Ultimate Resource On Hong Kong Vying For World’s Crypto Hub #GotBitcoin
After Hong Kong’s Financial Secretary Paul Chan announced plans that could lead to an opening up of the crypto market this week, Bloomberg reported China’s mainland government in Beijing could have quietly endorsed the idea, fueling expectations the crypto market could be in for an Asia-led boom. Ultimate Resource On Hong Kong Vying For World’s Crypto Hub #GotBitcoin
“Interest in crypto is a global phenomenon, and regulators in Europe and now in Asia have realized that a base level of regulation is not only necessary but also desirable to build confidence in this nascent industry,” Bradley Duke, co-chief executive at ETC ETC -0.8% Group, said in emailed comments. “Both investors and crypto service providers benefit from the stability brought by sensible regulation—a point that for now seems lost to the U.S. Securities and Exchange Commission (SEC).”
Now, the cofounder of bitcoin and crypto exchange Gemini, Cameron Winklevoss of Facebook-founding fame, has issued a “bull run” price prediction—warning the U.S. can either “embrace [crypto] or be left behind.”
“The big question is, in spite of interest rates going up and the dollar gaining strength, is there a catalyst that can push [the bitcoin price over $25,000?],” Gareth Soloway, the chief market strategist at Verified Investing, told Coindesk, pointing to the China narrative as attracting new bitcoin buyers that had been spooked by Federal Reserve interest rate hikes and the threat of looming U.S. regulation over the last year. “I think this narrative out of Hong Kong could be something that helps.”
Hong Kong Monetary Authority Aims To Oversee Stablecoin Reserves
Hong Kong’s central bank is inviting global stablecoin operators to respond to its proposed rules.
Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA), wants to supervise stablecoin issuance and reserves management.
HKMA published a discussion paper on Wednesday regarding cryptocurrencies and stablecoins in which it provided its views on how the industry should be regulated in Hong Kong.
In the 34-page long consultation document, the HKMA paid special attention to “payment-related stablecoins,” pointing out that the market capitalization of all stablecoins hit $150 billion in December, accounting for 5% of the entire crypto market.
The regulator added that all existing stablecoins are “mostly asset-linked and predominantly pegged” to the United States dollar, including stablecoins like Tether “The rapid development of crypto-assets, particularly stablecoins, is a topic of keen attention in the international regulatory community as it presents possible risks regarding monetary and financial stability,” HKMA said.
To effectively handle associated risks, HKMA laid out eight major policy directions, proposing to become a single regulator to supervise entities involved in both regulating and running operations like issuing stablecoins and managing their reserves.
The authority also wants to regulate stablecoin transactions’ validation processes, private key storage management and executing transactions.
“We encourage current or prospective players in the stablecoins ecosystem to respond to this paper and submit relevant views to us, so that we could take the feedback into account when formulating the regulatory framework,” HKMA wrote.
The regulator expects to finalize its next steps as soon as possible and introduce new regulations by 2023 or 2024.
HKMA is not the only financial regulator concerned about stablecoin risks and planning steps to regulate the growing industry.
In November 2021, the U.S. President’s Working Group on Financial Markets issued a report on possible “stablecoin runs” and “payment system risks.” The U.S. Treasury subsequently hinted at new stablecoin-focused laws in December.
Hong Kong’s OneDegree To Offer Insurance For Digital Assets With Munich Re
Clients will be able to get reinsurance for crypto.
As crypto’s market cap pushes past $2 trillion and makes its way onto the balance sheets of many institutional investors and corporations, Hong Kong insurer OneDegree has announced a deal with Munich Re, one of the world’s largest reinsurers, to offer a new digital asset insurance product.
* OneInfinity, the digital asset insurance product, is targeted toward digital asset trading platforms, custodians, asset managers and technology providers.
* Munich Re will provide reinsurance, described as “insurance on insurance companies,” that ensures an insurance company remains solvent even in the face of large payouts.
* Having insurance backed by reinsurance is the norm for major infrastructure providers of any asset class, but takes a unique twist with crypto given the intensity of cyberattacks.
* Becky Tam, OneDegree’s general manager of digital assets, said her firm runs “risk-based analysis” that covers everything from cybersecurity and operations to personnel management.
* “It’s just like how if you are a heavy smoker and drinker you will struggle to buy medical insurance,” she said. “Not everyone that comes to us can get insurance.”
* The company doesn’t insure decentralized finance (DeFi) projects yet, but hopes to do so after it studies the market more.
Hong Kong Stresses Pro-Crypto Stance As Industry Reels
* FTX Implosion Hasn’t Dimmed Hong Kong Ambition As Crypto Hub
* Financial Secretary Invites Tech Startups To Move To The City
Hong Kong will be a great place for crypto, fintech and other startups to set up shop in the new year, the city’s financial secretary said on Monday, looking past the current upheaval in the industry.
