Hong Kong's Financial Services and the Treasury Bureau formally released the "Policy Declaration on Development of Virtual Assets in Hong Kong" on October 31. This declaration clarified the government’s stance, regulatory approach, and pilot plans for fostering a vibrant virtual asset industry. It has undoubtedly boosted confidence and morale among Web3 professionals.
However, some critics view the declaration as a cautious step rather than a bold leap. While innovative and open in spirit, it is seen as more experimental than transformative. For instance, the term "virtual assets" is used instead of "cryptocurrency," suggesting a broader, albeit less precise, definition. The emphasis on "Distributed Ledger Technology (DLT)" over "decentralization" also indicates a technology-focused rather than ideology-driven approach.
Historically, Hong Kong has been home to major crypto players like BitMEX, FTX, and Crypto.com. BitMEX even leased the 45th floor of Cheung Kong Center, symbolizing a new era in finance. The Asia Crypto Week summit was held in Hong Kong in 2018 and 2019, reinforcing its status as a crypto hub.
Yet, many of these firms have since relocated to Singapore or other jurisdictions. BitMEX and Crypto.com moved to Singapore, while FTX shifted to the Bahamas. Today, few well-known crypto enterprises remain in Hong Kong. So, what is the current state of Web3 in Hong Kong, and which enterprises are worth watching?
Global Fast Track 2022
The Global Fast Track program, organized by InvestHK, brings together innovative fintech companies from around the world. These firms already serve commercial clients in their home markets and aim to expand their reach in Hong Kong and Asia. BlockBeats analyzed 118 companies from the Global Fast Track 2022 list to gauge Hong Kong’s Web3 landscape. Among them, only eight (6.8%) were born or headquartered in Hong Kong.
HashKey Group
HashKey Group is an end-to-end digital asset financial services group based in Hong Kong, with operations in Singapore and Tokyo. It offers investment opportunities and solutions for institutional and professional investors in the digital asset ecosystem.
Everest Ventures Group (EVG)
EVG is a venture capital firm with a portfolio including Animoca Brands, The Sandbox, Flow blockchain, and Kraken. It focuses on blockchain and digital asset investments.
Token Bay Capital
This Hong Kong-based venture capital fund targets early-stage investments in digital assets and blockchain companies. It has invested in Yuga Labs, the parent company of the Bored Ape Yacht Club NFT project.
Aspen Digital
Aspen Digital is a virtual asset management platform that provides individuals and institutions with the tools and expertise to build and manage digital asset strategies. It has received investments from Everest Ventures Group and Token Bay Capital.
Cell Rising Capital
Cell Rising Capital is an early-stage venture fund that invests in startups aiming to transform traditional industries. It has backed companies like Animoca Brands.
UVECON
UVECON is a venture studio, accelerator, and consultancy based in Hong Kong. It invests in fintech, blockchain, SaaS, and e-commerce.
ParticleX
ParticleX is an accelerator focused on tech startups in blockchain, big data, AI, IoT, and robotics.
Global Digital MOJO
Originally Asia Digital MOJO, this international digital strategy and production agency was founded in Hong Kong in 2009. It offers digital transformation services and develops AI metaverse products for professionals.
Hong Kong vs. Singapore: The Rivalry
In just two years, Hong Kong has seen a decline in its status as Asia’s crypto hub, with talent and projects migrating to Singapore. The success of Token2049 in Singapore has led many to believe that Singapore is the ideal place for Web3 ventures.
However, the competition is far from over. Singapore’s Monetary Authority (MAS) has taken a strict stance against retail cryptocurrency involvement, while Hong Kong is considering allowing retail investors to directly trade crypto assets. The Securities and Futures Commission (SFC) will consult the public on the extent of retail participation.
Choosing between Hong Kong and Singapore depends on various factors, including business nature, compliance risks, team background, industry resources, and product characteristics. For Chinese-speaking entrepreneurs, Hong Kong’s open Web3 market, stable regulatory framework, and free flow of capital and information may still make it the preferred choice.
The recent policy declaration also opens up opportunities for virtual asset trading, NFTs, the metaverse, GameFi, and crypto funds, providing more options for business division, financing structures, and team distribution.
Virtual Asset Trading and Management
Hong Kong’s regulatory framework for virtual assets is primarily overseen by three bodies: the Securities and Futures Commission (SFC), the Financial Services and the Treasury Bureau (FSTB), and the Hong Kong Monetary Authority (HKMA).
The SFC is the main regulator, ensuring fairness, efficiency, and transparency in the securities and futures industry. Cryptocurrencies are classified into security tokens, NFTs, and virtual commodities (like Bitcoin), each subject to different regulations.
The FSTB focuses on anti-money laundering and counter-terrorist financing, while the HKMA acts as the central bank, managing monetary policy and banking supervision.
The new licensing regime for virtual asset service providers aims to attract global platforms to Hong Kong. Key players in the licensed space include OSL, HashKey, and NH Asset.
