Crypto groups are expanding in Hong Kong to meet demand in mainland China

Cryptocurrency companies are rushing to Hong Kong in hopes that the city’s high-profile push to become a hub for digital assets will help them capture demand from mainland China to buy and sell tokens.

Hong Kong is perceived by some companies as more crypto-friendly than rival Singapore, which clamped down on the sector last year after several high-profile collapses in the industry. The city plans a new regulatory regime for exchanges and legalizes crypto trading for retail investors.

Companies expanding in Hong Kong hope to capitalize on soaring demand to trade digital coins from mainland China, which remains the world’s fourth-largest crypto market despite Beijing’s ban on the sector in 2021.

“A lot of the Chinese capital is looking for smarter and safer ways to invest. . . Naturally, being in Hong Kong makes more sense than anywhere else,” said Henry Liu, CEO of crypto exchange BTSE, which this month said it intended to apply for a license in the city.

Other companies planning to establish or expand their presence in Hong Kong include exchanges KuCoin, Gate.io and Huobi, which announced plans in February to move its headquarters from Singapore.

Binance, the world’s largest crypto exchange, which was founded in China, is now advertising more Chinese-speaking positions in Hong Kong on LinkedIn.

The group said it believed the city had “a competitive position in terms of . . . the business environment”.

The expansion of crypto companies reflects their growing optimism that Hong Kong will offer a path for them to legally access the Chinese market, with regulatory approval from a top-level financial hub. In their thinking, Hong Kong’s concessions were probably approved by Beijing.

“Chinese blockchain companies are very bullish on Hong Kong,” said Cyrus Ip, partner at Hong Kong-based web3 investor Newman Capital. He said some mainland traders were using VPNs to evade Chinese controls, but they still faced difficulties in turning their crypto profits back into sovereign money. It is possible to change crypto to hard currency in Hong Kong.

“You can use a VPN . . . but from a Chinese perspective, it’s not the most legitimate way to do it. So if Hong Kong can provide a legitimate way . . . they don’t have to do it under the table.”

China declared all crypto-related activities illegal in 2021 and has tried to stop the use of offshore exchanges. However, Traders is still operating.

Mainland China was the world’s fourth largest crypto market in the year to July 2022, according to blockchain research group Chainalysis. Investors completed about $220 billion in transactions during that period.

Under current rules, Hong Kong’s Securities and Futures Commission said it is the exchange’s legal responsibility to ensure that retail clients do not access its platforms from jurisdictions where crypto trading was illegal.

But many crypto entrepreneurs believe Hong Kong’s embrace of crypto is a signal that Beijing will eventually ease restrictions.

Justin Sun, founder of the Tron blockchain network and a board member of Huobi, said the exchange planned to expand its Hong Kong base from around 70 to 200 this year, expecting the city to benefit from Chinese demand.

“This was one of the most important roles for Hong Kong in the first place. . . . Now, as long as you’re based in Hong Kong, for example, you can trade Hong Kong-listed Tencent shares,” he said. “I think this will also to happen in cryptocurrencies.”

The US SEC charged Sun last week with fraud allegations. Sun said on Twitter that “we believe the complaint lacks merit”.