Paul Chan, speaking at a Web3 forum in Cyberport, said Hong Kong remains committed to becoming a regional crypto hub — an ambition expressed at the end of October, just before Sam Bankman-Fried’s FTX exchange had its industry-altering meltdown — and will work to attract new businesses from all over the world.
Hong Kong is keen to plug its crypto credentials at a time rival Singapore is backtracking, spooked by the fallout from the derailment of FTX.
Following the city’s policy statement, several leading tech firms and startups are now considering a move of their headquarters or an expansion to Hong Kong, Chan said, without disclosing their names.
“As certain crypto exchanges collapsed one after another, Hong Kong became a quality standing point for digital asset corporates,” said Chan, who’s been Hong Kong’s financial secretary since 2017. The city has a robust regulatory framework that “matches international norms and standards” while prohibiting free-riders, he added.
Hong Kong is preparing to issue more licenses for digital asset trading firms. The city is also planning a consultation on crypto platforms — exploring the potential for retail participation in the industry — the details of which will be published soon, said Joseph Chan, under secretary for financial services and the treasury, at the same event.
Hong Kong Seeks To Be Crypto Hub With Retail Trading, ETFs
The remarks came as the city attempts to rebuild its international stature as a financial hub following three years of tough Covid-19 restrictions.
Its leadership has come under fire for virus curbs that played a role in pushing investors, executives and corporations to locations like Singapore that dropped guardrails earlier.
On Sunday, tens of thousands crossed Hong Kong’s border with China without requirements for quarantine for the first time since the pandemic’s outset, fueling hopes of reviving the local economy and cross-border financial interaction.
Like many other sectors, the crypto industry is viewing Hong Kong’s stance with caution, given perceptions that Beijing — which has banned most forms of crypto activity — is gradually exerting control over the financial hub.
Hong Kong’s Finance Regulator Calls For ‘A More Solid Footing’ For Crypto
After crypto firms have left the city, the regulator says it’s now moving with the market and industry.
HONG KONG – Christopher Hui first heard of crypto from some friends who were running investment funds and investing in virtual assets. Now, as secretary for Financial Services and the Treasury of Hong Kong (FSTB), he’s developing policy direction for the sector.
During Hong Kong FinTech Week, held in early November, he asked one of his staff whether he should get his first virtual asset.
The bureau is piloting a non-fungible token (NFT) offering – one of a few pilots the regulator is rolling out, along with tokenizing green bonds and a central bank digital currency (CDBC), the e-HKD.
While the industry has known for a while that a regulatory framework was incoming, it did not expect the shift in stance. Many of the stalls and panels at FinTech Week were related to the metaverse, and top regulators came out in force to advocate for the city’s comeback as a crypto hub, among which Hui was the most prominent.
Crypto currently falls under several regulators in Hong Kong. The Hong Kong Monetary Authority is looking into stablecoins, the Securities and Futures Commission takes on enforcement responsibilities.
The department Hui heads, FSTB, lays down the more macro approach to regulation. The approach it seems to be taking is to place crypto within financial regulation, and signal an opening of areas up for discussion such as allowing retail investors under the incoming regulatory framework, which was previously a no.
Hui’s stature and his appearance at Hong Kong FinTech Week panels speaking on crypto give clear signals that Hong Kong’s regulators view it as part of the city’s economic future.
Hui reiterated views voiced by other high profile figures in Hong Kong’s regulatory bodies, who see crypto as fitting into mainstream finance.
When asked what he thinks about crypto’s founding ideals, Hui said he considers crypto to be more an investment instrument than a bid for freedom from fiat currency.
He seemed tentatively optimistic about its applications. “Potentially, it is a transformation to how society and economy work,” he said of the underlying technology in an interview with CoinDesk, adding that “it’s not built overnight.”
Most important to him are the use cases: “My inclination is to see through these investments and look at what’s behind them, what’s underlying them,” he said.
He said that he’s most excited about the tokenization of green bonds, which makes what can be a cumbersome process of issuance and investment far more streamlined.
Hong Kong has already issued $10 billion in green bonds in multiple currencies, including the U.S. dollar, euro and renminbi.
The pilot will focus on institutions and the whole value chain from issuance to settlement, asset servicing, secondary trading and retention.
Hui also said there are many areas in which technology can really address bottlenecks, shortening the subscription for initial public offerings as an example.
Comparisons are often made between Hong Kong and Singapore and the competition between the two to capture businesses.
For Hui, Hong Kong’s “one country, two systems” is its key differentiating feature, referring to how the city is part of China but can organize its own affairs.
He pointed to an acceleration programme that allows Hong Kong companies to access industries in China.
The blocks are ready
Officials often play up the intermediary role that Hong Kong plays between China and the rest of the world. When it comes to virtual assets however, given the ban in China, Hong Kong isn’t playing this role – so what role is it playing?
“We’re able to bring together investments globally,” Hui said. “We can manage and also channel these investments in a well-regulated and also sustainable manner.”
He underscored the credibility that he said Hong Kong has as a gateway to China and its linkage to the international community.
