Virtual currencies in Hong Kong used to be a little like the Wild West, only with freely operating private equity funds instead of cowboys. Now, groups that invest more than 10 percent of their assets in virtual currencies will have to be licensed by Hong Kong's Securities and Futures Commission (SFC).

Last week, Hong Kong rolled out its first regulations aimed at governing its burgeoning cryptocurrency market. The new rules don't represent a radical shift in the way laws have traditionally viewed cryptocurrency or the underlying blockchain technology but instead seem like an attempt to fold investment firms and the platforms they utilize into the existing order.

“Instead of creating a new regulatory framework or trying to categorize virtual assets, the SFC has taken the approach of extending regulation to firms that are already within its regulatory remit, particularly on the asset management side,” Etelka Bogardi, a partner with Norton Rose Fulbright, said.

According to Bogardi, the SFC has frequently expressed concern around investor protection risks, the possibilities of which only become more pronounced as a number of crypto exchanges have begun to set up shop in Hong Kong.

A few of those risks are inherent to the nature of a virtual market, such as a lack of liquidity and difficulties in valuation, while others hinge on player conduct, such as cyberattacks, and conflicts of interest

“Some of these can be addressed by regulation, others will require innovation from the industry, such as developing institutional custody solutions,” Bogardi said.

Either way, firms managing portfolios that invest in virtual assets will have to contend with licensing conditions imposed by the SFC, while trading platforms may be brought into a regulatory sandbox.

But similar to how attorneys working in the privacy or cybersecurity spheres have to navigate conflicting state or international laws, Hong Kong might not serve as an exact model for how other countries will approach regulating cryptocurrencies moving forward.

“Much depends on how active the cryptocurrency market is in each jurisdiction, what the appetite of legislators is to create freestanding frameworks and which part of the financial system is particularly active in this field,” Bogardi said.

In the case of Hong Kong, the regulations are tailored toward furthering its aspirations to develop into a cryptocurrency hub. Implementing strictures that make the investors, asset managers and hedge funds that continue to roll into the country feel slightly less unmoored could go a long way in that direction.

“I would say this is good news for institutional players who have been hamstrung by the regulatory grey areas in relation to these asset classes. There will be consolidation, and the more serious players will survive and thrive,” Bogardi said.

Still, lawyers representing (or hoping to represent) those players may find themselves having to rely on overseas partners to help clients navigate Hong Kong's cryptocurrency terrain.

“It will be even more important to get local law advice for offshore clients who participate in the cryptomarket in Hong Kong, whether as an exchange looking to onboard clients in Hong Kong, or an asset manager or other institutional investor,” Bogardi said.