Hong Kong takes on Singapore for Asia’s cryptocurrency

Hong Kong has begun a race to become Asia’s crypto capital as investors and executives warn rival Singapore could squander its lead with its pivot to tighter regulation.

The sudden shift in Hong Kong last week towards clear rules for retail investors to trade digital assets follows years of ambiguity from regulators. That made some companies hesitant to build a bigger presence in the city, tapping into demand from mainland China, where crypto trading is banned.

Underscoring the issue, Huobi Global, one of the world’s largest cryptocurrency exchanges, confirmed last week that it would be moving its headquarters out of China, looking at the Caribbean.

“This type of regulation [in Hong Kong]I think we have been waiting for this kind of positive development [it for] five years,” said Lennix Lai, director of marketing at OKX, a crypto exchange with offices in both Hong Kong and Singapore.

“The regulatory status of Hong Kong is very important on a global scale. . . Industry participants seek a proper license everywhere in the world, but what they really want is a regulatory status in a major financial center,” Lai added.

This delay is reflected in the size of Hong Kong’s market compared to its big rival Singapore. At around $74 billion, Hong Kong trails Singapore in terms of the value of crypto assets received in the year to the end of June, with the latter’s total around $100 billion, according to Chainalysis, a consultancy.

The clash between the two financial hubs came to a head last week, when they held overlapping fintech conferences. At their event, Hong Kong officials announced a public hearing on how retail investors could have an appropriate degree of access to digital assets under a new licensing regime. Rules currently limit crypto trading to institutional investors with a portfolio of at least HK$8mn (US$1mn).

“I think [Hong Kong] could still recover it [leading global crypto hub] status,” said Sam Bankman-Fried, co-founder and CEO of FTX. – It’s certainly not too late for that. FTX left Hong Kong for the Bahamas last year due to the city’s Covid restrictions and more regulatory clarity in the Caribbean.

In contrast, the Monetary Authority of Singapore proposed tightening regulations for retail investors, after years of trying to attract some of the biggest names. The “crypto-credit crisis” earlier this year exposed a number of companies with ties to Singapore, such as hedge fund Three Arrows Capital.

Ravi Menon, chief executive of the central bank, said in a speech at Singapore’s fintech festival last week that the city-state did not want to be a hub for trading and speculation in the asset class. MAS has proposed to prevent retail investors from borrowing to invest in cryptocurrencies and require crypto exchanges to check that potential buyers understand the risks.

The contrasting approaches have already caused some to change their plans. “With the recent political announcements, we will prioritize and accelerate our business plans in Hong Kong over Singapore. We previously planned to move our headquarters to Singapore, but now that plan is on hold,” said Adrian Wang, CEO of Metalpha, a supplier of crypto asset management services.

Hong Kong’s shift comes despite the ban on crypto trading in mainland China. “Hong Kong seems to be positioning itself as a much more open jurisdiction for crypto trading compared to Singapore, which is particularly interesting given how hard the mainland has cracked down,” said Zennon Kapron, head of fintech consultancy Kapronasia.

The city is at pains to emphasize that it has a regulatory system separate from mainland China. “The key elements that international investors or people come to Hong Kong for are our international connectivity . . . along with our access to China,” Hong Kong Finance Minister Christopher Hui said.

Singapore says it still “embraces” crypto, but focuses on institutional markets.

“We fully embrace the underlying technology of distributed ledgers and their potential to transform financial markets,” said Lawrence Wong, Singapore’s Deputy Prime Minister, as he opened the conference.

Analysts and industry leaders said there would be greater clarity when the two cities published the final versions of their plans. “Hong Kong’s regime will come into effect in March, and there is plenty of time for Singapore to issue similar guidelines in the first quarter of next year,” said Vince Turcotte, Hong Kong-based director of digital assets at Eventus Systems.

But Hong Kong’s ambiguity about crypto may already have cost it as a hub for companies and executives.

“I don’t see the Hong Kong announcement as anything more than the whole region waking up to ‘this is real and here to stay,'” said Brooks Entwistle, senior vice president at cryptocurrency company Ripple. “But Singapore has been open in recent years, and made all the right moves to remain the long-term regional or global headquarters for fintech and crypto organizations.”