Pantera Partner: Why can Hong Kong become the Web3 center of Asia and even the world?

With the recent news of cryptocurrency regulation in the US, investors and entrepreneurs have been looking for more favorable cryptocurrency jurisdictions. Against this backdrop, Hong Kong is rising and growing stronger.

I asked my friend Annabelle Huang from the Amber Group to provide insight on why Hong Kong is Asia’s and perhaps the world’s cryptocurrency hub.

Hong Kong: Strengthening its position as a cryptocurrency hub

Hong Kong’s virtual asset licensing regime, which came into effect on June 1, is cementing its position as the destination of choice for cryptocurrency and Web3 companies. With favorable regulation, advanced infrastructure and a highly qualified workforce, Hong Kong offers an ideal location for cryptocurrency startups looking to develop and expand their business.

Supervision

One of the key factors driving this trend is the Hong Kong government’s more proactive approach to regulating the cryptocurrency industry in recent years.

*January 2022: The Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a joint circular on intermediaries’ virtual asset-related activities, followed by the HKMA’s “Crypto Assets and Stablecoins” Stablecoin Documentation". *September 2022: HKMA publishes position paper on retail central bank digital currency (CBDC) (i.e. e-HKD).

• October 31, 2022: Financial Services and the Treasury Bureau (FSTB) publishes Policy Statement on government measures and plans to develop VA, including discussion of VASP regime, green bond tokenization and allowing retail investors to trade cryptocurrencies . *December 7, 2022: The Legislative Council passed the proposed VASP regime for virtual asset service providers, including virtual asset transactions. *February 20, 2023: China Securities Regulatory Commission publishes consultation paper on allowing retail investors to trade virtual assets. *June 1, 2023: VASP regime begins.

This timeline demonstrates the government’s clear commitment to provide a clear and progressive regulatory framework for crypto assets. The recent passage by the Legislative Council of the VASP system represents an important step forward in this effort. With strong investor protection and market integrity measures in place, Hong Kong is a popular destination for cryptocurrency companies currently looking to gain a foothold in Asia.

infrastructure

Hong Kong’s advanced financial market and strong infrastructure make it an ideal location for cryptocurrency companies to easily obtain capital and form partnerships. Hong Kong’s highly developed banking system, strong capital and liquidity enable smooth business transactions for crypto startups. Additionally, 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 region. This provides entrepreneurs with a wealth of resources to scale their businesses, including programs offered by 17 government Innovation and Technology Funds (ITFs) and public funding centers such as the Hong Kong Science Park and Cyberport. With corporate innovation programs and accelerator programs such as Blueprint, Brinc, The Cage and Betatron, Hong Kong offers a supportive ecosystem for cryptocurrency startups to gain a foothold in Asia.

Talent

Hong Kong’s large, highly educated and skilled workforce with expertise in fintech and other technology-related fields is a key asset in Hong Kong’s growing cryptocurrency industry. In addition, Hong Kong’s new talent program targeting global high earners and elites is attracting more top talent from around the world to Hong Kong. The proximity to the Shenzhen border also provides easy access to a wealth of developer and engineering talent, which is great for startups looking to innovate and disrupt the traditional financial system. Their presence further cements Hong Kong’s position as a global leader in the technology industry, especially in fintech and cryptocurrencies.

Crypto Community

Blockchain and cryptocurrencies have become one of the key industries in Hong Kong’s fintech industry, accounting for 24% of all fintech startups in the region. Hong Kong’s thriving crypto ecosystem is supported by diverse players and communities, from startups to established companies, all working together to drive blockchain and crypto adoption. Their combined efforts have made Hong Kong a leading center for the future of finance, where cutting-edge solutions are developed, tested and deployed at scale.

Hong Kong Fintech Map in 2022, Source: Hong Kong Fintech News

Early players in the cryptocurrency space in Hong Kong include:

• Amber Group: digital wealth management and crypto-native liquidity solutions provider backed by prominent investors including Pantera, Paradigm, Sequoia Capital and Tiger Global.
• Animoca Brands: A leading digital entertainment company focused on blockchain technology. Its product portfolio includes popular blockchain-based games and NFT marketplaces.
• HashKey Group: HashKey is a digital asset management firm with expertise in blockchain technology, providing institutional-grade investment solutions to clients worldwide.

Summary

While the topic of a cryptocurrency hub race between Hong Kong, Singapore, and the UAE is often discussed, it is clear that Hong Kong and Singapore have established themselves as leaders in fintech and blockchain technology. Like Singapore, Hong Kong has established advanced infrastructure and a supportive ecosystem, attracting top talent and start-ups from around the world. At the same time, Dubai is catching up quickly in cryptocurrency regulation, but its financial market and regulatory experience is relatively lagging. While Dubai has made significant strides in establishing itself as a cryptocurrency-friendly city, it still has a long way to go before it can rival Hong Kong and Singapore. Ultimately, the success of a cryptocurrency hub depends on a complex set of factors, including the regulatory framework, talent pool, financial market sophistication, and supporting ecosystem.