Last week, nealthy team descended in Hong Kong to participate in the Hong Kong Fintech Week. While the event was incredibly fruitful for widening the nealthy’s network of clients, in this article we would like to elaborate on the essence of discussions and provide our view on the current Hong Kong’s sentiment toward crypto and outline the key trends.
Hong Kong as the crypto hub
A highly dynamic international city, Hong Kong serves as a primary gateway to Mainland China and Asia and a hub for global and regional business, helping to make it one of the most competitive and top international cities for companies, investors, and professionals. Recently, Hong Kong has become the crypto industry hub by setting a platform for discussion of many topics around blockchain and cryptocurrencies, accumulating significant investment capital in Web3 and being the founding site for many influential projects, including Scroll and Animoca brands.
Hong Kong is attracting so many crypto investors and the web3 industry for a number of reasons, including:
- Favorable regulatory environment: Hong Kong has taken a relatively progressive approach to regulating cryptocurrencies. In 2017, the Securities and Futures Commission (SFC) issued a white paper outlining its regulatory framework for cryptocurrencies. The framework is generally supportive of innovation and growth, while also aiming to protect investors.
- Access to capital: Hong Kong is a major financial center with a deep pool of capital. This makes it easy for crypto startups to raise funding, both from local and international investors.
- Supportive government: The Hong Kong government has expressed its support for the crypto industry and has taken steps to promote its development. For example, in 2021, the government launched a $100 million fund to support the development of web3 startups.
- Skilled workforce: Hong Kong has a highly skilled workforce with experience in a wide range of industries, including finance, technology, and law. This makes it easy for crypto companies to find the talent they need to succeed.
- Proximity to China: Hong Kong is located next to China, which is the world's largest cryptocurrency market. This gives crypto businesses based in Hong Kong easy access to the Chinese market.
In addition to these factors, Hong Kong is also a popular destination for crypto investors and the web3 industry because of its high quality of life, its cosmopolitan culture, and its well-established legal system.
What you need to know about the state of crypto in Hong Kong
Here are some specific examples of how Hong Kong's favorable environment for crypto and web3 is attracting businesses and investors:
In 2021, the number of crypto companies registered in Hong Kong increased by more than 60%.
In 2022, Hong Kong attracted over $1 billion in venture capital funding for crypto startups.
In 2023, Hong Kong is expected to launch its own central bank digital currency (CBDC), which could further boost the adoption of cryptocurrencies in the city.
The Hong Kong government is committed to promoting the sustainable development of virtual assets (VA) and Web3. The government has launched a number of initiatives, including:
- A policy statement on the development of VA in Hong Kong
- A licensing regime for VA service providers
- Listing of three VA futures ETFs on the Hong Kong Stock Exchange
- Issuance of a tokenized government green bond
- One of the latest news - the consideration of the approval of of Bitcoin spot ETF for retail users
Overall, Hong Kong is well-positioned to become a global hub for the crypto industry and Web3 due to the fundamental factors like advanced legislation and geopolitical positioning and latest developments like policy on VA and local CBDCpiloting.
Key HKFW takeaways
Although this conference is generally intended for the traditional financial sector, cryptocurrency and the use of blockchain infrastructure ran through it as a red line. Even if the panel topics themselves did not in any way indicate a discussion of cryptocurrencies, many speakers appealed to crypto. Isn't this a sign of the long-awaited adoption?
Anyways, however you see the crypto adoption, you can’t deny the general interest and positivity in crypto from both the authorities and investors.
For example, Paul Chan | Financial Secretary, Hong Kong SAR, in his keynote addressed the challenges of ‘redefining fintech’ and how many of them can and will be solved by blockchain. He highlighted how fintech is changing and empowering businesses and communities. Chan also mentioned the rising popularity of virtual banks and the expansion of Hong Kong's fintech landscape with the use of blockchain.
We are encouraging the use of blockchain technology in financial products like the tokenized green bond. Paul Chan | Financial Secretary, Hong Kong SAR
He emphasized that Hong Kong’s widened through blockchain finance scene and its technological advancement attracted more investments and shared that the government aims to help more entrepreneurs succeed. Startups which are developing new technologies for the financial sector, including those using blockchain, will be encouraged and supported in multiple ways including funding, incubation, and support services.
