As US cracks down on crypto, Hong Kong welcomes

[ad_1]

On a balmy day in mid-April, thousands lined up to enter the Hong Kong Convention Center where the city’s first web3 festival was taking place. Most had come from mainland China, but many more had traveled from Singapore, Japan, Indonesia, Thailand, and even the United States to see what the city had to offer crypto businesses at a time when digital asset regulation is intensifying in the United States.

In February, Hong Kong proposed a set of host rules to regulate crypto-related activities. Under the new legal regime, retail investors will be allowed to trade certain digital assets on licensed exchanges, replacing a 2018 framework that limited trading to accredited investors only.

The city is also paving the way for the legalization of stablecoins. A startup, which is backed by popular exchange KuCoin and USDC issuer Circle, recently launched an offshore stablecoin pegged to the Chinese Yuan (CNH), the first of its kind in Greater China.

To create a conducive environment for web3 businesses, the city is facilitating communication between banks and crypto startups, many of which are scrambling to find alternatives after the collapse of Silvergate Bank.

These measures stand in contrast to Beijing’s brutal crackdown on the crypto industry; they also highlight the extent to which the former British colony benefits from policy exceptions in certain areas, such as finance.

In 2021, China banned all forms of crypto transactions, sending the country’s Web3 entrepreneurs fleeing to more Web3-friendly jurisdictions like Singapore. As Hong Kong reaches out to digital assets, many exiled Chinese founders are considering the option of moving to the city. Western companies are also pricing Hong Kong as a potential outpost for their expansion into Asia.

At the week-long web3 festival in Hong Kong, TechCrunch spoke to a dozen web3 attendees, including investors, fledgling startups and established players, as well as mainstream web2 tech giants. “, to assess the attractiveness of Hong Kong as the next crypto hub.

Some believe that the new regulatory regime will spawn a new wave of crypto innovation. They feel reassured that they can now operate as a legitimate business on Chinese soil and are not shy about appealing to government policy support, such as subsidized office space for crypto firms.

Others are more reluctant to accept the olive branch. As Asia’s financial hub, Hong Kong historically lacks a vibrant tech ecosystem and is too expensive for most scrappy startups, so the types of crypto businesses it attracts are likely to be those that serve and interface with traditional finance, they believe.

the east rises

The timing is right for Hong Kong’s friendly move on crypto, said Shixing Mao, co-founder and CEO of Cobo, a Singapore-based digital asset custody solution backed by DST Global.

“The tightening of regulations in the United States after the FTX implosion has some consequences. In the past, several US banks have played the key role in bridging the traditional and crypto worlds, but that link is now broken, presenting a great opportunity for Hong Kong to step up,” said Mao, who is friendly known as the name “Discus Fish”. ‘ in the crypto community.

“Hong Kong has always been at the intersection of East and West and has played an important role as a gateway to enter China,” observed Lily King, chief operating officer at Cobo.

This advantage has already been proven before. Hong Kong played an important role in the early development of the crypto industry by attracting once influential exchanges like FTX and Bitmex to set up stores there. Following China’s crypto crackdown, FTX moved to the Bahamas for its friendlier and clearer regulatory stance towards the new asset class.

Hong Kong is regaining Western attention. Stephen Cheung, president of decentralized social network Bi.social, traveled all the way from the US east coast to Hong Kong to feel the pulse on the ground.

“As an American-born Chinese whose parents grew up in Hong Kong, I am extremely optimistic about the open door policy for crypto in Hong Kong,” he said. Nonetheless, Cheung believed that if U.S. crypto companies were to leave the country, “they would stay in the Western Hemisphere.”

“Hong Kong has the opportunity [of attracting Western firms] only because the United States is currently openly hostile to web3 companies,” he said, adding that the city will be more attractive to other Asian-based companies before it has significant influence in the West.

Indeed, Hong Kong is increasingly on the radar of crypto firms in Singapore, many of which came from China after the country’s crackdown on crypto. Now the tide is turning.

