In mid-April, thousands of people lined up to enter the Hong Kong Convention Center, where the city's inaugural web3 festival was taking place. Most had flown in from mainland China, but many others had traveled from Singapore, Japan, Indonesia, Thailand and even the US to see what the city had to offer crypto companies at a time when asset regulation digital is intensifying in the US.
In February, Hong Kong proposed a welcome set of rules to regulate cryptocurrency-related activities. Under the new legal regime, retail investors will be able to trade certain digital assets on authorized exchanges, replacing a 2018 framework that restricted trading to accredited investors only.
The city is also paving the way to legalize stablecoins. A startup, which is backed by popular exchange KuCoin and USDC issuer Circle, recently launched a Chinese yuan-pegged (CNH) stablecoin abroad, the first of its kind in greater China.
To create a favorable environment for web3 businesses, the city is facilitating communication between banks and cryptocurrency startups, many of which are scrambling to find alternatives following the collapse of Silvergate Bank.
These moves stand in contrast to Beijing's heavy-handed crackdown on the crypto industry; they also highlight the degree to which the former British colony enjoys 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. With Hong Kong extending a welcoming hand to digital assets, many self-exiled Chinese founders are weighing the option of settling in the city. Western companies are also eyeing Hong Kong as a potential outpost for their expansion into Asia.
The week-long web3 Hong Kong festival brought together a dozen web3 participants, including investors, start-ups and established players, as well as “traditional” web2 tech giants, to assess the attractiveness of Hong Kong as the next hub. cryptographic.
Some believe that the new regulatory regime will spawn a new wave of crypto innovation. They feel confident that they can now operate as a legitimate business on Chinese soil and are quick to take advantage of government policy support such as subsidized office space for crypto companies.
Others are more hesitant to accept the olive branch. As the financial hub of Asia, Hong Kong historically does not have a vibrant tech ecosystem and is too expensive for most startups, so the types of cryptocurrency businesses it attracts will likely be those that serve and interact with traditional finance. , according to them.
the east rises
The timing is favorable for Hong Kong's crypto-friendly move, said Shixing Mao, co-founder and CEO of Cobo, a Singapore-based digital asset custody solution backed by DST Global.
“The tightening of regulation in the US after the FTX implosion has some consequences. In the past, several American banks played the key role in linking the worlds traditional and crypto, but that link is now broken, presenting a great opportunity for Hong Kong to step up,” said Mao, amicably known as 'Discus Fish. ' in the crypto community.
“Hong Kong has always been at the crossroads of East and West and played an important role as a bridge into China,” observed Lily King, Cobo's chief operating officer.
That 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 shop there. Following China's cryptocurrency crackdown, FTX moved to the Bahamas for its friendlier and clearer regulatory stance towards the new asset class.
Hong Kong is regaining some attention from the West. Stephen Cheung, president of the decentralized social network Bi.social, flew from the US East Coast to Hong Kong to take the pulse in person.
“As an American-born Chinese whose parents grew up in Hong Kong, I am extremely optimistic about the open-door policy for cryptocurrency in Hong Kong,” he said. Nonetheless, Cheung believed that if American crypto companies are going to leave the country, they “will stay in the Western Hemisphere.”
“Hong Kong stands a chance of attracting firms from the west just because the US is currently openly hostile towards web3 companies,” he said, adding that the city will become more attractive to other Asian-based companies before it has an influence. significant in the West.
In fact, Hong Kong is increasingly on the radar of cryptocurrency companies in Singapore, many of which hailed from China after the country's crackdown on cryptocurrency. Now the tide is turning.
“After the FTX implosion, the Singapore government has become more cautious regarding cryptocurrencies. Hong Kong, on the other hand, is trying to attract talent and companies to build the core infrastructure of the crypto industry,” said Luke Huang, director of business development at Safeheron, a Singapore-based digital asset self-custody solutions provider that recently opened an office in Hong Kong.
confidence booster
For the most part, people praise the Hong Kong government for providing more regulatory clarity in the crypto industry. But they are interpreting Hong Kong's open arms differently. Some see the move as a sudden change in the government's attitude, while others see it as a reflection of the city's political consistency.
HashKey Capital, one of the world's largest web3 venture capital firms that recently closed a $500 million Fund III, belongs to the latter group.
The fund, which is the first institutional investor in Ethereum, was established in Hong Kong in 2017 and has maintained its office there ever since. “What we have seen in Hong Kong over the years is relatively consistent government direction and sustainable policy,” said Chao Deng, the company's CEO. “The latest move 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, also calmed down after meeting several Hong Kong government delegates during the web3 festival.
"Hong Kong is showing a lot of support for web3 development," said Zhang Yuanjie, co-founder of Conflux. “From lawmakers and InvestHK (the city's foreign investment department) to its financial secretary and monetary authority, everyone is serious about supporting the crypto industry.”
Although Hong Kong's new web3 regulation seems more favorable to transaction-focused crypto services, there is room for infrastructure builders, Safeheron's Huang said.
“Anyone entering the cryptocurrency industry needs a cybersecurity infrastructure, be it a traditional company or native web3. Now that Hong Kong financial institutions could start to integrate cryptocurrency-related products, we can play the role of helping to integrate them,” he said.
China's Big Tech is also riding the Hong Kong crypto wave. Alibaba and Tencent were present at the web3 festival with representatives from their cloud computing units. Like AWS, they want to get a head start and be the go-to cloud provider in the decentralized world. Even if the infant industry is not likely to generate significant revenue any time soon, the tech giants clearly don't want to miss out on an industry that continues to attract capital and talent from traditional industries.
Wait and see
The web3 festival, with its packed conference hall and lavish boat parties, appears to be a euphoric celebration of the city's new crypto regime. But not all attendees are so optimistic. An investor from a prominent China-focused venture capital firm, who declined to be named, said he was not seeking bids at the event because "it's not where the real technical developers hang out."
Three Chinese web3 founders who relocated to Singapore and also declined to be named said they were in Hong Kong simply to catch up with partners and investors and would "wait and see" before drawing any conclusions about the level of crypto friendship de la ciudad.
Those who tend to be the most passionate about Hong Kong's new crypto regulation are fund managers, stock traders and others in traditional finance, observed Rachel Lin, CEO and co-founder of SynFutures.
“It's not that they're very interested in cryptocurrencies, it's more about looking for the next investable assets. Right now, the financial markets are slowing down and they can't find other alternative assets,” Lin said. Before running the DeFi protocol, she worked in the division of global markets of Deutsche Bank, managed offshore payment solutions at Ant Group, and was a founding partner at major crypto lender Matrixport.
“Cryptocurrencies are very close to what they have been doing in finance, unlike AI or biotech, which is remote for them. I think the positive signal from the government also increases their confidence, ”he said.
It is not surprising that Hong Kong supports a fledgling industry that is harnessing its strength. In recent years, the city has seen an exodus of multinational corporations and local talent while going through a series of political events.
"Hong Kong has run into a major bottleneck in traditional industries such as finance and real estate, so it is in dire need of young talent and new blood to revitalize its economy," King said. “Given the foundation it laid for the financial sector, focusing on digital assets is its best and only option going forward.”