OSL
OSL is a subsidiary of BC Technology Group and the first company to receive Type 1 (dealing in securities) and Type 7 (automated trading services) licenses from the SFC. It offers multi-currency digital asset trading, brokerage, custody, and trading solutions.
HashKey
HashKey operates multiple business lines, including HashKey Capital (Type 9 license for asset management) and HBL (Type 1 and Type 7 licenses). It provides a range of digital asset services.
NH Asset
A subsidiary of Huobi Technology, NH Asset holds Type 4 (securities advising) and Type 9 (asset management) licenses. It offers Bitcoin, Ethereum, and multi-strategy virtual asset funds for professional investors.
Some platforms, like HKD.com and OKG Trust, hold Trust or Company Service Provider (TCSP) licenses. HKD.com operates a digital asset exchange and a physical store in Hong Kong’s central business district.
👉 Explore licensed trading platforms
Tokenized Securities
Tokenization can enhance the efficiency of bond issuance and settlement, reduce costs, and attract more investors. Hong Kong plans to pilot the issuance of tokenized green bonds, targeting institutional investors initially.
The HKMA has completed Project Genesis with the Bank for International Settlements, exploring the feasibility of retail tokenized green bonds. OSL and Knight Dragon are among the key players in this space.
OSL
OSL is the first SFC-licensed digital asset broker to distribute security tokens in private offerings. It has partnered with Animoca Brands and other financial institutions.
Knight Dragon
A real estate developer under billionaire Henry Cheng, Knight Dragon plans to issue 100,000 security tokens (KDB4) tied to profits from its properties. The token sale is expected to raise £140 million.
NFTs
Hong Kong regulates NFTs based on their classification: financial NFTs fall under SFC oversight, while collectible NFTs are not regulated. The Hong Kong FinTech Week 2022 featured limited-edition NFTs for attendees, highlighting the growing interest.
Popular NFT projects in Hong Kong include collaborations with local celebrities, though their values have declined significantly. Here are some notable projects:
The Heart Project
A collaboration between Edison Chen and artist Stefan Meier, this NFT collection features heart-shaped designs. It consists of 10,000 tokens, with 5,000 allocated to community presales.
ZombieClub
Launched by Shawn Yue, ZombieClub features zombie and Frankenstein-themed NFTs with 6,666 unique characters across nine races.
Artifact Labs
Spun off from the South China Morning Post, Artifact Labs converts historical content into tradable NFTs. It also helps schools and museums digitize their collections.
Red Hare NFT
Red Hare offers NFT analytics and big data services, including Asia’s first NFT index. It provides tools for NFT analysis, incubation, and acceleration.
Metaverse and GameFi
The metaverse offers immersive virtual experiences for gaming, socializing, retail, and more. Hong Kong is making strides in this area, with initiatives like MetaHKUST by Hong Kong University of Science and Technology and corporate plans from Meta and Yahoo Hong Kong.
The Sandbox
A blockchain-based 3D open-world metaverse by Animoca Brands, The Sandbox has attracted major Hong Kong institutions. MTR Corporation, PCCW, and Hong Kong Telecom have built virtual spaces in The Sandbox. Adrian Cheng, CEO of New World Development, has invested $5 million in the platform.
STEPN
A popular "Move-to-Earn" Web3 app, STEPN has set up its regional headquarters in Hong Kong after being invited by former Cyberport chairman George Lam.
Crypto Venture Capital
Besides EVG and Token Bay Capital, other notable crypto VCs in Hong Kong include:
Animoca Brands
A leading investor in NFTs and gaming, Animoca Brands has over 380 investments, including Axie Infinity, OpenSea, and Dapper Labs. It also develops games like The Sandbox and Crazy Kings.
Kenetic Capital
A proprietary trading and venture firm focused on digital assets, Kenetic has invested in FTX, BlockFi, Alchemy, and Polkadot.
Chiron
Chiron manages a $50 million crypto fund targeting DeFi and metaverse-related NFT projects.
Frequently Asked Questions
What is Web3?
Web3 refers to the next generation of the internet, built on blockchain technology. It emphasizes decentralization, user ownership, and token-based economics.
Why is Hong Kong attracting Web3 enterprises?
Hong Kong offers a supportive regulatory environment, financial infrastructure, and access to global markets. The recent policy declaration signals its commitment to becoming a virtual asset hub.
What licenses are required for virtual asset trading in Hong Kong?
Platforms need Type 1 (securities dealing) and Type 7 (automated trading) licenses from the SFC. Other activities may require additional licenses.
How does Hong Kong regulate NFTs?
Financial NFTs are regulated by the SFC, while collectible NFTs are not. Projects must comply with anti-money laundering laws.
What is the difference between security tokens and utility tokens?
Security tokens represent ownership or debt and are regulated as securities. Utility tokens provide access to a product or service and may not be regulated.
Can retail investors trade cryptocurrencies in Hong Kong?
The SFC is considering allowing retail investors to trade virtual assets under the new licensing regime. Consultations are ongoing.