Hui puts this down to a mix of factors citing Hong Kong’s “rule of law, regulation, commercial modus operandi.”
Hui refused to give further details on whether the newly launched Hong Kong Monetary Fund would consider investing into crypto companies. “They are bound by their own mandates and policies,” he said.
CoinDesk has written about companies being unsure about whether Hong Kong can set its own policy when it comes to crypto. Hui is adamant that it can.
Asked whether Beijing had given any reassurances to the regulator on cryptocurrencies specifically, Hui said, “it is more business as usual because after all we are operating one country, two systems. We have our own regulatory systems, we have our own legal systems.”
Over the last month, eyes were on the Party Congress happening across the border, where China President Xi Jinping’s third term was confirmed. China stocks dipped right after. Political developments have affected investor confidence in Hong Kong.
But Hui didn’t appear to be worried. “Hong Kong is an international financial center, so basically our stock performance reflects overall sentiment,” Hui said. He said that there have been smooth operations in markets. “There’s no systemic risk presented,” he said.
He would even welcome crypto companies leaving China. “Hong Kong is a very open place,” Hui said. “Whoever meets our law and requirements, they’re welcome.”
With the incoming VASP regime and consultations, Hui said that the “blocks are ready” to build the ecosystem. “We are more definitely clear in terms of where we stand,” he said, calling it a “more solid footing.”
Moving With The Market
At the opening of Fintech Week, Hong Kong announced that it was attempting to come back again as a crypto hub. The regulator said that it was open to discussing a crypto futures exchange-traded fund (ETF), and allowing licensed exchanges to serve retail users.
Until a few months ago, there was little indication Hong Kong was considering anything other than a professional investor-only environment. “It’s progressive,” Hui said. “We move with the market, we move with the industry, we are with them in the journey to mitigate risk, manage them and also grow this ecosystem.”
Previous policy direction prevented licensed platforms from offering services to retail traders, but also required all exchanges to secure licenses. Currently, retail traders mostly use unlicensed platforms.
Hong Kong investors are able to invest in U.S. crypto ETFs which likely offer more liquidity than Hong Kong ones would. Still, the announcements show that more options are on the table.
That regulators are more open to discussion is a running theme of Hui’s answers. He refrained from giving more specifics on rules, standards, and requirements that regulators might have for retail investors. “We need to consult the market,” he said.
Though there have already been reports that Hong Kong will open to retail, the rules, standards and timeline are still undecided. He underlined the importance of investor education.
Hong Kong’s attempt to come back as a crypto hub comes in a year of market turmoil, which saw Terra’s crash, VC funds’ liquidation and jurisdictions like Singapore tightening regulation over crypto.
“It doesn’t come out of nowhere,” Hui said, about the timing. He pointed to the experience Hong Kong accumulated through introducing an opt-in system for virtual asset exchanges to get certain licenses which allow them to deal in securities and provide automated trading services, and also to fund managers who are dealing with virtual assets.
This crypto winter may have made people more discerning about what works and what doesn’t, he said. “It’s the right time to take stock.”
Hong Kong Securities Regulator Adds Crypto Personnel For Industry Supervision
Regulators in Hong Kong plan for the addition of personnel to “better supervise” the activities of local virtual asset providers.
Regulators in Hong Kong are stepping up their game when it comes to monitoring the activities of the crypto industry.
According to a Securities and Futures Commission report filed on Feb. 6, it plans to hire four additional staff to “better supervise” the activities of local virtual asset (VA) providers.
Moreover, the extra oversight will help “better assess the compliance and risk” by allowing retail investors to trade virtual assets on regulated platforms.
The Commission Wrote:
“This is in response to an increasing number of operators who have expressed interest in carrying on VA activities such as trading platforms and the management of VA funds.”
This comes at the onset of the introduction of a new licensing regime to allow greater retail crypto investment.
Previously trading platforms licensed in Hong Kong were only permitted to serve professional investors, or investors with portfolios of at least $1 million (HK $8 million), according to regulators.
In December 2022, the new licensing regime was approved as an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Bill.
However, it takes effect in June 2023, which gives time for regulators and local businesses time to prepare for a new wave of participation in the industry.
Hong Kong has been active in its plan to revamp its crypto industry and become a hub for Web3 innovation. Part of this plan included an investment fund of $500 million to push for mass adoption in the local industry.
Most recently, the Hong Kong Monetary Authority recently released a statement saying that it will not tolerate algorithmic stablecoins in its newest regulation.
However, the regulator said that it intends to develop a full-bodied regulatory framework for stablecoins, which will be based on the full backing of such assets.
DBS Bank To Offer Cryptocurrency Trading In Hong Kong
As Hong Kong has been opening up to crypto, major financial institutions such as DBS Group are targeting new crypto services in the Chinese territory.
Singapore state-owned megabank DBS Group is planning to expand its cryptocurrency services to Hong Kong as the Chinese territory pushes to become a digital asset hub.
