Hong Kong, as one of the world’s most major and influential financial centers, has been instrumental in the creation of cryptocurrencies. For example, China is home to some of the most established and successful crypto startups to date, including the crypto derivatives exchange FTX and the digital asset platform Crypto.com.
Yet, because Hong Kong-based crypto exchanges handle trillions of dollars on a daily basis, the „Vertical City“ also has an abundance of actual over-the-counter crypto businesses. Henri Arslanian, PwC’s crypto head and former chairman of the Hong Kong Fintech Association, told CoinNewsDaily that Hong Kong’s number of traditional OTC crypto brokers is unmatched. „These are really tangible and mortar establishments catering to the retail audience,“ he explained.
Additionally, an unnamed source told in an inteview that when traveling around Hong Kong, he noticed a significant increase in OTC cryptocurrency exchanges, some of which offer access to cryptocurrency ATMs.
OTC retail stores make up Hong Kong’s crypto culture
Hong Kong’s physical cryptocurrency storefronts are a unique trademark that distinguishes them from other regions, such as the United States or Europe, where buying and selling cryptocurrency on licensed exchanges is relatively simple. These storefronts provide individuals with an additional means of accessing cryptocurrency.
Kelvin Yeung, the CEO and founder of the Hong Kong Digital Asset Exchange, or HKD, provided some insight into the situation. Yeung informed us that the HKD crypto exchange was launched in 2019, that the actual business opened its doors in January of this year, and that they employ more than 30 people to give customer support to their customers.
According to Yeung, HKD’s shop operates in a similar manner to a typical bank, providing consumers with the opportunity to get a hands-on approach to purchasing cryptocurrency while also having access to in-person advisory services. As a result, he predicts that retail businesses will most likely become a global trend as cryptocurrency becomes more prominent in the future:
“As more investors and institutional investors enter the market and digital currency becomes more widespread, a trend toward physical storefronts in conjunction with online platforms will develop. .”
Yeung went on to say that he believes the physical presence of HKD helps to foster stronger customer confidence between the company and its user base.
„Most of our users are between the ages of 40 and 70,“ says the author. It is critical to have an older customer base in order to achieve mainstream adoption because many of these people still hold fiat cash and solely place their trust in existing financial institutions,“ he explained.
Strangely enough, it is not only the elder generation that is acquiring cryptocurrency at these physical locations. As Priscilla Ng, the founder of Coiner HK, another Hong Kong OTC retail exchange, explained to us in our interview, CoinerHK was launched at the beginning of 2020 to target the female market: „We wanted to create a market for women because we wanted to promote the idea that women can be financially independent and practice self investment.“
As a result, Ng revealed that CoinerHK’s customers are primarily women between the ages of 20 and 50, with approximately 70% of them trading in cash for cryptocurrency. Ng also revealed that CoinerHK has two physical retail locations in Hong Kong’s golden region.
In agreement with Yeung, Ng said that having physical OTC exchanges can provide clients with additional opportunities: „We treat them as friends when trading and also instill confidence in our customers because we own real sites.“ Additionally, Ng stated that CoinerHK’s Wanchai site doubles as an art exhibition featuring nonfungible tokens (NFTs).
Regulations could push out physical OTC exchanges
While physical OTC crypto exchanges like as HKD and CoinerHK appear to be increasing access to crypto in Hong Kong, these establishments pose a variety of regulatory problems.
For example, Arslanian explained that some establishments have targeted mainland Chinese visitors in addition to regular consumers. He observed that while many of these shops are placed in tourist regions to attract consumers, they are especially attractive to Chinese tourists because to China’s crypto ban: „One might presume that if mainland Chinese visitors visit Hong Kong, they will have no difficulty purchasing cryptocurrency at these OTC businesses.“
With this in mind, Arslanian believes that the inflow of Chinese tourists interested in purchasing cryptocurrency may result in an expansion in retail OTC centers in Hong Kong. Arslanian, on the other hand, stated that Hong Kong’s planned legal framework for cryptocurrency exchanges may force these businesses to close their doors entirely.
As previously reported, Hong Kong’s Financial Services and Treasury Bureau are considering restricting crypto access to portfolios with a minimum value of $1 million. If adopted, the proposed limits would prevent almost 93 percent of the city’s inhabitants from accessing cryptocurrency.
While this presents a significant difficulty for physical OTC retailers, Arslanian noted that retailers may just relocate their operations underground. He cautioned, however, that doing so would increase the danger to customers: „In the event that something goes wrong, the public is less inclined to disclose it to the authorities.“
With regards to uncertain laws, Yeung stated that the primary difficulty now confronting the HKD is determining whether Hong Kong would soon restrict crypto investment to institutional investors only: „This is going to have a significant impact on our business.“ Arslanian noted that the crypto community strongly opposes registered crypto exchanges being unable to handle retail clients, as this might very well result in users turning to unregulated platforms.
Regrettably, Arslanian said that it would be quite difficult for actual OTC businesses to obtain the necessary licenses, even if they were to be completely controlled. At the moment, Yeung stated that HKD needed simply a valid ID and address verification in order to buy and sell cryptocurrency on the exchange.
It’s worth noting that Hong Kong’s only regulated crypto exchange is OSL, which is also a subsidiary of the Fidelity-backed BC company. Andrew Walton, OSL’s managing director and head of exchange, indicated to the interviewer that OSL was purposely constructed with regulations in mind and even practiced self-regulation prior to the enactment of some of the current legislation.
Additionally, Walton stated that OSL was grandfathered in under Singapore’s Payment Services Act, or PSA, and has applied to the Monetary Authority of Singapore for a digital payment token, or DPT, license. Recent regulatory permissions enabled OSL to expand its operations across Latin America. „The OSL Exchange product will initially be available in Latin America to institutional and professional investors in Mexico, Colombia, and Argentina. OSL’s Latin American service will likewise seek proper licensing as regional regulatory developments occur,“ Walton noted.
Retail investors are needed from a business perspective
While OSL’s efforts are commendable, Arslanian noted that a large portion of revenue is often generated by retail clients buying and selling cryptocurrency on exchanges, which attracts institutional clients. As such, he emphasized that Hong Kong’s desire to require cryptocurrency exchanges to cater only to institutional investors is a difficult commercial proposition. While this may be true, Walton noted that OSL has witnessed a large increase in institutional interest over the last year.
Given the continued regulatory uncertainties surrounding cryptocurrencies, Arslanian suggested that Hong Kong may be better suited for institutional investors, while Singapore may make more sense for retail clients.