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Stung by FUD, Hong Kong’s web3 dream is in jeopardy

Stung by FUD, Hong Kong’s web3 dream is in jeopardy
A girl waves the Hong Kong SAR flag in Hong Kong, China. Credit: Photo by Bertha WANG/EPA-EFE/Shutterstock
  • Analysts have a gloomy outlook for Hong Kong, as Beijing cracks down.
  • But there's still hope for the city's dreams of becoming a web3 hotspot.

A version of this story appeared in our The Guidance newsletter on February 26. Sign up here.

Hong Kong dreams of becoming a web3 paradise, but the rest of the world appears to believe the city’s best days may be behind it.

  • The Financial Times says the city is “over.”
  • Human rights groups slammed upcoming national security legislation as Beijing’s effort to “transform Hong Kong from a free society to an oppressed one.”
  • And Bloomberg Intelligence declared that Singapore has “almost” won the race to be Asia’s top business and finance hub, saying even Chinese companies prefer Singapore.

It’s a blow to the Hong Kong lawmakers and regulators who want to turn the city into a crypto and web3 hub.

That said, two virtual asset firms with a presence in Singapore last week announced plans to set up a local office in Hong Kong: FalconX, a crypto prime brokerage, and DigiFT, a real world assets-focused DeFi exchange.

Check out my interview with FalconX senior exec Matt Long on DL News later this week.

Investor protection perspective

Still, Hong Kong regulators are racing to implement a regulatory regime to support crypto — touting that it’s one of the first jurisdictions to adopt a virtual asset regulatory framework focused on investor protection.

A total of 18 platforms have submitted applications for a virtual asset trading licence ahead of the February 29 deadline.

There are some notable absences. Coinbase doesn’t appear to have applied even though Hong Kong legislator lawmaker Johnny Ng invited the exchange to the city last year.

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Nor has HTX, the crypto exchange formerly known as Huobi.

Meanwhile, on Thursday the consultation period for proposed stablecoin legislation will end.

A similar debate on over-the-counter crypto trading is ongoing. The city has more than 200 outlets, including both physical shops, platforms, and ATMs.

Crypto crime stats

Why is regulation so focused on retail? Well, figures for virtual-asset related crime are pretty damning in Hong Kong.

Secretary Hui said such criminal cases in the city soared 46% in 2023 over the prior year, with investors losing an estimated $217 million. That means crypto fraud is costing about $75 per person in the city of 7.5 million residents.

Financial regulators and the police have exchanged intelligence on more than 100 cases involving virtual asset trading platforms or virtual asset-related activities this year.

Email me at callan@dlnews.com