On a balmy day in mid-April, 1000’s of individuals queued in line to enter the Hong Kong Convention Center the place the metropolis’s inaugural web3 pageant was underway. Most had flown in from mainland China, however many others had trekked from Singapore, Japan, Indonesia, Thailand and even the U.S. to see what the metropolis needed to provide to crypto ventures at a time regulation over digital belongings is intensifying in the U.S.
In February, Hong Kong proposed a set of welcoming guidelines to control crypto-related actions. Under the new authorized regime, retail buyers might be allowed to commerce sure digital belongings on licensed exchanges, changing a 2018 framework that restricted buying and selling to only accredited investors.
The metropolis can also be paving the way to legalize stablecoins. One startup, which is backed by popular exchange KuCoin and USDC issuer Circle, just lately launched an offshore Chinese yuan (CNH)-pegged stablecoin, the first of its variety in Greater China.
To create a favorable setting for web3 companies, the metropolis is facilitating communication between banks and crypto startups, lots of that are scrambling to search out alternate options following Silvergate Bank’s meltdown.
These strikes are contrasting with Beijing’s heavy-handed crackdown on the crypto trade; in addition they spotlight the diploma to which the former British colony enjoys coverage exceptions in sure areas, equivalent to finance.
In 2021, China outlawed all forms of crypto transactions, sending the nation’s web3 entrepreneurs fleeing to more web3-friendly jurisdictions like Singapore. With Hong Kong extending a welcoming hand to digital belongings, many Chinese founders in self-exile are weighing the possibility of establishing in the metropolis. Companies from the West are additionally evaluating Hong Kong as a potential outpost for his or her Asia growth.
At the weeklong Hong Kong web3 pageant, TechCrunch talked to a dozen members from the web3 realm, together with buyers, nascent startups, and established gamers, in addition to “traditional” web2 tech giants, to gauge Hong Kong’s attractiveness as the subsequent crypto hub.
Some consider the new regulatory regime will spawn a new wave of crypto innovation. They really feel reassured that they’ll now function as a reliable enterprise on Chinese soil and are fast to faucet the authorities’s coverage help, equivalent to backed workplace area for crypto ventures.
Others are extra hesitant to simply accept the olive department. As Asia’s monetary heart, Hong Kong doesn’t traditionally have a vibrant tech ecosystem and is just too costly for many scrappy startups, so the kinds of crypto companies it attracts will seemingly be these serving and interfacing with conventional finance, they reckon.
The East rises
The timing is favorable for Hong Kong’s pleasant transfer on crypto, stated Shixing Mao, co-founder and CEO at Cobo, a Singapore-headquartered digital asset custody answer backed by DST Global.
“The tightening of regulation in the U.S. after the FTX implosion has a few consequences. In the past, several American banks played the key role of linking the traditional and crypto worlds, but that link is now broken, which presents a great opportunity for Hong Kong to step up,” stated Mao, who’s amicably generally known as ‘Discus Fish’ in the crypto group.
“Hong Kong has always been at the intersection of the East and West and played the important role as the bridge to enter China,” noticed Lily King, chief working officer at Cobo.
That benefit was already confirmed earlier than. Hong Kong performed an essential position in the early improvement of the crypto trade by drawing once-influential exchanges like FTX and Bitmex to arrange retailers there. Following China’s crypto clampdown, FTX moved to the Bahamas for its friendlier and clearer regulatory stance in the direction of the new asset class.
Hong Kong is regaining some consideration from the West. Stephen Cheung, president at decentralized social community Bi.social, flew all the means from the U.S. east coast to Hong Kong to really feel the pulse on the floor.
“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 stated. Nonetheless, Cheung believed that if American crypto corporations are going to depart the nation, “they will stay within the western hemisphere.”
“Hong Kong has the possibility [of attracting Western firms] only because the U.S. is currently openly hostile towards web3 companies,” he stated, including that the metropolis might be extra interesting to different Asia-based corporations earlier than it is going to have any vital affect on the West.
