Why Hong Kong is still bullish on crypto

In a bid to find new economic growth, Hong Kong’s government is busy setting up legal frameworks to court Web3 companies.

We were far from the courtroom where Sam Bankman-Fried was found guilty on seven criminal charges, but everyone still wanted to talk about him. That said, I have a feeling the conversations I heard last week were pretty different from the ones in the US.

The day after his conviction, I was at Hong Kong FinTech Week 2023, a new annual conference hosted by the local government. Unlike people in the US, where the SBF trial is just one more episode in the prolonged crypto winter, those in Hong Kong were feeling much more optimistic about all things Web3.

The city’s top official, Chief Executive John Lee, was there to discuss how the city could reinvent itself as a technology hub and capitalize on the big bets it has made over the past year on blockchain and cryptocurrencies. Yat Siu, founder of Animoca Brands, a homegrown Web3 startup that was clearly the star of the two-day event, told the audience on Friday, “This is the closing of a dark chapter of the industry … now we can start moving forward.”

I attended panel after panel where people discussed the future of tokenized assets, central-bank digital currencies, and even NFTs—beaming with hopes that’d be hard to find in the US. It felt as if I’d jumped into a time machine; the executives of international crypto heavyweights like Crypto.com and Bored Ape Yacht Club attended the conference in person, while the CEO of Coinbase videoed in for a fireside chat. (I have to say I’m glad I didn’t go to the BAYC party, a side event happening at the same time, which apparently left many attendees with “severe eye burn.” Ouch.)

For these execs, Hong Kong is a rare place where the government is welcoming them. Following major crypto failures last year like the collapse of FTX and Terra, and reports about the worthlessness of NFTs, many governments and observers have grown wary of the industry. But for Hong Kong, this new digital frontier seems like an opportunity to rewire its economy.

The city used to punch above its weight in finance and trade, but its importance in these sectors has been falling. And as tech industries have powered exponential growth in places like Shenzhen (which is right across the border in mainland China), Hong Kong has missed out on much of that boom. Crypto, though, could offer a relatively easy pivot.

During the FinTech Week last year, the local government released its own NFTs and a tokenized bond. Since then, leaders of global Web3 projects have visited Hong Kong and explored investing there, says Gary Liu, founder of two Hong Kong–based Web3 startups, Terminal3 and Artifacts Lab. “While everyone else is in a bear market, Hong Kong is rising up,” he says.

What arguably matters most to these international crypto players is that Hong Kong has been busy creating a framework allowing them to legally provide services there. In May, Hong Kong introduced a licensing regime for retail crypto exchanges, and two companies have already been approved to operate. At the conference last week, speakers kept bringing up the prospect that Hong Kong would soon issue more legislation on stablecoins—which will be an important bridge between fiat money and cryptocurrencies, and provide a foundation for many Web3 services.

Compared with other governments, Hong Kong has been moving faster in crypto legislation while being consistently more friendly. It is not the first government to try crafting crypto regulation; Europe started exploring its Markets in Crypto Assets Regulation in 2020, and Singapore and Japan also started years ago. But Hong Kong has made significant progress in catching up in just the last year, says Linda Jeng, the head of global Web3 strategy at the DC-based industry group Crypto Council for Innovation.

“I anticipate Hong Kong to probably be finished with putting in place all the legal regulatory framework way ahead of Europe,” she told me at the conference. “It can literally leapfrog Europe.” That could entice more Web3 companies and investors to set up shop in the city.

But as with anything in this space, moving this fast is a high-risk bet. Crypto may turn out to be less transformative than initially promised, and there’s also the chance of inadvertently enabling more scams and traps. Just in September, the local crypto scene was shaken by the collapse of JPEX, a crypto exchange that defrauded investors of $192 million worth of assets in Hong Kong.

But so far, the city’s government seems undeterred. In a keynote speech, Christopher Hui, Hong Kong’s secretary for financial services and the treasury, said: “We have been asked many times whether JPEX will affect our determination to grow Web3, the answer is a clear no.”

Beijing’s attitude toward crypto will be another big risk factor. While the central government has famously banned cryptocurrencies, it seems to have given Hong Kong implicit consent for its tech experiments. It may hope to use the city as a sandbox to determine what China itself should do with Web3. Yet there’s no guarantee Beijing won’t change its mind and stop Hong Kong’s exploration. To me, that, not SBF, was the elephant in the room last week.

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This story first appeared in China Report, MIT Technology Review’s newsletter about technology in China.