DBS Bank plans to apply for a license to allow it to offer crypto trading services to Hong Kong customers, Bloomberg reported on Feb. 13.
“We are planning to apply for a license in Hong Kong so that the bank could sell digital assets to our Hong Kong customers,” DBS Bank Hong Kong CEO Sebastian Paredes said.
Paredes noted that DBS welcomes new crypto-related policies in Hong Kong and is also “very sensitive” to the risks associated with digital assets.
The bank is willing to become one of the first lenders offering crypto in Hong Kong once the regulations are fully clear and DBS “understands exactly the framework,” he added.
DBS Bank made a massive move into the cryptocurrency industry a few years ago, launching its institutional crypto exchange in Singapore in late 2020.
The company has also been working to expand its crypto platform to retail investors and applying decentralized finance technology to joint projects with Singapore’s central bank.
“DBS is encouraged by the Hong Kong authorities’ intent to build a vibrant digital asset and DeFi ecosystem in the territory,” Paredes said in a statement to Cointelegraph. He noted that DBS can play a big role in this goal by using their experience in developing a regulated digital asset ecosystem over the last two years in Singapore. “At the appropriate time, DBS will apply for the necessary licenses in Hong Kong to avail our digital asset solutions to the market,” Paredes said, adding:
“DBS will take guidance from the guidelines released by Hong Kong and will continue working closely with regulators to shape a safe and conducive digital assets environment for all customers in Hong Kong.”
The news comes amid DBS announcing that its net profit rose 20% to a record 8.19 billion Singaporean dollars (SGD), or $6.7 billion, in 2022. Total income increased 16% to $12.4 billion (16.5 billion SGD), crossing 16 billion SGD for the first time in history.
DBS Bank’s plans to expand to Hong Kong come amid China’s special administrative region continuing to reaffirm its pro-crypto stance.
In January, Hong Kong’s financial secretary, Paul Chan, declared that the Hong Kong government is open to collaboration with crypto and fintech startups in 2023.
The official also said that a lot of industry firms expressed willingness to expand operations in Hong Kong or to go public on local exchanges.
As previously reported, Hong Kong lawmakers passed legislation to set up a licensing system for virtual asset service providers in December 2022.
The new regulatory framework is designed to provide the same degree of market recognition to crypto exchanges as the one that is currently applicable to traditional financial institutions.
While Hong Kong authorities have been opening up to crypto recently, Singapore has taken a more stringent approach to the crypto industry in the aftermath of major industry failures in 2022.
In October, the Monetary Authority of Singapore proposed to ban all forms of cryptocurrency credit following the bankruptcy of the Singaporean crypto hedge fund Three Arrows Capital.
Hong Kong’s Proposed Crypto Rules Seek Investor, Deposit Protection
Securities regulator to require crypto-trading platforms to get a license.
Hong Kong’s securities regulator said cryptocurrency-trading companies would need to leave the city if they don’t plan on getting licenses and released proposed new rules seeking to better protect investors in the wake of the collapse of FTX.
The Securities and Futures Commission would require crypto exchanges to ringfence customer deposits, put controls in place to keep crypto keys secure and make sure that no more than 2% of customer funds are stored in a so-called “hot wallet,” which is a less secure way to hold crypto assets, according to the proposed rules.
The rules are a key step in Hong Kong’s effort to establish itself as a digital-assets hub, part of a wider push to attract global companies and talent after strict pandemic controls dented its reputation as a global financial center.
The regulator would require all crypto-trading platforms with operations in Hong Kong—and those which are marketing their services in the city—to get a license.
The SFC is currently soliciting feedback on the proposed rules, which are due to come into force in June.
The cryptocurrency industry is still reeling from the collapse of the FTX, once one of the world’s highest-profile crypto exchanges.
The company, which was based in Hong Kong before moving its headquarters to the Bahamas in 2021, had used customer assets to fund risky bets by an affiliated trading firm.
U.S. regulators have since toughened their stance on crypto, while the U.K. government is setting out plans to regulate crypto exchanges and lenders.
“In light of the recent turmoil and the collapse of some leading crypto trading platforms around the world, there is clear consensus among regulators globally… to ensure investors are adequately protected and key risks are effectively managed,” said Julia Leung, the SFC’s chief executive officer.
Some crypto exchanges have already indicated their interest in becoming a regulated business in Hong Kong. Justin Sun, adviser to Huobi, tweeted Monday that the crypto exchange is applying for a license in the city.
Other companies including DBS Group Holdings Ltd. and Interactive Brokers have previously made clear their ambitions to win crypto business in the city.
Crypto exchanges shouldn’t deposit, transfer or lend their customers’ assets, the SFC said. It said exchanges need to have know-your-customer checks, including finding out how aware their clients are of the risks of investing in crypto.
Exchanges would also need to set a strict limit for each customer’s exposure, depending partly on their financial situation, the regulator said.
The SFC has also proposed regular disclosure requirements for crypto companies, including the submission of an auditor’s report each year and monthly reports to the regulator on their business activities. Companies must have enough liquid capital after accounting for all of their assets, liabilities and transactions.