Indeed, Hong Kong is more and more on the radar of crypto companies in Singapore, lots of which had come from China after the nation’s crackdown on crypto. Now the tide is popping.
“After FTX’s implosion, the Singapore government has grown 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,” stated Luke Huang, director of enterprise improvement at Safeheron, a digital asset self-custody answer supplier that’s based mostly in Singapore however just lately arrange an workplace in Hong Kong.
For the most half, individuals are praising the Hong Kong authorities for offering extra regulatory readability on the crypto trade. But they’re decoding Hong Kong’s open arms in another way. Some view the transfer as a sudden shift in the authorities’s perspective, whereas others see it as a reflection of the metropolis’s coverage consistency.
HashKey Capital, considered one of the world’s largest web3 enterprise capital corporations that just lately closed a $500 million Fund III, belongs to the latter camp.
The fund, which is Ethereum’s first institutional investor, arrange in Hong Kong again in 2017 and has stored its workplace there since. “What we have seen [in Hong Kong] over the years is a relatively consistent government direction and sustainable policy,” stated Chao Deng, the agency’s CEO. “The latest move is more of an update of the licensing regime.”
Conflux, a Layer 1 blockchain that claims to be the solely crypto firm allowed to function in China since the trade crackdown, was additionally put comfortable after assembly varied Hong Kong authorities delegates throughout the web3 pageant.
“Hong Kong is showing a tremendous amount of support for web3 development,” stated Zhang Yuanjie, co-founder at Conflux. “From 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 although Hong Kong’s new web3 regulation appears extra favorable in the direction of transaction-focused crypto providers, there’s room for infrastructure builders, reckoned Huang from Safeheron.
“Anyone entering the crypto industry needs cybersecurity infrastructure, whether it’s a traditional or web3 native company. Now that Hong Kong’s financial institutions might start integrating crypto-related products, we can play the role of helping to onboard them,” he stated.
China’s Big Tech is using Hong Kong’s crypto wave, too. Alibaba and Tencent had been each current at the web3 pageant with representatives from their cloud computing models. Like AWS, they need to get a headstart and be the decentralized world’s go-to cloud supplier. Even if the nascent trade received’t seemingly generate any significant income anytime quickly, the tech giants evidently don’t need to miss out on an trade that retains luring capital and expertise from conventional industries.
Wait and see
The web3 pageant, with its teeming convention room and lavish boat events, seems to be a euphoric celebration of the metropolis’s new crypto regime. But not all attendees are hot-headed. One investor from a outstanding China-focused enterprise capital agency, who declined to be named, stated he wasn’t trying to supply offers at the occasion as a result of “it’s not where the real technical developers hang out.”
Three Chinese web3 founders who’ve moved to Singapore and declined to be named stated they had been in Hong Kong merely to meet up with companions and buyers and would “wait and see” earlier than drawing any conclusion on the metropolis’s degree of crypto-friendliness.
Those who are usually the most enthusiastic about Hong Kong’s new crypto regulation are fund managers, inventory merchants, and others in conventional finance, noticed Rachel Lin, CEO and co-founder of SynFutures.
“It’s not that they feel so much for crypto, but it’s more about looking for the next investable assets. Right now, the financial markets are slowing and they can’t find any other alternative assets,” stated Lin. Prior to operating the DeFi protocol, she labored in the international markets division at Deutsche Bank, managed abroad funds options at Ant Group and was a founding accomplice of main crypto lender Matrixport.
“Crypto is very much close to what they’ve been doing in finance, unlike AI or biotech, which is something remote for them. I think the positive signal from the government also boosts their confidence,” she stated.
It comes as no shock that Hong Kong is vouching for a fledgling trade that performs to its power. In current years, the metropolis has seen an exodus of multinational firms and native expertise because it undergoes a string of political occasions.
“Hong Kong has hit a big bottleneck in traditional industries like finance and real estate, so it’s in dire need of young talent and new blood to revitalize its economy,” stated King. “Given the foundation it laid for the finance sector, focusing on digital assets is its best and only option going forward.”