Hong Kong is in the running to be the next crypto hub

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It’s been almost a year since your favorite Chinese watcher wrote anything significant about the Chinese crypto community. The truth is, China’s covid lockdown has made it difficult for anyone who doesn’t live in Asia to really understand its market, people, and general sentiment.

So I was surprised to feel the pro-crypto excitement at last week’s Web3 festival in Hong Kong. The big news was a major political announcement from the Hong Kong government, indicating its desire to make the island a happy place for crypto companies to come and set up shop within limits of course. The crypto thaw here has given CeFi, DeFI, NFT, protocol and gaming players a reason to come together and celebrate in Hong Kong. The conference was one of the largest ever held here.

Of course, the new regulations announced last week embody the One Country, Two System mandate that Hong Kong is still an integral part of China. But, as usual with Hong Kong, it enjoys occasional policy exceptions. In the case of crypto, while the mainland still bans crypto, Hong Kong seems to have been given the green light to openly woo and regulate the sector.

The sun sets in the west but rises in the east

The contrast with the United States could not have been more drastic. As Gary Gensler cracks down on ICO-era projects such as Algorand in 2017, Hong Kong officials dressed up and took the stage at Web3 Festival, where they expressed their commitment to crypto and the larger space. range of digital assets.

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 township was battered in 2020, after Beijing enacted its infamous national security law, which led to a mass exodus of international businesses, expats and wealthy locals.

The new agreement hopes to resolve all that. By giving clear regulatory guidance on digital assets, Hong Kong hopes to attract crypto firms to open offices in the city, bringing in new tax revenue, talent and financial activity.

So far, Huobi and OKX have announced plans to open branches in the city.

In a private conversation with your correspondent, a representative from Bitget, a new rising star in the CEX space, said he also intended to do the same. During the conference, many asset managers said they were considering moving to Hong Kong because the city is known for having so many wealthy people.

CEX call

Centralized exchanges played a major role in the week-long conference. After all, the Chinese control most of the CEXs in our industry, with the largest being CZs Binance, followed by Star Xus OKX, Ben Zhous Bybit, Justin Suns Huobi, and Shawn Liius Bitget.

For CEX, opening another office in Hong Kong is a kind of hedge against the crypto environment in Singapore. After the LUNA and 3AC debacle, Singapore, which was once the Wild West when it comes to crypto, is starting to be more cautious. This offers a great 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 the size of their compliance teams and their desire to be properly regulated.

The Hong Kong government “takes the creation of an international digital asset hub very seriously,” said Xiao Feng, founder of HashKey, a crypto conglomerate that operates an exchange, investment arm, trading firm staking and many more. (He is also an investor in Decrypt Media Inc.)

Feng was one of the main organizers of the conference. In November, when Hong Kong made licenses compulsory for exchanges, HashKey and OSL were the only two crypto exchanges to have 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 arriving in the city: on Twitter, Sun selected a woman (pictured below) to co-host the Huobis beauty pageant in collaboration with iPollo, a crypto wallet that has an adoption minimal but which is also known for its handsome marketers. .

Suddenly, the public started paying much more attention to the new face of Huobi than talking about web3 or digital assets.

Will they stay or will they go?

Opening the web3 to businesses is a way to attract both businesses and investors into crypto. At a private dinner with folks from Hashkey, I was told that the policy’s goal was to bring Web3 businesses into Hong Kong through ZA, a user-friendly crypto neo-bank blessed by the HK government.

Hong Kong is trying to be crypto-friendly, in a way. The government wants to ensure that the industry is regulated and allowed to operate within the limits below. For example, DeFi companies must apply for licenses and follow certain rules. Above all, the government here is always aware of how it will play out in Beijing, which in the end will either turn a blind eye or bring down the hammer.

Historically, Hong Kong has provided fertile ground for developing financial institutions. But crypto entrepreneurship is a different kind of flower. It requires local communities that are creative, technical and, most importantly, willing to push the boundaries of technology. The most popular tech startup here is a delivery app that looks like a turn-of-the-century web page. Tech renegades simply don’t exist among HK’s younger generation. Instead, they are buried under high rents and house prices. Finding a stable job so they can have a stable family outweighs the high-risk, high-reward game that, say, startup brothers in the United States play.

During my visit, I saw a lot of people in the Chinese OG ETH community. From the first ETH mining groups to the latest LSD farmers, the conference was definitely a celebration of Ethereum’s journey over the past 3 years. However, when your correspondent asked if any of the builders would move to Hong Kong, the response was predictable silence.

Hong Kong will have a tough road to battle for crypto tax revenue. Their enemies include not only Singapore but also Dubai, which recently started licensing crypto exchanges. For example, Bybit has just opened its global headquarters in Dubai.

But at least, unlike the United States, Hong Kong is trying to quickly establish the rules of engagement. Without it, there is no crypto industry.

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