Under the new framework, individual investors would be given more access to trade crypto on licensed platforms. Last year, the SFC allowed individual investors to trade a limited set of crypto-related derivative products.
The regulator has also recently approved exchange-traded funds for individual investors that track crypto futures.
If retail customers weren’t allowed to trade on licensed platforms, they could just trade on overseas exchanges, which could put them at more risk, a spokesperson at the SFC said.
Hong Kong Plans To Let Retail Sector Trade Larger Crypto Tokens Like Bitcoin
* City Pushes Ahead Toward A Goal Of Becoming A Crypto Hub
* Securities Regulator Issues A Consultation Paper On The Plan
Hong Kong outlined a plan to let retail investors trade digital tokens like Bitcoin and Ether, taking a major step toward its goal of becoming a crypto hub in a policy shift that contrasts with a crackdown in the US.
Individual investors would be allowed to trade larger coins on exchanges licensed by the Securities and Futures Commission, providing safeguards such as knowledge tests, risk profiles and reasonable limits on exposure are put in place, the regulator said in a consultation paper on Monday.
The agency didn’t specify which large-capitalization tokens will be allowed for retail investors. Instead, it said the coins should be included in at least two acceptable, investible indexes from independent providers, one of which should have experience in the traditional financial sector.
The consultation period will end on March 31, and the objective is to allow retail trading in the new licensing regime for crypto exchanges due on June 1.
Bitcoin and Ether, the two biggest digital assets by market value, are likely to be listed by Hong Kong platforms, an SFC spokesperson said in a briefing.
Hong Kong at the end of October pivoted to a pro-crypto stance, part of a wider effort to restore the city’s credentials as a financial center.
Officials are aiming to learn the lessons of last year’s $1.5 trillion digital-asset rout and a spate of global bankruptcies, like the collapse of the FTX exchange, to create a mandatory regulatory framework that can woo firms and protect investors.
The consultation paper didn’t specify particular crypto indexes as a reference point for a taxonomy of allowable tokens. The onus would be on exchanges to monitor listed assets to ensure they qualify for trading by individual investors.
The government has already allowed exchange-traded funds investing in CME Group Bitcoin and Ether futures and this month sold inaugural digital green bonds.
Digital-asset executives are increasingly being drawn to the friendlier policy stances of places like Hong Kong, Dubai and Europe as a spate of crypto probes in the US cloud that country’s position as an industry heartland.
‘Next Bull Run’
Hong Kong’s pivot could also open up a conduit to mainland Chinese investment if Beijing one day loosens the ban on most things crypto on the mainland.
Cameron Winklevoss, co-founder of the crypto exchange Gemini, tweeted Sunday that his “working thesis” is “the next bull run is going to start in the East.” Brian Armstrong, chief executive officer of Coinbase Global Inc., has alluded to Hong Kong as among the jurisdictions now leading in digital assets.
My working thesis atm is that the next bull run is going to start in the East. It will be a humbling reminder that crypto is a global asset class and that the West, really the US, always only ever had two options: embrace it or be left behind. It can’t be stopped. That we know.
— Cameron Winklevoss (@cameron) February 19, 2023
Justin Sun’s crypto exchange Huobi Global is applying for a crypto trading license in Hong Kong and is launching a new trading venue there, Sun said on Twitter on Monday.
The new exchange, called Huobi Hong Kong, will focus on institutional investors and high-net worth individuals, he said.
Chinese crypto- and blockchain-linked stocks rallied Tuesday. Digital-asset firm OKG Technology Holdings Ltd. jumped as much as 22% in Hong Kong. Crypto platform operator New Huo Technology Holdings Ltd. advanced as much as 12%. In mainland China, software specialist Shenzhen Forms Syntron Information Co. at one point added 10%.
Hong Kong’s ambitions still face many obstacles, including a downturn in the virtual-asset industry that’s seen thousands of jobs cut. Crypto markets have only partially rebounded from 2022’s bust.
Companies may be hesitant to commit scarce investment until the contours of Hong Kong’s policy landscape become clearer.
The city’s current regime for crypto exchanges is a voluntary one that restricts them to clients with portfolios of at least HK$8 million ($1 million). HashKey Group and BC Technology Group’s OSL bourse are the only two with permits.
Hong Kong And Singapore Vie For Title Of World’s Crypto Hub
The different pace of post-pandemic recovery has created a big gulf in the economic priorities and prospects of the rival Asian financial centers.
Hong Kong’s Financial Secretary Paul Chan announced a task force to come up with a plan for a crypto hub — something that appears to enjoy Beijing’s backing.
This is an area where Singapore is starting to look weak after FTX and other debacles last year put a question mark on the adequacy of the city’s regulatory approach, especially when it came to protecting customer funds.
The different pace of post-pandemic recovery has created a big gulf in the economic priorities and prospects of the rival Asian financial centers.
