According to a WSJ report, Hong Kong’s attempt to attract crypto companies is getting help from an intensifying crackdown by American regulators. In recent years, the United States government has taken a more aggressive stance toward regulating the crypto industry, with increased scrutiny on the use of digital assets for illicit activities and a crackdown on unregistered securities offerings.
As a result, some crypto businesses have been forced to consider relocating to more favorable jurisdictions. Hong Kong is one such jurisdiction that has emerged as a potential destination for these companies. The city has long been a hub for finance and technology in Asia and, in recent years, has made efforts to position itself as a center for cryptocurrency and blockchain innovation.
Hong Kong’s crypto sector sees a surge
The path to global crypto dominance for Hong Kong has not been simple. The city was once home to several prominent businesses, including Crypto.com, BitMEX, and the bankrupt FTX. However, as a result of intensifying competition from Singapore, apprehensions regarding China’s strict crypto policies, and Hong Kong’s prolonged and stringent response to Covid-19, a significant number of firms left the industry.
In contrast to the United States, Hong Kong is now committed to reintroducing some of this activity. In the past few weeks, U.S. regulators have cut off access to crypto products and services, targeted crypto-friendly banks, filed civil charges against celebrities alleged to have promoted digital assets, and sued exchanges, including Binance Holdings Ltd., the operator of the largest crypto exchange.
Global crypto dominance plans for Hong kong are underway. According to reports, Hong Kong’s Securities and Futures Commission proposed a new licensing framework centered on investor protection in February. Furthermore, a senior official stated at a press conference that the regulator wished to avoid a recurrence of the issues that brought FTX down and other fraudulent behavior.
Crypto entities make plans to set up shop in HK
More than 20 crypto and blockchain firms from mainland China, Europe, Canada, and Singapore have informed the government that they intend to set up shop in Hong Kong. At the same time, according to official figures, over 80 firms have expressed interest in doing crypto business in the city.
Bybit, a Dubai-based cryptocurrency exchange, stated that it is establishing its core Asian operations in Hong Kong. It intends to locate a portion of its marketing and research and development teams in the city. The exchange, established in 2018, intends to apply for a license in Hong Kong in accordance with the proposed rules taking effect in June.
Other businesses have questioned the profitability of Hong Kong operations and the cost of obtaining and maintaining licenses. Some consider the city’s proposed regulations for centralized exchanges and retail trading excessively conservative. As the securities regulator completes its rules, others are waiting to see if exchanges can only serve the small market of local residents.
According to partner Joy Lou, LD Capital, a crypto investment fund founded in Shanghai and now based in Singapore, is planning to relocate its headquarters to Hong Kong this year, attracted by its financial-market infrastructure, more sophisticated secondary market, and talent pool. According to her, the fund is working with recruiters in Hong Kong to hire traders and investor relations and compliance professionals on a local level.
What’s the future of crypto in Hong Kong?
In 2021, China’s government cracked down on crypto-related activities, including crypto trading. Previously, the country was a major market for bitcoin mining. China ranked fourth on the Global Crypto Adoption Index in 2020, according to blockchain data platform Chainalysis. Now, Hong Kong is bound to fill the void left by China.
In this context, the United States’ crypto crackdown has inadvertently boosted HK’s crypto ambitions, as businesses and investors seek out a more welcoming regulatory environment and a gateway to the burgeoning Asian crypto market. As a result, HK has the potential to emerge as a leading player in the global crypto and blockchain ecosystem, with implications for the broader financial and technological landscape in the years to come.