Krypto-Kater meets Hong Kong

For Hong Kong, the time of the collapse of the FTX could hardly have been worse. Just a few weeks ago, the city underlined its ambitions to become Asia's most important crypto center, with a banner announcement by the Hong Kong Finance Minister Paul Chan.

During a one-week conference to celebrate the abolition of the suffocating pandemic restrictions on the territory, Chan signaled that Hong Kong would allow retail with crypto-assets, and checked the listing of crypto-exchange trading funds. "We want to make our political stance clear to the global markets in order to demonstrate our determination to research financial innovations together with the global community of virtual assets," said Chan at the end of October.

Sam Bankman-Fried, who is now being pursued under criminal law, was even a headline speaker at the event in Hong Kong and supported the move of the city. "If you look at what the crypto hubs will be in the world. "It could be Singapore, could be somewhere like Busan in Korea, but I think there is a real chance that it will end up with Hong Kong." Bankman-Fried founded FTX 2018 in Hong Kong and flourished in the city before moving to the Bahamas last year.

Singapore, Hong Kong's regional rival, experienced a boom when the Chinese city hibernated during the pandemic and talents from the financial industry and private assets flocked to the city -state. However, Singapore recently decided to tighten the controls for crypto - for the horror of market participants like Coinbase.

Chan emphasized that the city of crypto will take a careful approach. The city's legislature passed a change in the laws to combat money laundering in December, which could change the city's freewheel landscape. From June next year, providers of services for virtual assets must comply with the guidelines to combat money laundering before they receive an operating license. But that could be too late for some who have lost a lot in Boom and Bust.

Hong Kong is located on the doorstep of one of the world's largest customers of Krypto - mainland china. While the regulatory authorities have actively weighed up the framework conditions to improve the supervision of crypto and introduced an opt-in regulation scheme for stock exchanges in 2019, Hong Kong's authorities have in general exchanges and cash-for-crypto shops.

Börsen openly advertised in retail customers, and back in the heyday of the "Kimchi bonus"-the frenzy that built up for the purchase of crypto in Hong Kong in 2017-2018 and subsequent sale with a profit in Korea and Japan-the customers were in line with the block with bags full of cash to get Bitcoin.

Charles Yang, the chief dealer at Genesis Block, which developed close connections to the FTX empire in 2020, said this year that China was his greatest customer source.

"China is a market in which everyone wants to pay or pay money," said Yang in a podcast that was started this year. "Nothing is illegal-the purchase of USDT [on asset-backed cryptocurrency] with RMB is completely fine and to pay with this USDT, whoever is on the other side of the border. This application is probably still number one." Yang later described how wealthy Asian players preferred to use crypto instead of cash or transfers to move money. Genesis Block and Yang did not answer a request for comment.

While the Chinese mainland has banned the trade in crypto-assets since Yang made the comments, many in the industry say that this has not affected the interest of the citizens. "China loves crypto", just tweeted Justin Sun, founder of the blockchain company Tron.

Many retail customers in Hong Kong wanted it to have been so easy to get virtual assets. An investor, a back office employee at an asset manager, told me that she invested all of her savings in crypto after learning about it during the pandemic.

After being overturned in Hong Kong to increase the investment, she stored all the money on the local AAX stock exchange, which braged it to have 2 million users, but has frozen since then and imploded after the FTX crash. The city's financial supervisory authorities previously said that the stock exchange did not fall into their area of responsibility.

"It is ridiculous when Hong Kong speaks to want to be the center for digital assets," said the woman who did not want to be named. "I am very disappointed with how the supervisory authorities have reacted so far."

primrose.ridan@ft.com