In his two-hour-long budget address Wednesday, Hong Kong’s Financial Secretary Paul Chan didn’t mention “Covid-19” once. Even if you threw in related words like “epidemic,” the count came to 24, the lowest in three years.
Taking the speech as a proxy for the emphasis the city places on the pathogen, Chan did a sterling job of turning the public’s gaze away from it. The new campaign that replaces that prolonged — and eventually futile — battle to contain the scourge is titled, “Happy Hong Kong.”
Just how joyous can the Asian financial center be this year? There’s little doubt that the economic reopening will fill stores, restaurants and the airport with visitors, who’ll be lured with freebies like shopping and dining privileges.
Local residents will join in the fun, too, at least to spend the $637 consumption vouchers that Chan announced for them in the budget.
On the job-creation front, China’s post-pandemic revival will also benefit the special administrative region in 2023, especially its financial services industry.
But on the flipside, continuing with pandemic-era stimulus for yet another year shows that the economy’s performance is still very much tied to the government’s apron strings.
This time in 2022, rival Singapore was already making plans to drop travel and social restrictions and start living with Covid-19. As a result, the city-state’s private sector slowly took the baton of growth back from massive fiscal pump-priming.
Hong Kong was also generous in opening the budget spigots during the pandemic. But it mimicked the mainland’s isolationist zero-infection policy and lost business and talent to Singapore, its main competitor in the region.
There was no handover from public spending to private enterprise. Singapore’s economy grew 3.6% last year, even with a barely noticeable S$2 billion ($1.5 billion) budget deficit; Hong Kong’s output shrank by almost as much, despite a bloated HK$140 billion ($18 billion) fiscal shortfall.
For the coming year, Chan is still penciling in a substantial resource gap of HK$54 billion. His Singaporean counterpart, Lawrence Wong, last week forecast a deficit equal to 0.1% of gross domestic product. That’s already a balanced budget.
Before Hong Kong can steady its public finances, it must put some life back in its property market, a source of substantial government revenue.
Chan tried to do this in his budget by cutting the stamp duty for first-time buyers of small and mid-sized residential units. This may not be enough, considering that borrowing costs are right now a bigger worry.
With little consensus on how high the Federal Reserve may push interest rates, and how long it may hold them there, a sustained recovery in Hong Kong’s property market is unlikely this year.
Meanwhile, the city’s builders have thousands of new homes to sell. “Developers’ ample project pipelines and probable interest-rate hikes might put more mortgage holders under water,” Bloomberg Intelligence analysts Patrick Wong and Yan Chi Wong wrote this week.
Still, Hong Kong isn’t completely out of cards. Chan announced a task force to come up with a plan for a crypto hub — something that appears to enjoy Beijing’s backing.
This is an area where Singapore is starting to look weak after FTX and other debacles last year put a question mark on the adequacy of the city’s regulatory approach, especially when it came to protecting customer funds.
Another of Hong Kong’s proposals centers on health-care research, artificial intelligence, quantum technologies and microelectronics.
It’s setting aside billions of dollars to pursue talent from around the world in these areas. It isn’t clear if this will reverse the hollowing out of the city’s human capital that began with the Beijing-imposed national security law and was aggravated by the Covid-19 crisis.
Those who were expecting tax breaks for expats and other sops to boost Hong Kong’s international standing would be disappointed.
However, the resident population is more optimistic now than it has been in the past several years.
This may be a good time to invest in new fields while deepening capabilities in industries where Hong Kong is already strong, such as private banking, asset management and family offices for the wealthy.
“I now see many happy faces around,” Chan said in his speech. It’s still not possible to see those faces in public, as everyone is still wearing masks.
But yes, the misery quotient has gone down considerably with the recent dismantling of travel and social-distancing restrictions. Given how badly Hong Kong wants to be back in the contest with Singapore, maybe the mandated face-coverings will also go soon.
Chinese Banks Court Crypto Firms In Hong Kong After Mainland Ban
* Bocom, Bank Of China Among Lenders Looking At Crypto Firms
* Hong Kong Sees A Rush Of Firms Into City After Policy Shift
Chinese banks have been directly reaching out to crypto businesses over the past few months, adding to signs that the city’s push to become a major digital asset center has backing from Beijing, even though trading of crypto has been banned on the mainland for well over a year.
The Hong Kong arms of Bank of Communications Co., Bank of China Ltd. and Shanghai Pudong Development Bank have either started offering banking services to local crypto firms or have made inquiries to the field, according to people with knowledge of the matter who asked not to be named discussing internal information.
On at least one occasion, sales representatives from one Chinese bank even visited the office of a crypto company to pitch its services, said one person.
The olive branch is notable as the sector has been shunned by major banks and faced difficulties in securing normal banking services, such as opening an account to pay staff and vendors.
It’s also an opportune time, with the lenders filling a void after the failures of US tech banks Silicon Valley Bank, Silvergate Capital Corp. and Signature Bank.
