Hong Kong might become the hub of global crypto firms

Companies seek for more welcoming environments abroad to fuel crypto industry expansions

Asia might play a bigger role in the cryptocurrency industry. In January, the US Securities and Exchange Commission approved changes to allow the creation of bitcoin ETFs in the US but has yet to approve the ether ETFs. Three Chinese firms issued cryptocurrency ETFs on the Hong Kong exchange.

It was predicted that these steps might change the industry a lot and that crypto ETFs can allow investors to gain exposure to the price movement of the underlying assets without having to own the asset directly. As regulators in the US step their scrutiny of the industry, companies and founders look for more welcoming environments abroad.

U.S. authorities are increasing their checks on cryptocurrency businesses, leading these companies and their founders to seek countries with more supportive environments to grow in. Hong Kong is one such place trying to regain its position as a major financial center by adopting crypto-friendly laws to attract new entrepreneurs, tech experts, and investors. This approach appears to be effective^[1].

For instance, over 50,000 people attended Hong Kong’s annual web3 festival in mid-April, with a notable increase in attendees from the Western Hemisphere compared to the previous year. That year, many attendees were escaping the strict crypto laws of mainland China.

At this year's event, city officials dressed in formal attire paid close attention to the casual-looking, jet-lagged founders. Although she wasn’t there in person, billionaire Cathie Wood of Ark Invest gave a video speech. Ethereum’s founder, Vitalik Buterin, also made a surprise visit.

Hong Kong, renowned as a financial hub, is taking advantage of the attraction

Excitement about Hong Kong’s web3 sector began growing last June when it became legal for everyday investors to trade crypto. Since then, Hong Kong has introduced various regulations, such as a sandbox for issuing stablecoins and a licensing system for crypto exchange businesses. Recently, Hong Kong started offering cryptocurrency funds similar to those in the U.S.

These actions are very different from the U.S. government's strict policies. People from the U.S., Europe, the Middle East, India, and other places expressed their positive views on Hong Kong’s progress at the Web3 festival. For example, First Digital’s FDUSD, a stablecoin governed by Hong Kong’s rules and backed by U.S. Treasury bills, has quickly risen to become the fourth largest stablecoin globally.

However, there are concerns about Hong Kong's potential as a crypto hub. It has a relatively small population of seven million, and for now, it cannot access China’s huge market. Also, its strict investor protection laws could mean higher compliance costs, which might discourage those who prefer less regulated business settings.

Hong Kong is one of the few places, along with countries like the United Arab Emirates, Japan, and Singapore, that really supports cryptocurrency. Jack Jia, who leads the crypto division at the global payments company Unlimit, noted that even the mere act of Hong Kong setting up crypto regulations helps boost its image and attract attention^[2].

Hong Kong does not have the most lenient crypto regulations. Yet

While Hong Kong doesn't have the most relaxed crypto laws, its clear regulatory framework is a major draw. For example, its strict requirements for exchange operators led its top crypto company, HashKey, to apply for a license in Bermuda. Major crypto exchanges like Binance, Coinbase, and Kraken are not among the 22 applicants for Hong Kong’s crypto exchange license.

In the ever-evolving world of cryptocurrency, Hong Kong is emerging as a pivotal player, although it's not known for having the most flexible regulations. Recently, Jack Jia, a prominent figure in the crypto industry, voiced concerns over the lack of clarity from the U.S. Securities and Exchange Commission (SEC) regarding the licensing process for crypto firms. He praised Hong Kong for its more transparent approach and its willingness to engage with industry feedback.

Sergey Nazarov, the co-founder of Chainlink—a company that brings real-world data into blockchain smart contracts—sees significant potential in Hong Kong. Nazarov is excited about the possibility of integrating Chainlink's technology into Hong Kong's major financial infrastructures. He believes that the collaborative spirit between the capital markets and the crypto sector in Hong Kong is poised for rapid advancement, thanks to the proactive stance of local government and regulators.

This optimism is further underscored by the decision to host Chainlink's annual conference, SmartCon, in Hong Kong—marking the first time this major event has been held in an Asian city. This move signals Hong Kong's commitment to creating a reliable environment for crypto enterprises, with the government taking active steps to regulate stablecoins and other digital assets.

Steve Yun, president of the Dubai-based TON Foundation and an official partner of Telegram, is also bullish about Hong Kong's future in the crypto space. He points to the city's robust regulatory framework as a key factor in attracting new projects and talents to the region.

Meanwhile, Charles d’Haussy, CEO of the Switzerland-based dYdX Foundation and a former fintech leader at InvestHK, reflects on Hong Kong's regulatory journey. He notes that while the city initially welcomed the crypto industry with open arms, it later adjusted its stance in response to market fluctuations. However, about a year ago, Hong Kong began to embrace new market opportunities, issuing more licenses for crypto exchanges and ETFs through its Monetary Authority and Securities and Futures Commission.