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Hong Kong Enticing Crypto Firms from Mainland ChinaIn the wake of various scandals and high-profile bankruptcies, some governments have shunned the cryptocurrency industry, but Hong Kong is instead embracing mainland China crypto companies, urging them to relocate to the city in a bid to bolster its status as a financial hub.©Pexels/RODNAE ProductionsEmbracing cryptoAfter enduring an exodus of bankers amid a China security crackdown and stringent COVID curbs, Hong Kong is now making a concerted effort to revitalize its finance sector by embracing crypto. Top Hong Kong government officials, including Chief Executive John Lee, have voiced their support, and the city is planning to hold 100 crypto-related conferences and lavish parties throughout April. Hong Kong is “very serious about building an international virtual asset center,” said Xiao Feng, chairman of Hong Kong crypto exchange HashKey, which drew 13,000 people on the first day of its Hong Kong Web3 Festival, the most significant conference of the month.HashKey obtained a license to operate in Hong Kong last November, making it one of two licensed crypto exchanges in the city, alongside rival exchange OSL. Xiao told Reuters that many people in the crypto industry had initially assumed that Hong Kong would inevitably adopt the same regulations as mainland China. However, the government is now emphasizing that Hong Kong operates under the “One Country, Two Systems” framework and enforces distinct laws.SkepticsDespite this, many remain skeptical of Hong Kong’s promise of a stable regulatory regime on cryptocurrencies. One crypto venture capitalist, who spoke to Reuters on the condition of anonymity due to the sensitive nature of the matter, expressed concern over China’s crypto ban, which still looms large in the background. “If Hong Kong can suddenly claim to be crypto-friendly, that switch can be flipped off just as quickly should things become challenging,” he said.Crypto licensing interestNevertheless, at least 10 companies with Chinese founders, including OKX, Bybit, and Huobi, have announced or are planning to announce their bid for licenses in Hong Kong. These firms, which have exited countries like Canada and the UK, are among the sponsors of the most glamorous Hong Kong parties this week. Bybit held a private dinner for industry heavyweights, and OKX reserved a rooftop venue overlooking Victoria Harbour, where guests could enjoy a stunning view.At one event on Tuesday, Tron founder Justin Sun, addressed a mainly Chinese-speaking audience, stating, “I can’t believe that we are having such conferences on Chinese soil.” Sun has been charged with fraud by the US Securities and Exchange Commission (SEC), but he argued that the charges lacked merit and accused the regulator of targeting crypto players. “Hopefully, one day, we will have such events in Shanghai and Beijing,” he remarked.Despite the lingering concerns, Hong Kong is committed to establishing itself as a leading finance hub in the cryptocurrency industry and is sparing no effort to achieve its goals.

Industry leaders are turning their attention to Hong Kong as a notable location for spot bitcoin exchange-traded funds (ETFs). That speculation arises in anticipation of the United States granting approval for such ETFs, with Hong Kong emerging as a likely frontrunner in Asia. In a recent report, The Block spoke with a couple of prominent industry stakeholders, who appear to acknowledge the significance of moves towards seemingly expanding crypto ETF product offerings in Hong Kong, even though the bulk of the industry’s attention has been on U.S. spot bitcoin ETF approval.Photo by Simon Zhu on UnsplashU.S. ETF expectationsOn Monday, the research arm of crypto derivatives platform BitMEX calculated that the arrival of such a product in the United States could dwarf the total value locked within existing crypto-related exchange traded products (ETPs). Earlier this month, a researcher at crypto asset manager Bitwise suggested that U.S. spot bitcoin ETFs would be the most successful ETF products ever launched. Acknowledging Hong Kong’s positionWith all the focus on the U.S., could it be that Hong Kong will play a far greater role in the global crypto ETF business? Yat Siu, the chairman of Web3 investor Animoca Brands, highlighted the encouraging position of Hong Kong’s Securities and Futures Commission (SFC) toward digital assets, laying a foundation for potential spot bitcoin ETFs. Referring to the SFC’s recent statement expressing openness to expanding access to digital assets, Siu emphasized the relatively uncontroversial nature of a spot Bitcoin ETF. He noted: “If you look at what the SFC had said about I think a month ago, it says that it was open to widen access to digital assets. And frankly, Bitcoin spot ETF is, I would say, relatively uncontroversial at the end of the day.” Poised to usher in spot ETFsAs the U.S. inches closer to approving its first spot bitcoin ETF, Hong Kong could likely follow suit, benefiting from the groundwork already laid by U.S. regulators. In fact, just last week both local regulators, the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), signaled that they are happy to start to accept applications for the provision of crypto-related spot ETFs. Siu pointed out the abundance of public filings and applications that Hong Kong authorities can reference in shaping their regulatory framework. Julia Leung, SFC CEO, stated in November that the regulator was evaluating spot crypto ETFs while expressing openness to proposals leveraging innovative technology for efficiency and enhanced customer experience. Presently, Hong Kong has listed several futures-based crypto ETFs, including the Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF and CSOP Ether Futures ETF. Glenn Woo, Head of Sales of APAC at Web3 infrastructure company Blockdaemon, echoed the positive sentiment, noting that while traditional asset managers may have lingering concerns, there is a prevailing appetite for such financial instruments in Hong Kong. Woo, drawing on over a decade of experience in the traditional financial industry in Hong Kong, emphasized the growing interest, anticipating that the appetite will expand further once the U.S. approves its first bitcoin ETF. Hong Kong’s long-standing reputation as a global financial center, combined with the potential of crypto ETF products, will likely boost crypto adoption in the region and the significance of Hong Kong’s role in the sector with it.

Korea to Ban Virtual Asset Deposit Services from Next JulyDuring a recent criminal law seminar held at the Supreme Prosecutors’ Office, Park Min-woo, Director of the Capital Markets Bureau at the South Korean Financial Services Commission (FSC), underscored that starting next year, virtual asset service providers (VASPs) will no longer be permitted to offer deposit and management services for virtual assets. That’s according to a report by local crypto news outlet Digital Asset.This is seen as a response to the suspension of virtual asset deposits and withdrawals carried out by virtual asset yield platforms Haru Invest and Delio a few months ago.Photo by Mathew Schwartz on UnsplashLegal backgroundDirector Park referred to Article 7, Paragraph 2 of the Virtual Asset User Protection Act, clarifying that the intention behind this provision is to ensure that VASPs have the ability to fulfill asset withdrawal requests, even in the scenario where all their customers make such requests. This Act is scheduled to go into effect in July of next year, and Article 7 prohibits VASPs from entrusting customer assets to third parties.Deposit service providers receive cryptocurrency deposits and then distribute the resulting yields to their customers. In a bull market, these entities can manage yields on their own. However, in a flat or bear market, these asset managers may face challenges in paying yields unless they can generate profits by handing over customer assets to external custodians.Signs of giving upIn fact, centralized finance (CeFi) company HeyBit made an announcement last month, stating that it will discontinue its virtual asset deposit service starting from October 2. They cited this specific provision as the reason for their decision.Fraud chargesBoth Haru and Delio have been indicted by the Seoul Southern District Prosecutors’ Office on fraud charges.As an unregistered VASP, Haru suspended its deposit and withdrawal services on multiple occasions in June, causing substantial financial losses to numerous investors. This suspension was triggered by significant losses incurred at B&S Holdings, another unregistered entity to which Haru had entrusted virtual assets.Similarly, Delio, although registered, entrusted a considerable amount of virtual assets to Haru and Traum Info Tech but was unable to recover them.