“After the FTX implosion, the Singapore government has become more cautious towards crypto. Hong Kong, on the other hand, is trying to attract talent and companies to build the basic infrastructure of the crypto industry” said Luke Huang, director of business development at Safeheron, a digital asset self-custody solutions provider based in Singapore but recently set up an office in Hong Kong.

Confidence booster

For the most part, people are praising the Hong Kong government for providing more regulatory clarity on the crypto industry. But they interpret Hong Kong’s open arms differently. Some see the move as a sudden change in government attitude, while others see it as a reflection of the city’s political coherence.

HashKey Capital, one of the world’s largest Web3 venture capital firms that recently closed a $500 million Fund III, belongs to the latter camp.

The fund, which is the first institutional investor in Ethereum, moved to Hong Kong in 2017 and has maintained its office there ever since. “What we saw [in Hong Kong] over the years is a relatively consistent government direction and sustainable policy,” said Chao Deng, CEO of the company. “The latest decision is more of an update to the licensing regime.”

Conflux, a layer-1 blockchain that claims to be the only crypto company allowed to operate in China since the industry crackdown, was also put at ease after meeting with various Hong Kong government delegates at the web3 festival. .

“Hong Kong is showing huge support for web3 development,” said Zhang Yuanjie, co-founder of Conflux. “Legislators and InvestHK [the city’s department of foreign direct investment] to its financial secretary and monetary authority, everyone is serious about supporting the crypto industry.

Even though Hong Kong’s new Web3 regulations seem more favorable to transaction-oriented crypto services, there is room for infrastructure builders, Safeheron’s Huang believes.

“Anyone entering the crypto industry needs a cybersecurity infrastructure, whether it’s a traditional business or native Web3. Now that Hong Kong financial institutions may start integrating crypto-related products, we can play the role of helping integrate them,” he said.

Chinese Big Tech is also riding the Hong Kong crypto wave. Alibaba and Tencent were both present at the web3 festival with representatives from their cloud computing units. Like AWS, they want to get ahead of the game and be the go-to cloud provider in the decentralized world. While the fledgling industry is unlikely to generate significant revenue anytime soon, tech giants obviously don’t want to miss out on an industry that continues to attract capital and talent from traditional industries.

wait and watch

The web3 festival, with its teeming conference hall and lavish boat parties, seems like a euphoric celebration of the city’s new crypto regime. But not all participants are fiery. An investor at a major China-focused venture capital firm, who declined to be named, said he was not looking to find deals at the event because “that’s not where real tech developers hang around”.

Three Chinese Web3 founders who moved to Singapore and declined to be named said they were in Hong Kong just to catch up with partners and investors and would “wait and see” before jumping to any conclusions. the level of crypto-friendliness in the city.

Those who tend to be most passionate about Hong Kong’s new crypto regulations are fund managers, stock traders and other players in traditional finance, observed Rachel Lin, CEO and co-founder of SynFutures.

“It’s not that they feel so much for crypto, it’s more about scouting for the next assets to invest in. Right now the financial markets are slowing down and they can’t find other alternative assets,” Lin said. Prior to leading the DeFi protocol, she worked in the global markets division of Deutsche Bank, managed overseas payment solutions at Ant Group, and was a founding partner at leading crypto lender Matrixport.

“Crypto is very close to what they’ve done in finance, unlike AI or biotech, which is something far away for them. I think the positive signal from the government also boosts their confidence,” she said.

It’s no surprise that Hong Kong vouches for a fledgling industry that capitalizes on its strength. In recent years, the city has seen an exodus of multinational corporations and local talent as it endures a series of political events.

“Hong Kong has encountered a big bottleneck in traditional industries like finance and real estate, so it urgently needs young talent and new blood to revitalize its economy,” King said. “Given the foundation he laid for the financial industry, focusing on digital assets is his best and only option going forward.”

[ad_2]