Hong Kong attracts Web3 firms and talents back to the city as other regulators c...

Hong Kong attracts Web3 firms and talents back to the city as other regulators continues crackdown

Hong Kong attracts Web3 firms and talents back to the city as other regulators continues crackdown

Aron Chen

posted on 10 hours ago

Hong Kong is trying to entice mainland China cryptocurrency firms to rebase in the city

Hong Kong is trying to entice mainland China cryptocurrency firms to rebase in the city, despite scandals and high-profile bankruptcies prompting some governments to distance themselves from the sector.

Regions that had previously intended to become digital asset centers have implemented legislation to regulate the industry. Regulation, according to observers, is required to stabilize the Bitcoin market and increase public acceptability.

For example, the UK government unveiled a plan last month for regulating the cryptocurrency sector like that of conventional financial institutions.

While SEC Chairman Gary Gensler is taking legal action against ICO-era firms backed in 2017, Hong Kong authorities spoke on stage at the Web3 Festival to express their support for cryptocurrency and the larger digital asset market.

Compared to rival Singapore, which cracked down on the industry last year following numerous high-profile crashes, now Hong Kong is perceived by some businesses as more crypto-friendly.

Hong Kong has historically been a fintech and cryptocurrency hotspot because of its accommodating regulatory approach. However, after China banned any cryptocurrency-related operations, the city began to lose its luster due to the increasing regulatory ambiguity surrounding digital assets. The rise of potential competitors like Singapore and Dubai further weakened Hong Kong's position.

In a bid to regain its position as one of the global financial centers and the gate to mainland China's financial market, the city has set out on a quest to entice participants in the cryptocurrency business at a time when many people are concerned about an escalating regulatory crackdown in the US and elsewhere.

The Hong Kong government has launched a number of initiatives over the past several months demonstrating the region's support for the cryptocurrency business. Paul Chan, the financial secretary of Hong Kong, has revealed the government's intention to make investments in the growing Web3 ecosystem.

The actions include at least millions of dollars of funding to assist the development of the Web 3 ecosystem, tokenizing green bonds, establishing a new licensing framework for virtual asset providers, and enabling cryptocurrency trading by retail investors.

The first two exchange-traded funds (ETF) for cryptocurrency futures were also introduced in Hong Kong in the middle of December, and they raised more than $70 million before going public. The move occurred shortly after the chief of Hong Kong's Securities and Futures Commission declared in October that Hong Kong is willing to differentiate its approach to regulating cryptocurrencies from the Chinese crypto ban that will take effect in 2021.

Businesses expanding in Hong Kong hope to take advantage of the rising demand for trading digital currency from mainland China, which is still the fourth-largest crypto market in the world despite Beijing's 2021 ban on the industry.

Centralized exchanges plan to establish or expand their presence in Hong Kong, including exchanges KuCoin, Gate.io, OKX, and Huobi, which announced plans to move its headquarters from Singapore.

Binance, the world's largest crypto exchange founded in China, is now posting multiple Chinese-speaking job openings in Hong Kong on LinkedIn.

The company said it believed the city had "a competitive position when it comes to . . . the business environment".

The cryptocurrency exchanges Coinbase and Binance are among the crypto firms that have lately gotten into trouble with American regulators and could both face legal action.

For Binance's part, the threat of a lawsuit came in the form of a notice from the US Commodity Future Trading Commission (CTFC), which alleged Binance of insider trading and violation of trading and derivatives rules.

In a fireside chat at the Hong Kong Web3 festival, Changpeng Zhao (CZ), the founder of Binance, said the regulatory drive against crypto puts the industry in the limelight, "By closing down banks, restricting access to fiat currency, and tightening regulations on the traditional financial markets, they are attempting to regulate cryptocurrency, but this actually encourages more people to use it, the exact opposite of what they intended."

In Zhao's opinion, Hong Kong's Web3 push is great for the city's economy as a whole," HK banks start to support crypto. We will see more funds moving there.

As a result of Hong Kong's reputation for having a large population of high-net-worth individuals, numerous asset managers also said they are thinking about opening an office there.

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.

With regulatory approval from a premier financial hub, Hong Kong will provide a channel for them to get legal access to the Chinese market, as seen by the rise of cryptocurrency companies. In their minds, Beijing probably gave the go-ahead for Hong Kong's loosening. If Hong Kong succeeds, it could change Beijing's attitude.

Their confidence in Hong Kong did not spring from thin air; for the first time, Mainland Chinese officials publicly lauded Hong Kong's ambitions to become a Web3 center.

Even Chinese banks have expressed interest in forming alliances with and welcoming regulated cryptocurrency businesses to Hong Kong.

Chinese state-owned Bank of Communications branch in Hong Kong is working with a number of local cryptocurrency companies. The bank is in talks to open accounts for licensed businesses.

The largest virtual bank in Hong Kong, ZA Bank, owned by Chinese online insurer ZhongAn Online P&C Insurance, will serve as the settlement bank in addition to the Bank of Communications.

These banks will act as settlement banks to enable token deposits at authorized exchanges to be withdrawn in Hong Kong dollars, Chinese yuan, and US dollars and offer account services to cryptocurrency firms.

Opportunities for such actions present themselves a month after the failures of Silicon Valley Bank (SVB) in California and Signature Bank in New York, both known for providing services to cryptocurrency businesses. With its recent attempts to embrace the virtual asset market, Hong Kong has distinguished itself from markets like the US, which recently implemented stricter regulatory measures.