Hong Kong is vying to become the next crypto hub
It’s been almost a year since your favorite China watcher wrote something meaningful about the Chinese crypto community. The truth of the matter is that China’s covid lockdown made it difficult for anyone not living in Asia to really understand the market, the people and the general feeling.
So I was surprised to feel the pro-crypto excitement at last week’s “Web3 Festival” in Hong Kong. The big news was one major political announcement from the Hong Kong government, indicating their desire to make the island a happy place for crypto companies to come and set up shop – within limits, of course. The crypto temple here gave players across CeFi, DeFI, NFTs, protocols and games a reason to reunite and celebrate in Hong Kong. The conference was one of the biggest ever here.
Of course, the new regulations announced last week contain “One country, two systems” mandate where Hong Kong remains part of China. But, as is common with Hong Kong, there are occasional policy exceptions. As for crypto, while the mainland still bans crypto, Hong Kong appears to have been given the green light to openly judge – and regulate – the sector.
The sun sets in the west, but rises in the east
The contrast with the United States could not be more drastic. Whereas Gary Gensler is knock down 2017 on ICO era projects like Algorand, Hong Kong officials stepped up and took the stage at the Web3 festival, where they voiced their commitment to crypto and the broader digital resource space.
As the West grows increasingly hostile to crypto, Hong Kong, following in Singapore’s footsteps, is banking on the new sector to revive its battered economy. The former canton took a beating in 2020, after Beijing enacted its infamous National Security Actwhich led to a massive exodus of international firms, expats and wealthy locals.
The new agreement hopes to fix all that. By providing clear regulatory guidelines for digital assets, Hong Kong hopes to attract crypto firms to open offices in the city, bringing new tax revenue, talent and financial activity.
So far, both Huobi and OKX have announced plans to open branches in town.
In a private conversation with your correspondent, a representative from Bitget, a rising star in the CEX space, said they also intend to follow suit. During the conference, many asset managers said they are considering setting up shop in Hong Kong since the city is known for having so many high net worth individuals.
CEX appeal
Centralized exchanges played a major role in the week-long conference. After all, Chinese people control most of the CEXs in our industry, the largest being CZ’s Binance, followed by Star Xu’s OKX, Ben Zhou’s Bybit, Justin Sun’s Huobi and Shawn Liiu’s Bitget.
For the CEXes, opening another office in Hong Kong is a kind of hedge against the crypto community in Singapore. After LUNA and the 3AC debacle, Singapore, once the wild west of crypto, is becoming more cautious. It provides a nice opening for Hong Kong.
Most of the founders and CeFi OGs showed up at the conference. They took to the main stage, gave long speeches about how great their compliance teams are, and how much they want to be properly regulated.
The Hong Kong government “is very serious about building an international digital asset center,” said Xiao Feng, founder of HashKey, a crypto conglomerate that runs an exchange, an investment arm, a betting business and many others. (It is also an investor in Decrypt Media Inc.)
Feng was one of the main organizers of the conference. In November, when Hong Kong made licensing mandatory for exchanges, HashKey and OSL were the only two crypto exchanges to get one. The government is expected to award licenses to other exchanges in June.
As usual, the most entertaining character was Justin Sun. He made his presence known even before he arrived in town: On Twitter, Sun handpicked a woman (pictured below) to host Huobi’s beauty pageant in partnership with iPollo, a crypto wallet that has minimal adoption but is also known for its beautiful marketers.
Suddenly, the public started paying much more attention to Huobi’s new face than talking about web3 or digital assets.
Will they stay or will they go?
Opening up to web3 companies is a way to attract both businesses and investors in crypto. In a private dinner with people from Hashkey, I was told that the goal of the policy is to bring web3 business to Hong Kong via ZAa crypto-friendly neobank blessed by the HK government.
Hong Kong is trying to be crypto-friendly, sort of. The government wants to ensure that the industry is regulated and allowed to flourish here – within limits. For example, DeFi companies must apply for licenses and follow certain rules. Above all, the government here is always aware of how this will play out in Beijing, which in the end will either look the other way, or bring the hammer down.
Historically, Hong Kong has provided fertile ground for growing financial institutions. But crypto entrepreneurship is a different kind of flower. It requires communities that are creative, technical, and more importantly, willing to push the envelope in technology. The most beloved tech startup here is a delivery app that looks like a turn-of-the-century website. Tech renegades simply do not exist among HK’s younger generation. Instead, they are buried under expensive rents and housing prices. Finding a stable job so they can have a stable family trumps the high-risk, high-reward game that startup bros in the US play, for example.
During my visit, I saw many people in the Chinese OG ETH community. From the early ETH mining groups to the latest LSD farmers, the conference was definitely a celebration of Ethereum’s journey over the past 3 years. But when your correspondent asked if any of the developers would move to Hong Kong, the response was a predictable silence.
Hong Kong will have a tough journey ahead of it to fight for crypto tax revenue. Their enemies include not only Singapore but also Dubai which has recently started issuing licenses to crypto exchanges. For example, Bybit has just opened its global headquarters In dubai.
But at least – unlike in the US – Hong Kong is trying to quickly establish the rules of engagement. Without it, there is no crypto industry.
