Cryptocurrency companies are rushing to Hong Kong in the hope that the city’s high-profile push to become a hub for digital assets will help them to capture demand from mainland China to buy and sell tokens.
Hong Kong is perceived by some companies to be more crypto-friendly than rival Singapore, which cracked down on the sector last year after several high-profile collapses in the industry. The city is planning a new regulatory regime for exchanges and legalising crypto trading for retail investors.
Businesses expanding in Hong Kong are hoping to tap soaring demand to trade digital coins from mainland China, which remains the world’s fourth-largest crypto market despite Beijing’s 2021 ban against the sector.
“A lot of the Chinese capital is looking for smarter, safer ways to invest . . . being in Hong Kong naturally makes more sense than anywhere else,” said Henry Liu, chief executive of crypto exchange BTSE, which this month said it intended to apply for a licence in the city.
Other companies that plan 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 several Chinese-speaking positions in Hong Kong on LinkedIn.
The group said it believed the city had “a competitive position when it comes to . . . the business environment”.
The expansion of crypto companies reflects their growing optimism that Hong Kong will offer a pathway for them to gain legal access to the Chinese market, with regulatory approval from a top tier financial hub. In their thinking Hong Kong’s easing was 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 used VPNs to evade Chinese controls but still faced difficulties 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 the Chinese perspective it’s not the most legitimate way to do it. So if Hong Kong can provide a legitimate way . . . they don’t need to do it under the table.”
China declared all crypto-related activities illegal in 2021 and has sought to stamp out the use of offshore exchanges. However, traders are still operating.
Mainland China was the world’s fourth-largest crypto market in the year up to July 2022, according to blockchain research group Chainalysis. Investors conducted about $220bn of transactions in that period.
Under the current rules, Hong Kong’s Securities and Futures Commission said it was the legal responsibility of exchanges to ensure that retail customers weren’t accessing their 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 was planning to expand its Hong Kong base from about 70 to 200 this year, in the expectation that the city would benefit from Chinese demand.
“This was one of the most important roles for Hong Kong in the first place . . . As long as, for example, now you are based in Hong Kong, you can trade Hong Kong-listed Tencent stocks,” he said. “I believe this is also going to happen in cryptocurrencies.”
The US SEC charged Sun last week on fraud allegations. Sun said on Twitter that “we believe the complaint lacks merit”.