The push by Chinese lenders “means a lot to us because it’s something you’d never expect at this point, even around the globe,” said Sung Min Cho, founder and chief executive of beoble, a provider of a messaging system for decentralized applications. “A cryptocurrency account at a tradfi bank is something groundbreaking.”
A top executive at a branch of a major Chinese bank in Hong Kong, who asked not be named discussing private information, said the crypto push, the apparent green-light from Beijing and the uncertain local lending situation has offered an opportunity to explore the market.
Chinese officials have also been seen mingling at the city’s digital asset events, exchanging contact details and asking for reports, Bloomberg News reported earlier.
Bank of China, Bocom and Shanghai Pudong didn’t respond to requests for a comment.
Banking for crypto businesses has never been easy. Its anonymous nature has been a major red flag for traditional banks, where know-your-client procedures are standard for compliance.
Digital asset firms have been forced to find various workarounds to meet operational banking needs, according to Hong Kong-based crypto firms ranging from startups to regulated entities, who agreed to speak on the condition of anonymity.
It can easily take three months for crypto-focused companies to secure a corporate bank account, compared to one month for non-crypto firms. This means firms often try out more than a dozen lenders, including niche choices such as Indian or Japanese banks, or virtual banks like ZA Bank Ltd.
Even with an account, banks often flag transactions related to digital asset firms and can suddenly suspend accounts after an initial warning call.
For those dealing in crypto tokens, it’s even harder. Almost no traditional banks offer help to transfer tokens to fiat currencies as a regular service, so many had turned to crypto-friendly banks abroad such as Signature or alternatives in Switzerland and the Middle East.
Signature’s payments network real time crypto network was still operational even after the lender was put into receivership, Bloomberg News reported earlier.
Those without bank accounts need to be even more creative. That can mean setting up a separate Hong Kong company without a crypto link to apply for bank accounts for payroll purposes, or by outsourcing human resources and payroll to a third party.
To cash out tokens, some have turned to over-the-counter crypto exchanges such as OSL and Hashkey, the only two licensed in Hong Kong, or used physical crypto money exchanger counters in the city.
“It would be great if local banks could start some trial program to support crypto firms and more professional service providers that understand our native environment,” said Dominic Law, chief Metaverse officer of Neopets Metaverse, a game backed by Chinese firm NetDragon Websoft Holdings Ltd. “The business landscape would certainly be more welcoming and easier to support more startups to develop in this field.”
ZA Bank, a Hong Kong virtual bank, said its a “Web3 friendly” lender and is open to digital asset firms who pass regulatory and internal requirements, according to Devon Sin, its alternate chief executive officer.
It last year opened a pilot program for express business account openings, he said in a statement.
Global crypto firms scrambled to move funds away after the US banking crisis, with local companies such as crypto hedge fund MaiCapital — which held funds with Signature — urgently sought to open bank accounts in Hong Kong.
Hex Trust, a local startup that offers custody services for crypto assets, told its investors after the SVB crisis that the firm made a prescient decision in January to convert the “vast majority” of holdings in USD Coin, a stablecoin, into US dollars and to move those funds to an unidentified Hong Kong bank.
Jack Chou, founder of the blockchain technology company CNHC Group, is one founder who’s seeking to establish in Hong Kong in the aftermath of the collapse of the crypto friendly banks in the US.
The firm, which offers an offshore Chinese yuan-pegged stablecoin, was able to recover about $10 million of its more than $12 million deposits in SVB, Signature Bank and First Republic Bank.
A majority of that was transferred to an offshore bank account in China’s Hainan’s pilot free trade zone and a small portion to DBS in Singapore.
Chou and his business partner have traveled to the city five times since Hong Kong announced its new crypto push last year and plan to visit again in April. “Opening bank accounts is one of the top priorities,” Chou said.
So far Chou has approached DBS Hong Kong, HSBC, Standard Chartered, Bank of China (Hong Kong) and Hang Seng Bank but there was not much progress. “Crypto is still sensitive,” the banks told him.
“That’s the conflict. On the one hand the government is pushing the development of the industry, on the other hand, the city’s banking system does not offer us any services,” Chou said.
Still, the general feeling is that Hong Kong banks are more open to crypto firms than they were a few years ago, but that there is yet to be a big shift since background KYC and anti-money laundering rules remain a mainstay in the finance world.
Rather, there is a sense that banks are more open to engagement when sales are quiet, including enabling bank accounts after previous attempts failed.
The city’s banking regulator issued a detailed guide in January 2022, asking banks to conduct appropriate money laundering and terrorist financing risk assessments when they make banking relationships with virtual asset service providers.
“From the perspective of prudential supervision, the HKMA does not currently intend to prohibit AIs from incurring financial exposures to VAs, such as through investment in VAs, lending against VAs as collateral, or allowing their customers to use credit cards or other payment services to acquire VAs.” — HKMA, Jan. 2022
A spokesperson for the The Hong Kong Monetary Authority said the authority has a dedicated team that follows up on inquiries from the business community, including the virtual asset industry, regarding bank account opening and maintenance matters.