In the discussion "A Retail CBDC in Hong Kong: Lessons Learned from e-HKD Pilot Program", the experts from Hong Kong Monetary Authority, Mastercard, Visa and leading banks discussed the e-HKD pilot program aiming to test Hong Kong’s CBDC and how it showed the potential of the e-HKD to add unique values like tokenization, atomic settlement, and programmability.
Programmability and Tokenization are the key trends
Programmability is seen as a key benefit of the e-HKD, as it can be used to write regulations around tokens, automate flows for banks, and guarantee items ordered online for customers. It can also help to mitigate misuse of government subsidies and other funds. Tokenized deposits have the potential to unleash liquidity and growth more easily, connect Hong Kong to the web3 economy, and make on-ramp and off-ramp easier. Overall, the e-HKD pilot program was a success and showed the potential of the e-HKD to transform the Hong Kong economy.
Great demand for finance system improvements
Additionally, speakers highlighted how blockchain and tokenization will help to mitigate current challenges.They emphasized that tokenization will help to mitigate misuse and allow the government to track where subsidies are being used, create a secure lending platform that connects SMEs to banks and other lenders and increase the influx of liquidity to the market and unleash growth, create seamless and reduced capital requirements for merchants, create seamless and faster transactions and settlements.
In the the discussion Summary of "Building a Regulated Future in the Crypto Space", the panelists at this event discussed the macro implications of crypto, the need for regulation, and business opportunities in the crypto space.
Macro implications of crypto
Dong He from the IMF noted that developing countries are on the receiving end of crypto services provided by offshore entities. This can have negative implications for monetary and tax policy. He also emphasized the need for a framework to ensure that crypto service providers are licensed or registered and have proper risk management systems in place.
Regulatory policy in HK is gearing towards crypto
Linda Jeng from the Crypto Council for Innovation noted the gap between the web3 community and the regulatory space. She emphasized the need for clear regulation to support sustainable growth in the crypto industry. She also highlighted the challenge of balancing consumer protection with innovation, and the need for regulators to understand decentralization. Dong He from the International Monetary Fund (IMF) noted that the IMF is working on understanding how central bank money and cash reserves can be integrated with the digital economy. He also emphasized the need for a monetary anchor defined by monetary policy.
Greater business opportunities
Jeng sees opportunities for growth in agentic technologies, services, and products that allow consumers to control their data and digital assets. She also sees opportunities for public infrastructure to serve public goods, which could be supported by a public and private partnership.
Overall, the panelists agreed that regulation is necessary to support the growth of the crypto industry in a safe and sound manner. They also discussed business opportunities in the crypto space, such as agentic technologies and public infrastructure. Panelists noted that the regulation of crypto is still in its early stages, and that there is a need for greater international coordination and that the Web3 community needs to be more engaged with the regulatory process, and that regulators need to be more open to understanding and embracing new technologies.They expressed their optimism for the future of the crypto industry, and their belief that regulation can play a positive role in supporting its growth.
Coinbase CEO Brian Armstrong, in the firechat with Animoca Brands, discussed a wide range of topics related to cryptocurrencies and the future of finance. He addressed the ongoing dispute between Coinbase and the SEC, emphasizing the need for clear regulations that balance innovation with consumer protection. He also highlighted the potential of tokenizing real-world assets and the role of traditional finance in the crypto ecosystem.
More ETF applications would help traditional finance draw capital into crypto. We also need to increase the utility of crypto and demonstrate its potential. Brian Armstrong, Chief Executive Officer & Co-founder, Coinbase
Comprehensive legislation is the cornerstone in the US
Armstrong believes that new legislation is needed in the U.S. to establish clear guidelines for cryptocurrency regulation. He advocates for regulating custodians and exchanges similarly to traditional financial institutions, while acknowledging the challenges of regulating self-custodians. He also expects the 2024 elections to have a significant impact on crypto policy, given the growing number of cryptocurrency users.
Crypto + TradFi determine the future of finance
Armstrong views cryptocurrencies as complementary to traditional finance, with the goal of onboarding the next billion users into the global economy. Armstrong advises banks to focus on trusted counterparties and seek regulatory clarity as they enter the crypto space. He believes that tokenizing real-world assets, particularly traditional asset classes like bonds and loans, has immense potential.
In general, the HKFW insights shed light on the evolving landscape of cryptocurrencies and their potential to transform the financial industry. Tokenization and the merge of TradFi with Crypto are leading the developments in the finance space and the blockchain technology has become the key infrastructure evement for the financial institutions which are set to lead the industry.