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Hong Kong as a Crypto Hub
VeradiVerdict - Issue #253
With the recent regulatory news coming out of the United States on crypto, investors and entrepreneurs have been looking outside of the country for a more favorable crypto jurisdiction, and Hong Kong as been emerging and coming on strong!
I asked my friend Annabelle Huang of Amber Group, a Pantera portfolio company that is helping individuals, institutions, and brands produce, trade, collect, and invest in digital assets, to help provide insights into why Hong Kong is becoming the crypto hub of Asia and possibly even the world.
Hong Kong: solidifying itself as the Crypto Hub
Hong Kong's upcoming virtual asset licensing regime, having just taken effect on 1 June, is reviving the city's position as a go-to destination for cryptocurrency and Web3 firms. With favorable regulation, advanced infrastructure, and a highly skilled workforce, Hong Kong offers an ideal location for crypto startups looking to grow and scale their businesses.
One of the key factors driving this trend is the Hong Kong government's more proactive approach to regulating the crypto industry that has evolved over the recent years
January 2022: The Securities and Futures Commission of Hong Kong (SFC) and the Hong Kong Monetary Authority (HKMA) published the Joint Circular on intermediaries’ virtual asset-related activities, followed by the issuance of Stablecoin Paper by HKMA on crypto-assets and stablecoin.
September 2022: HKMA publishes a position paper on retail Central Bank Digital Currency (CBDC), i.e. e-HKD.
October 31, 2022: The Financial Services and the Treasury Bureau (FSTB) released the “Policy Statement” on the Government's measures and plans for VA development, including discussion on the VASP Regime, green bond tokenization, and potential consultation on allowing retail investors to trade cryptocurrencies.
December 7, 2022: Legislative Council passed the proposed VASP Regime for virtual assets service providers, including virtual assets exchange.
February 20, 2023: SFC published the consultation paper on allowing retail investors to trade virtual assets.
June 1, 2023: The VASP Regime commences.
This timeline shows a clear commitment from the government to provide a clear and progressive regulatory framework for digital asset. The recent passing of the VASP Regime by the Legislative Council demonstrates a significant step forward in this effort. With robust measures in place for investor protection and market integrity, Hong Kong continues to be an attractive destination for cryptocurrency firms looking to establish themselves in Asia.
Hong Kong's advanced financial markets and robust infrastructure make it an ideal location for crypto firms with easy access to funding, partnerships, and collaborations. Its highly developed banking system, strong capitalization, and liquidity ratios enable smooth business transactions for crypto startups. Moreover, Hong Kong's culture of risk-taking and innovation has fostered an extensive network of innovation labs, incubators, accelerators, and co-working spaces in the city. This provides entrepreneurs with abundant resources to scale their ventures, including 17 funding schemes under the government's Innovation and Technology Fund (ITF) and programs offered by publicly funded centers like the Hong Kong Science Park and Cyberport. With corporate innovation programs and accelerator programs like Swire’s Blueprint, Brinc, The Cage, and Betatron, Hong Kong offers a supportive ecosystem for crypto startups to establish themselves in Asia.
Hong Kong's highly educated and skilled workforce, with expertise in fintech and other tech-related areas, is a key asset for the city's growing crypto industry. Moreover, the city's new talent scheme, which targets high-earners and elite graduates worldwide, is attracting even more top talent to Hong Kong from across the globe. The proximity to the Shenzhen border also brings close access to a massive pool of developers and engineering talent. This is extremely helpful for startups looking to innovate and disrupt traditional financial systems, which can be a limiting factor in other regions that are also gearing up to the next tech hub. Their presence further strengthens Hong Kong's position as a global leader in the tech industry, particularly in fintech and the crypto sector.
Blockchain and crypto have emerged as the largest segment of Hong Kong's fintech industry, representing 24% of all fintech startups in the city. The thriving crypto ecosystem in Hong Kong is supported by a diverse community of participants and players, ranging from startups to established companies, all working together to innovate and advance the adoption of blockchain and crypto technology. Their collaborative efforts have positioned Hong Kong as a leading hub for the future of finance, where cutting-edge solutions are developed, tested, and deployed at scale.
Hong Kong Fintech Map 2022, Source: Fintech News Hong Kong
Leading players in the Hong Kong crypto community include:
Amber Group: A leading provider of digital wealth management and crypto native liquidity solutions, the company is backed by prominent investors including Pantera, Paradigm, Sequoia and Tiger Global.
Animoca Brands: A leading digital entertainment company specializing in blockchain technology. Its portfolio includes popular blockchain-based games and NFT marketplaces.
HashKey Digital Asset Group: A digital asset management company with expertise in blockchain technology, HashKey provides institutional-grade investment solutions to clients worldwide.
While the topic of crypto hub race between Hong Kong, Singapore, and the UAE is often discussed, it's become clear that Hong Kong and Singapore have established themselves as leading players in fintech and blockchain technology. Like Singapore, Hong Kong has built advanced infrastructure and supportive ecosystems that attract top talent and innovative startups from around the world. Meanwhile, Dubai / Abu Dhabi is quickly catching up on crypto regulation but still lags behind Asia's more sophisticated financial markets and experience in regulations. While Dubai has made significant strides towards establishing itself as a crypto-friendly city, it still has some way to go before it can compete with Hong Kong and Singapore. Ultimately, the success of a crypto hub depends on a complex mix of factors, including regulatory frameworks, talent pool, financial market sophistication, and supportive ecosystems.
- Paul Veradittakit
Pantera Capital Puerto Rico Management, LP and its affiliates (“Pantera”) makes investments in crypto assets and in blockchain-related companies. Pantera and/or its affiliates or personnel may be an investor in, or have relationships or other business arrangements related to, certain instruments, companies and/or projects discussed herein. This document does not contain any advertisement for Pantera’s investment advisory services, or any other services or products, whether provided by Pantera or otherwise. The information and opinions presented in this document are solely those of Paul Veradittakit; they do not represent, and should not be interpreted as representative of, the views of Pantera or any other individual working for Pantera, and do not represent investment, legal, tax, financial, or any other form of, advice or recommendations. Neither Pantera nor Mr. Veradittakit is acting, or purports to act, as an investment adviser or in a fiduciary capacity with respect to any recipient of this paper. Information contained in this document is believed to be reliable, but no representation is made regarding such information’s fairness, correctness, accuracy, reasonableness or completeness. There is no obligation to update this document or to otherwise notify a reader if any matter stated statement or information contained here changes or subsequently is shown to be inaccurate. Nothing contained herein constitutes any representation or warranty as to future performance of any financial instrument or company. Forward-looking statements should not be relied upon, and performance or outcomes may differ materially from what is contemplated herein. Opinions included here incorporate subjective judgments or may be based on incomplete information. This document does not constitute or contain an offer to sell or a solicitation to buy any securities or a recommendation to enter into any transaction, and no reliance should be placed on this document in making investment decisions.
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Hi, I’m Paul Veradittakit, a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.