Hong Kong, one the largest and most important financial centers in the world has played an important role in the development cryptocurrency. The Chinese territory is home to some of the most successful and established crypto companies, including the crypto derivatives exchange FTX and the digital asset platform Crypto.com.
Despite the fact that trillions of dollars are traded every day through crypto exchanges in Hong Kong, the “Vertical city” also has a lot of physical over-the counter crypto shops. Henri Arslanian (PwC’s crypto lead) and the former chairman of Hong Kong’s Fintech Association of Hong Kong told Cointelegraph that Hong Kong has a large number of OTC crypto brokers. He said, “These are brick and mortar shops for the retail public.”
Cointelegraph was also told by an anonymous source that he noticed a significant increase in OTC cryptocurrency exchanges while he was traveling through Hong Kong. Some of these exchanges even offer access to cryptocurrency ATMs.
An anonymous observer captured a photo of an OTC retail market in Hong Kong.
Hong Kong’s crypto culture is made up of OTC retail shops
Hong Kong’s crypto storefronts offer a different way to access cryptocurrency than regions like Europe or the United States.
Kelvin Yeung (CEO and founder of Hong Kong Digital Asset Exchange or HKD) shed some light on the subject. Yeung stated that the HKD cryptocurrency exchange was created in 2019, while the physical shop was opened in January 2019. They employ more than 30 people to provide customer service.
Yeung also noted that HKD’s retail shop functions similarly to a bank and offers customers the chance to buy crypto directly. He believes retail shops will be a growing trend as crypto mainstreams.
“As institutional investors and investors increase in the sector, digital currency will become mainstream, there will be a tendency for physical stores to be opened alongside online platforms.”
Yeung stated that HKD’s physical presence helps to build customer trust. “Our users are mostly between 40 and 70 years old.” He noted that it is important to have a larger customer base, as many older customers still trust traditional financial systems and hold fiat currencies.
It’s not only the older generation that buys crypto at these physical locations, however. Priscilla Nag, the founder of Coiner HK (another Hong Kong OTC retail platform), told Cointelegraph that CoinerHK was created at the start of 2020 to target the female market. “We wanted to create a marketplace for women because we want women to be financially independent and can practice self-investment.”
Ng explained that CoinerHK’s customers are mostly women, typically aged between 20-50 years old. About 70% of them trade in crypto cash. Ng also mentioned that CoinerHK has two physical stores in Hong Kong’s golden area.
Yeung was also quoted as saying that physical OTC exchanges offer customers greater opportunities. Ng said that CoinerHK’s Wanchai location serves as an art gallery and features nonfungible tokens.
Regulations could force physical OTC exchanges to be shut down
Although physical OTC crypto exchanges such as HKD or CoinerHK seem to offer greater access to crypto throughout Hong Kong than others, there are a few regulatory risks associated with these types of establishments.
Arslanian, for instance, explained that these shops have targeted customers from mainland China as well as regular customers. He pointed out that these shops are often located in tourist areas to attract customers, but that they are especially appealing to Chinese tourists because of the crypto ban in China. “One could suppose that if mainland Chinese tourists travel to Hong Kong, nothing will prevent them from purchasing crypto at these OTC shops.”
Arslanian thinks that the increase in Chinese tourists buying crypto could lead to an increase in OTC retail centers in Hong Kong. Arslanian also mentioned that the upcoming regulatory framework in Hong Kong for crypto exchanges could result in these shops being closed down.
Cointelegraph reported that the Treasury Bureau of Hong Kong and the Financial Services have been looking at limiting crypto access to portfolios that are worth more than $1 million. The new guidelines, if passed, would limit crypto access to approximately 93% of the city’s population.
Arslanian suggested that OTC shops may just move underground, despite this being a significant challenge for OTC shops. He noted, however, that this could pose a greater risk for customers. “In the event of something going wrong, the public will be less likely to report it to the authorities.”
Yeung expressed concern about uncertain regulations and said that Hong Kong is currently faced with the challenge of understanding if Hong Kong will soon allow institutional investors to invest crypto. “This will have a significant impact on our business,” Arslanian stated. The crypto community strongly opposes the idea that regulated crypto exchanges will not be able to serve retail customers, as this could lead to users switching to unregulated platforms.
Arslanian also pointed out that physical OTC shops would have a difficult time getting the right licenses even if they tried to be fully regulated. Yeung stated that HKD requires only a valid ID, and an address verification in order to purchase and sell crypto on the exchange.
It is interesting to note that OSL is the only licensed crypto exchange in Hong Kong. This unit is part of the Fidelity-backed BC Group. Andrew Walton, OSL’s managing director and chief of exchange, explained to Cointelegraph how OSL was designed with regulations in mind and that OSL even practiced self regulation before the new laws were passed.
Walton also shared that OSL is grandfathered under Singapore’s Payment Services Act (PSA) and that OSL has applied for a digital token license, or DPT license, through the Monetary Authority of Singapore. OSL was recently granted impressive regulatory approvals that allowed it to expand to Latin America. OSL Exchange will initially be available in Latin America to professional and institutional investors, including those in Colombia, Argentina, Mexico and Colombia. Walton said that OSL’s LatAm offering would also require appropriate licensing in light of regulatory developments occurring across the region.
From a business perspective, retail investors are required
OSL’s efforts may be notable, but Arslanian noted that OSL generates a lot of revenue from retail clients purchasing and selling crypto on exchanges. This retail flow attracts institutional clients. He noted that Hong Kong’s unwillingness to make crypto exchanges cater to only institutional investors was a difficult ask from a business standpoint. Walton noted that OSL has experienced a significant rise in institutional interest over the past year.
Arslanian stated that Hong Kong might be the best place for institutional investors due to ongoing regulatory uncertainty surrounding cryptocurrency. Singapore, however, could be more suitable for retail customers.
Eileen Wilson –Technology and Energy
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