US Crypto Crackdown Could Push Industry to Hong Kong

The cryptocurrency industry has been at the forefront of technological innovation for quite some time, and the United States has been a leader in the sector. However, recent US government actions toward cryptocurrency regulation have raised concerns for some about the future of the industry in the country. While the US has been adopting a regulation-by-enforcement approach, there is a growing feeling among some that a significant amount of companies, developers, and investors will soon flock elsewhere to work in friendlier environments.

Kaiko's CEO, Ambre Soubiran, recently spoke to The Wall Street Journal and suggested that the recent crackdown on crypto in the US will inadvertently help Hong Kong in its goal of becoming a major crypto hub. She noted that "The U.S. being more stringent these days than ever on crypto and Hong Kong regulating in a more favorable way…is going to clearly shift the center of gravity of crypto assets trading and investments more towards Hong Kong."

Hong Kong has been moving in a different direction, with the government initially outlining plans in January 2023 to become a crypto hub by rolling out progressive regulation to support high-quality crypto and fintech firms. The Hong Kong Securities and Futures Commission (SFC) proposed a crypto licensing regime on Feb. 20, aiming to provide consumer protections without stifling innovation. According to a March 20 speech from Hong Kong's Secretary for Financial Services and the Treasury, Christian Hu, over 80 virtual asset-related firms have expressed interest in setting up shop there, and 23 crypto firms have already indicated that "they planned to establish their presence."

Bloomberg reported on March 28 that the Hong Kong Monetary Authority and SFA are set to hold a joint meeting on April 28 to help crypto firms set up domestic banking partnerships. Chinese banks, such as Shanghai Pudong Development Bank, the Bank of Communications, and the Bank of China, have reportedly started offering banking services to crypto firms in Hong Kong or made inquiries with crypto firms.

Soubiran also revealed in mid-March that Kaiko is looking to relocate the headquarters of its Asian-Pacific unit from Singapore to Hong Kong in response to the country's friendly crypto stance. "What we're seeing is a clear support for more clarity on the regulatory framework in Hong Kong," she told Bloomberg in an interview, adding that "while we're seeing an increased attractivity of Hong Kong in the region, we are relocating."

The US government has become increasingly aggressive toward crypto since the collapse of FTX in November 2022, with Senator Elizabeth Warren even recently stating that they are building an "anti-crypto army." However, the industry's "center of gravity" could soon shift toward Hong Kong, as it rolls out progressive regulation and attracts more virtual asset-related firms to establish a presence there.