Which city will win fight to become Asia’s crypto hub?

In this issue

  1. Asia’s Web3 crown: Ready, set, fight
  2. US debt ceiling: Win or loss for crypto?
  3. Metaverse in China: Red carpet

From the editor’s desk

Dear Reader,

Two years. 

That’s what I predicted to a roomful of industry and regulatory leaders in Dubai recently, inside the Museum of the Future, at a MENA-APAC meeting of delegations led by Hong Kong-based Finoverse. Two years during which the world outside America has time to build while political intransigence keeps the U.S. crypto industry handcuffed by a lack of regulatory clarity. But the system created by America’s Founding Fathers and enshrined in the U.S. Constitution stipulates that the people can decide. Democracy may be frustrating, but it remains a system that has birthed so many human and capital opportunities. Time may solve today’s problem in two years when Americans head to the polls and potentially see a regime change. 

But it’s also what makes the crypto industry nervous. Innovation should not be politicized. Crypto should not be a political football thrown about between the Republicans and Democrats to shine when the policy sun shines, only to retreat into the shadows if it’s politically expedient. One should, and must, demand more. 

There is a lot of work being done as I write — there is proposed legislation supported by both sides of the aisle — because there is a recognition that a lot of education (and frankly, professional therapy) may be needed in the embarrassing chapter post-SBF and the FTX implosion that has left many on Capitol Hill scrambling to restore political reputations and footing. 

Not all is lost. There are influential voices inside U.S. agencies and Washington’s beltway that have penetrated crypto’s intellectual moat. One should be impressed that they’re navigating a very bureaucratic system, which is limiting in more ways than you know, and yet seeking knowledge and opening paths of communication with the industry. But what makes them powerful? They are listening, learning and evolving their thinking to serve the needs of the country beyond the years they’re serving in office, on how this technology should be integrated into the future digital economy. 

They, too, have two years. Two years to observe, learn and watch how the rest of the world is defining the Web3-enabled future — and biding their time when we can all fully engage. 

Until the next time,

Angie Lau,
Founder and Editor-in-Chief

1. Heat is on

Hong Kong’s path to being a global Web3 hub is not without challengers, with Singapore, Japan and South Korea also jockeying for the center of this new digital asset economy. Image: Canva

With wind in their sails, multiple Asian economies are racing to become the leader of the emerging Web 3.0 industry as an unfavorable regulatory environment in the U.S. drives its crypto firms to seek better opportunities elsewhere.

  • “Hong Kong will more than likely become not just Asia’s crypto hub, but the de-facto crypto hub globally,” Vincent Chok, chief executive officer of Hong Kong-based consultancy First Digital Trust, told Forkast. “The U.S. is in a holding pattern with its regulation paralysis, and Dubai has ambitions to become a crypto hub, but in terms of innovation, Hong Kong still leads.” 
  • Hong Kong recently piloted its retail central bank digital currency (CBDC), the e-HKD, as part of the city’s bid to reclaim its status as a global digital assets hub. Along with payment giants Visa and Mastercard, U.S.-based blockchain payment platform Ripple Labs is also participating in the e-HKD pilot, even as the company is embroiled in litigation against U.S. regulators over alleged securities law violations.
  • Since late 2022, Hong Kong has also unveiled a raft of initiatives to attract digital asset businesses, and at least 80 foreign and mainland Chinese Web3 firms have expressed interest to set up operations in the city.
  • Hong Kong’s path to a global Web3 hub is not without challengers. Singapore, Japan and South Korea are also intensifying their quest to grow their digital asset economy and have been rolling out crypto-friendly regulations to attract investment and companies.
  • “Hong Kong could be facing strong competition from Japan and South Korea, both of which have advanced regulation for cryptocurrencies. In this regard, Hong Kong could stand as a newcomer and could be obliged to put up some additional efforts to level the playing field,” Denys Peleshok, head of Asia at London-based financial trading firm CPT Markets, wrote to Forkast. “Both countries could provide a larger talent pool that crypto firms could need to develop more rapidly.”
  • An April 2023 Statista market report predicts that revenue in the digital assets market will grow at an annual rate of 16.15% to exceed US$102 billion by 2027, with almost a billion users.
  • Despite the consensus on the potential of Web3 technologies, Asian economies are taking different approaches to digital assets. “Cryptocurrencies and crypto exchanges are just one part of the entire digital asset ecosystem,” the Monetary Authority of Singapore told Forkast last month in an email. MAS is aiming to encourage innovation in blockchain technology and tokenization while keeping cryptocurrency speculations at bay.
  • In the United States, crypto firms are lamenting the lack of regulatory clarity and increasingly aggressive enforcement actions. Crypto exchanges including Kraken, Bittrex and Coinbase have recently been targeted by the U.S. Securities and Exchanges Commission for alleged violation of securities laws, while the SEC and the Commodity Futures Trading Commission continue to disagree over whether cryptocurrencies are securities or commodities.
  • “We have seen U.S. regulatory agencies aggressively handling their relationships with crypto firms, even going as far as outright suing them,” Peleshok said. “The initiatives taken by Hong Kong could help nurture a stronger local crypto industry and help attract firms from other countries and from China in particular.”

Forkast.Insights | What does it mean?

Hong Kong is stepping up efforts to become a global hub for digital assets. On top of its recent CBDC pilot, the city has, over the past 12 months, increasingly signaled it is eager to do business through a raft of incentives aimed at the crypto industry. But Hong Kong still faces challenges. 

While Singapore and South Korea have been more consistent with their approach to regulating the industry, Hong Kong has to make up for lost ground and a battered reputation after China banned cryptocurrencies on the mainland in 2021, and there were fears that Hong Kong’s government could follow Beijing’s lead.

As the demand for fintech and Web3 grows, Hong Kong authorities will need to find a way to reassure founders and investors that the territory is an attractive place to do business again — and also as a good place for talent to work and live, especially in the aftermath of the government’s curtailment of speech and press freedoms and imposition of draconian Covid-19 control measures that resulted in a brain drain of professionals and companies leaving Hong Kong.

Hong Kong is also grappling with a shortage of engineering talent. The quickest and most superficially obvious way for the territory to plug its skills gap would be to tap mainland China, which currently has an abundance of unemployed young people. The city’s leaders are exploring options to hire more mainland talent, but it remains to be seen whether China’s surplus workers are sufficiently skilled for the needs of Hong Kong’s crypto and fintech companies. 

Under China’s all-out crypto ban in 2021, Chinese nationals working for crypto trading companies in other countries were warned that they could be subject to investigations under Chinese law. It remains unclear how that would apply to mainland citizens who working in crypto in Hong Kong.

To bring more digital asset companies and talent back to Hong Kong, authorities must not only establish clear regulations around crypto trading but also offer assurances about the legality of cross-border employment in the sector. The territory’s leaders should also consider why Hong Kong is experiencing an exodus of its own young and figure out a way — beyond the dropping of pandemic-era travel restrictions — to make Hong Kong an attractive place to live and work again.

2. Cliff’s edge

Will market worries of a potential U.S. defaul push investors to seek safe haven in cryptocurrencies? Image: Canva

U.S. President Joe Biden said on Sunday he would not accept a debt deal that favors “wealthy crypto traders,” as the U.S. government’s protracted debt ceiling negotiations extended into the digital assets sector.

  • Last week, the White House presented a flurry of deficit-reducing proposals to persuade the Republican congressional leadership to raise the government’s debt ceiling, which Republicans rejected, including a plan to close a tax loophole related to cryptocurrencies,…

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