Hong Kong’s crypto industry eager for policy support such as regulation, Covid-19 bruises city’s status as digital asset hub

Token2049, a major industry conference held in Hong Kong before the pandemic, will take place in Singapore next week for the first time.

“Many of the guys were in Hong Kong, but for some reason they have moved to different places,” said Yang He, co-founder and CEO of Aspen Digital, a Hong Kong-based crypto asset management firm. “Obviously it’s a changing world and crypto is very fluid, but part of that is a lack of clarity and a lack of speed.”

Through an amendment to the city’s anti-money laundering law, Hong Kong is moving forward with a new set of regulations requiring mandatory licensing of cryptocurrency trading platforms. This will require companies to only offer such services to professional investors, i.e. people with a portfolio of at least HK$8 million (US$1 million).

At a Legislative Council meeting that considered the change in July, May Chan, deputy secretary of Hong Kong’s Financial Services and Treasury Bureau, said the administration was “aware of the need to maintain a balance between regulation and healthy development” of the virtual asset. market. However, given that virtual assets are a “relatively new investment product involving high risk”, it is “a prudent measure” to limit the services of professional investors.

“When we look at virtual asset exchanges, I don’t think anyone would say that it’s wrong to have proper policies around anti-money laundering and Know Your Customer, but I don’t think it necessarily follows logically that virtual asset exchanges can offer services only to professional investors, ” said Tanner De Witt’s Walsh. “I think it sets a tone in terms of regulatory standards that have received people in the crypto community.”

Lucy Gazmararian, founder and managing partner of Hong Kong-based Token Bay Capital, echoed this sentiment: “If you’re too heavy-handed too early, the ecosystem will move to other jurisdictions that are more supportive of new technologies, and that’s exactly what we have set.”

“Messaging is critically important, and intent is the core that’s missing,” she added. “We need to position Hong Kong as a Web3 hub and give confidence to industry so that they choose Hong Kong as their base, create jobs and invest here for the long term.”

Web3 is a loosely defined vision for a next-generation World Wide Web that is decentralized through the use of blockchain and similar technologies. However, the term is most commonly used today in relation to applications involving cryptocurrencies and NFTs.

Industry players are now scrambling to restore Hong Kong’s status as a crypto hub, and some believe there are reasons for optimism, including the loosening of Covid-19 controls that have been in place for two years. The government recently announced the end of mandatory hotel quarantines for inbound travelers starting Monday, with three days of home monitoring still required.

“Removing quarantine restrictions will definitely boost sentiment in the immediate term,” said Bowie Lau, a Hong Kong-based partner at venture capital firm True Global Ventures and founder of MaGESpire, the organizer of StartmeupHK’s metaverse and blockchain-focused Game On! Summit.

“One of my main goals [for the summit] was to put the spotlight back on Hong Kong as the place to be for innovators, entrepreneurs and hardcore professionals who want to shape the future of Web3 and crypto, she said.

“Although the strict requirements and regulations slowed down the development of the crypto market in general,” she added, “I think constant and open dialogue between regulators and providers of digital assets about the experiences, together with a gradual plan for opening of the space, would definitely help Hong Kong in restoring its status as a leading crypto hub.”

Interest in cryptocurrencies remains high in the city. Earlier this week, some Hong Kong-based Web3 companies, including Animoca Brands, Aspen Digital and blockchain venture firm Everest Ventures Group (EVG), jointly hosted an event aimed at “celebrating the invention of ERC-721”, a much used standard for NFTs, and it drew about 300 participants with more than 100 people on the waiting list, according to Jerome Wong, a partner and co-founder at EVG.

“The event exceeded our expectations in terms of attendance and enthusiasm,” said Aspen Digital’s He. “Hong Kong came out in force, showing the energy and passion for which it is known, reinforcing its place as one of the world’s top economic and cultural hubs.”

The city also has one of the highest concentrations of crypto ATMs in the world, according to Forex Suggest, but adoption is low relative to income levels. It was ranked 46th Chainalysis’ latest crypto adoption index.

However, for Gazmararian, it is not too late for Hong Kong to correct its course. Hong Kong “has yet to show its cards” when it comes to crypto regulations, and its “one country, two systems” framework means the city is “in a very strong position between China and the rest of the world to play a critical role for Web3- integration,” she said.

“I’m optimistic that Hong Kong will listen and come out with something exciting,” she added. “And if they want help from the industry, what’s left of it, they should start reaching out in a much more targeted way.”