations can face fines up to HK$5 million and seven years in prison. The regulation does not directly ban peer-to-peer USDT trading. However, unclear definitions mean OTC platforms could be seen as “offerors” and thus need licences. The Hong Kong Monetary Authority has clarified that actual OTC trades between individuals are beyond this law’s scope. Still, traders and brokers are advised to seek licensing or cease stablecoin services to avoid legal exposure. To continue offering USDT or USDC trading services, firms must register as a VASP, payment licence holder, or SFC type 1 licencee. This marks a shift from Hong Kong’s previously relaxed environment for stablecoin exchange. Market participants should reassess their compliance frameworks and consider licensing to safeguard operations under the Hong Kong stablecoin regulation.

Bearish

By raising licensing requirements and introducing penalties, Hong Kong stablecoin regulation may reduce OTC trading volumes and push some brokers to exit. Similar moves in other jurisdictions, such as the EU’s MiCA and US regulatory actions against non-compliant stablecoin issuers, led to a contraction in stablecoin market activities and temporary liquidity strains. In the short term, uncertainty and compliance costs can deter new participants, limiting USDT and USDC OTC flows. Over the long term, clearer rules could stabilize the market but also concentrate trading among licensed platforms. Traders may face higher fees and reduced counterparty options. Therefore, the immediate outlook is bearish as market participants adjust to compliance demands and regulatory scrutiny.