Banks in Hong Kong are well-positioned to tap into the capital inflows following the banking failures in the US, said Sean Lee, the Hong Kong-based co-founder and executive director of the decentralized wallet startup Odsy Network.
While many Asian companies banked with tech-friendly US banks in the past, this is unlikely to be the case going forward due to regulatory concerns.
“Hong Kong will benefit tremendously,” he said. “But questions remain whether the geopolitical climate will deter non-Asian projects to bank with Chinese banks.”
China’s State-Owned Banks Are Soliciting Hong Kong Crypto Business, But Opening An Account Is Hard
China Banks’ Push For Hong Kong Crypto Business Faces Headwinds
China’s state-owned banks’ Hong Kong branches – semi-autonomous entities that operate under Hong Kong’s rules – are actively soliciting crypto business, in anticipation of the first phase of the Special Administrative Region’s regulatory framework in June. But opening an account with them is another thing altogether.
Bloomberg reported Monday that the banks making the pitches have gotten the green light from Beijing, and their respective headquarters.
Sources from multiple crypto companies in Hong Kong that had either been pitched by the banks’ sales representatives, or made inbound inquiries, all say that the criteria for opening an account is burdensome and the know-your-customer/anti-money laundering (KYC/AML) process is longer than opening a regular business account.
For instance, banks prefer that executives and key personnel at the crypto company reside in Hong Kong. A definite blocker would be if they are mainland Chinese nationals or U.S. citizens.
If the company is owned by a Singapore-based parent, that firm would need to be a licensed entity by the Monetary Authority of Singapore.
Sources were also told to expect a long account-opening process.
Is it really progress?
These banks, such as Bank of China and Bank of Communications, are some of the world’s largest, and it’d be unthinkable a few years ago that they would be actively soliciting crypto business considering Beijing’s hardline stance on the issue and the general hesitation of large banks to engage with crypto.
After all, in the U.S., Silvergate and Signature found their market niche for this exact reason, with analysts saying the crypto industry will have a “difficult time finding traditional banks that will work with it” post their demise.
These two banks made – and lost – their fortune with crypto: At the turn of the decade, they were both small, unknown banks before embracing crypto; Silvergate reported $2.12 billion in assets in December 2019 and peaked at $16 billion in December 2021.
Although both Silvergate and Signature grew significantly throughout crypto’s boom years and institutionalization, their relatively small size means that they fell faster than they would have if they were larger like some of their peers.
But not everyone thinks this is the first chapter of something new, considering the tough onboarding process.
“The city’s digital assets regulation is overall friendly and encourages banks to work with crypto companies, however, banks still currently have stringent requirements in place which makes it difficult for crypto businesses to expand and grow,” Adrian Wang, founder and CEO of Metalpha, a Hong Kong-based digital assets wealth management company, said to CoinDesk. “We have yet to see major progress in the banking sector to embrace crypto. Hopefully, that will change soon.”
Hong Kong Fund Aims To Bet $100 Million On City’s Crypto Push
* New Fund Raised $30 Million So Far To Invest In Web3 Ventures
* Hong Kong Sees Digital Assets As A Key To Financial Revival
A new Hong Kong-based fund plans to raise $100 million this year to invest in digital asset startups, as the city seeks to become a regional fintech hub.
The fund led by Ben Ng, a venture partner at the Asian private equity firm SAIF Partners, and longtime tech investor Curt Shi has secured at least $30 million in funding commitments.
Those who joined the first close for ProDigital Future Fund after a half-year fundraising period included Sunwah Kingsway Capital Holdings Ltd. and Golin International Group Ltd., Shi said in an interview.
The fundraising comes as Hong Kong aggressively courts crypto companies and talent to revive the financial center after a slowdown from three years of Covid-related border controls.
The city’s support for crypto exchanges contrasts with sharp US regulatory scrutiny in the wake of FTX’s stunning collapse last year, and fears linger that Hong Kong could one day reverse course.
“I understand the concerns, but nothing is perfect given the complexity of the crypto economy and current geopolitical situation,” Shi told Bloomberg News. “Our strategy is to continue to see how things go.”
ProDigital Future will target early-stage and developing ventures, particularly tech companies with ties to China transitioning into Web3, which proponents often describe as a decentralized internet that runs on public blockchains.
So far, the fund has invested in six digital-asset projects, including Hong Kong-based metaverse company GigaSpace and Australia-based digital sports club One Future Football.
Investors have been cautious about deploying capital into new crypto projects, but fundraising has been “relatively smooth,” Shi said. Many Hong Kong families interested in the digital economy participated, but some Chinese family offices investing in Australia and Singapore are also taking part, he said.
“I believe that Hong Kong will continue to have a certain degree of openness and flexibility,” he said. “While our portfolio and fund will embrace Hong Kong and its policies, we will continue to have a presence in Australia, Singapore, as well as in Europe and the US.”