Cryptocurrency Losses Surge to $686 Million in Q3

Hong Kong’s Bricks-and-Mortar Crypto Shops Attract Chinese VisitorsHong Kong has become a thriving destination for cryptocurrency enthusiasts, particularly mainland Chinese visitors, due to the ambiguity surrounding the regulatory status of these crypto shops.Despite the illegality of cryptocurrency transactions on the mainland and the ban on overseas exchanges serving onshore clients, Hong Kong allows legal crypto trading, and according to a recent report published by the Financial Times, the autonomous Chinese territory is being accessed by residents of the Chinese mainland for the purpose of trading crypto.Photo by Chapman Chow on UnsplashSurging demandBricks-and-mortar crypto shops, lightly regulated and scattered across the city’s popular tourism and shopping districts, have flourished thanks to the surging demand from mainland Chinese visitors. These stores offer customers the convenience of purchasing digital assets with cash, often without the need to disclose the source of funds or personal information.In contrast to the strict licensing requirements imposed on online exchanges in Hong Kong’s push to become a virtual assets trading hub, these over-the-counter (OTC) crypto stores provide customers with the opportunity to buy large volumes of cryptocurrencies with minimal or no verification checks.Before the border between China and Hong Kong reopened fully in February, mainland Chinese customers accounted for less than 5% of customers at Crypto HK, an OTC crypto outfit with two branches in the city. However, this figure has now increased significantly, making up around half of their customer base.Similarly, One Satoshi, a crypto store with nine branches in Hong Kong, reported trading volumes between January and May 2023 that were 20–25% higher than the same period the previous year. They anticipate a 35–40% increase in trading for the entire year.While some store owners, like Roger Li of One Satoshi, currently decline mainland Chinese customers due to Beijing’s crypto ban, they remain optimistic that restrictions will ease. This belief is prevalent among the crypto community in Hong Kong following the city’s announcement to become a virtual assets hub in October.Regulatory anomalyHong Kong introduced a new regulatory framework for cryptocurrency exchanges in June, requiring all online platforms operating in the city to apply for a license. However, most OTC stores still operate outside the purview of Hong Kong’s Securities and Futures Commission (SFC), presenting an area of further consideration for the government.OTC stores primarily serve as a simple way for users to convert money to and from unlicensed online exchanges, according to Carlton Lai, head of blockchain research at Daiwa Capital Markets. Hong Kong’s lenient regulations and ease of starting such businesses, as long as there is sufficient capital, contribute to the higher number of OTC stores compared to other locations.While some shops welcome increased regulation in the sector, others do not require customers to provide identification, promoting quick and anonymous transactions. However, this falls short of the investor protection measures mandated for online platforms seeking licenses to trade cryptocurrencies to retail clients.The lack of scrutiny faced by Hong Kong’s OTC shops, coupled with their proximity to mainland China — a market that ranked fourth globally for crypto trading in 2022 — makes them appealing to Chinese citizens still interested in the asset class.

Funding Round Sees HashKey Target Unicorn ValuationLeading financial technology company, Hong Kong-based HashKey Group, is looking to raise between $100 million and $200 million based on a $1 billion dollar company valuation that sees it take on unicorn status.According to an initial report by Bloomberg, early stage talks on the fund raise are progressing positively. It cites sources familiar with the matter in suggesting that as the fund raise negotiations progress, the terms of the offering, extent of the capital raise, and the valuation upon which its all based could change.Photo by Annie Spratt on UnsplashLeveraging a crypto-friendly environmentThe Web3 infrastructure developer and digital asset management firm has decided to take advantage of favorable conditions in Hong Kong in order to raise capital. The current business backdrop in the Chinese autonomous territory is particularly positive, and something that’s likely to make the capital raise a much easier task.Hong Kong has sought to create a crypto-friendly environment by way of both word and deed over the course of the past six months. With that being the case, it’s logical that there is tremendous opportunity for businesses like HashKey to achieve rapid growth in the nascent digital assets sector.Under the supervision of the Hong Kong regulator, Hashkey has already started to offer its services, one of only two companies (alongside OSL) to be permitted to trade in advance of the full implementation of licensing next month.While there have been some difficulties relative to banking the digital assets sector in Hong Kong, ZA Bank, Hong Kong’s largest virtual bank, has stepped up with the aspiration of banking the sector. ZA Bank is expected to facilitate crypto-fiat conversions with both of the currently licensed exchanges, HashKey and OSL, where customers can swap crypto into fiat currencies. The bank will also offer basic banking services to local web3 startups, a category that is currently underserved by traditional financial institutions.HashKey itself is cognizant of the conditions being right on the ground in Hong Kong and the opportunity that presents. Its chairman, Xiao Feng stated that Hong Kong is “very serious about building an international virtual asset center,” when speaking at the city’s Web3 Festival recently, an event that drew 13,000 attendees on its first day.Diversified service offeringThe firm’s activities in Hong Kong extend to HashKey Pro, a Hong Kong-compliant virtual asset exchange, and HashKey Capital, an investment firm. In April, the company established HashKey Wealth.This wealth management service offers investors access to a wide range of digital assets, including Bitcoin, Ethereum, and other cryptocurrencies, together with alternative investments such as decentralized finance (DeFi) projects and non-fungible tokens (NFTs).The program is designed to meet the needs of both institutional and high net worth individual investors. The investment strategies offered vary, ranging from passive to actively managed portfolios. Different risk profiles are employed to suit investors’ preferences. The program also provides a range of other services, including custody, trading, and portfolio rebalancing, to ensure that investors can manage their investments with ease.

Upbit Accidentally Accepts Counterfeit APT Tokens, Initiates Retrieval EffortsUpbit, South Korea’s largest cryptocurrency exchange, is reported to have accepted deposits of counterfeit Aptos (APT) tokens, mistaking them for their legitimate counterparts. The exchange has been reaching out to the sellers of these tokens by phone, requesting their recovery. This news has been circulating in several online crypto communities since the afternoon of September 24 (Korea Standard Time).Photo by Kenny Eliason on UnsplashUpbit’s responsesOn September 24 at 15:47 KST, Upbit announced a temporary suspension of deposit and withdrawal services for APT due to maintenance on the APT wallet. Following this, at 22:32 KST on the same day, Upbit explained that system maintenance was undertaken after identifying an unusual attempt linked to APT deposits. The crypto exchange went on to announce that the deposit and withdrawal services for APT would resume at 23:00 KST on the same day.DeFi degenerates’ insightsIn relation to this incident, Definalist, a group of DeFi degenerates based in Korea, shared insights on X (formerly Twitter). The group stated: “It seems that during the process of reflecting $APT coin deposits, there was a failure to check the type arguments, and all same functions transfers were recognized as the same APT native token. … If all APT ecosystem tokens were sent to Upbit’s wallet, they would have been mistakenly treated as APT native coins.”Decimal place differenceDefinalist also remarked on the fortunate nature of the counterfeit APT token having six decimal places, in contrast to the authentic APT token’s eight. They noted that if the deceptive token had mirrored the genuine token’s decimal places, the market disruption could have amplified a hundredfold. Meanwhile, the value of the counterfeit APT tokens deposited into Upbit is estimated to be about KRW 20 million (approximately $15,000).