For a long time, Hong Kong has been vying to become a Web3 gaming hub in Asia and is still pushing blockchain technology and cryptocurrency.
Despite facing several challenges, Hong Kong officials are still pushing blockchain technology and web3 gaming to become a leading brand in the Asian region. For a long time now, Hong Kong has been vying to become a Web3 pioneer. At the beginning of 2022, Hong Kong's financial world took significant measures. It had been three hard years, with mass protests, the implementation of a National Security Law that choked civil society, and widespread lockdowns because of COVID-19. There were ads for cryptocurrencies at every point, and social media feeds were full of stories about the web3 revolution. This is an idea for a new phase of the internet that includes virtual reality, unique digital representations of goods (NFTs), and the use of decentralized financial tokens like Bitcoin and Ethereum.
Cryptocurrency and Web3 lose Their Spark in Hong Kong
The hype surrounding cryptocurrencies and the revolutionary potential of Web3 has decreased after 18 months and numerous interest rate hikes. The failures of FTX and Three Arrows Capital, in particular, demonstrated the volatile nature of the industry. U.S. and Chinese authorities are increasing their monitoring: While Coinbase and Binance faced SEC charges for several offenses connected to being unregistered providers of securities in June 2023, Beijing first imposed limitations on cryptocurrencies in 2013 and repeated its crackdown in 2021. The hype didn't last for years, but cryptocurrencies like Bitcoin, Ethereum, and USDT (a token pegged to the value of the U.S. dollar) are still traded on worldwide exchanges and hold significant value.
Hong Kong Policy Document Represents Its Vision
The government of the Hong Kong Special Administrative Region (HKSAR) published a strategy statement in October 2022 stating its goals for the city to become a "vibrant" location for virtual assets, despite the drop in excitement around cryptocurrencies and web3-related items. Later in the year, Hong Kong's Financial Secretary Paul Chan stated that "the digital economy and the application of the third-generation internet (web3) definitely present great development potential." The SEC has made it clear that it does not regard Bitcoin, Ethereum, or USDT to be securities. On August 4, Hashkey and OSL became the first cryptocurrency exchanges in Hong Kong to offer retail services for trading. Although bitcoin trading has been possible in Hong Kong before, it has been conducted on unregulated markets.
Assistant professor at Hong Kong University and well-known public commentator Brian Wong ( Huáng Yùshùn) wrote in an email to The China Project that the city's leaders want to do two things: promote financial innovation and send a message about "the city's desire to come out from the shadows of geopolitical competition and stake out a seemingly distinct niche on the world map."
Hong Kong has a long history as a financial forum that connects China to the rest of the world. It also has a fairly stable law system, which gives it many advantages in the fintech-web3 sector. Hong Kong gets most of its economic and financial help from China and the United States. It is unclear whether Hong Kong's web3 effort is a risky attempt to being "Asia's freewheeling financial hub" or an old policy.
Hong Kong has Concerns over Long-term Sustainability
Hugh Harsono, who studies digital currencies issued by central banks, thinks it's good that regulators are laying down some ground rules and holding cryptocurrency holders accountable. "Hong Kong's future as a fintech hub is sustainable in the short term," he argued.
But it's still not clear what the city's legal standing is with China in the long run. There is a chance that the sector will lose money if limits get tighter in either China or the US. Because of its links to China and the U.S., Hong Kong is a second-tier crypto hub.
Digital currencies like Bitcoin have shown to be stable despite market fluctuations and government intervention. Even though trading cryptocurrencies are not allowed there, China ranked tenth in crypto adoption worldwide in 2022. In response to a question from The China Project, the index's creator, Chainalysis, said, "Users in China are most likely accessing these services through a VPN."
Some people think that Hong Kong would rather help make rules for digital assets and gain from having exchanges where they can be traded than try to ban them outright. Many people think that China and the US giving up on cryptocurrency will be good for Hong Kong and other markets. When asked about the future of Hong Kong's coin exchanges, Jonathan Mui, co-founder of Moongate, an NFT-based ticketing company, said, "They will do very well."
Of course, there is more to web3 than digital currency. Mui isn't concerned that the SEC will classify goods like Moongate's virtual tickets as securities. Such businesses may eventually be the engine that propels the city's economy forward.
It is unclear if the city will be successful in implementing its web3 plans, but the government would rather risk getting caught holding the bag than being left behind.
FAQ: Hong Kong's Web3 and Cryptocurrency Pursuits
What is Web3, and why is Hong Kong interested in it?
Web3 refers to the next phase of the internet that incorporates virtual reality, non-fungible tokens (NFTs), and decentralized financial tokens like Bitcoin and Ethereum. Hong Kong is interested in Web3 as it seeks to establish itself as a pioneer in this emerging technology, aiming to foster financial innovation and assert its position in the global landscape.
How has Hong Kong's journey in the Web3 and cryptocurrency space evolved?
Hong Kong's journey in the Web3 and cryptocurrency space has seen various phases. In early 2022, the city's financial sector took significant steps despite challenges like mass protests, the National Security Law, and COVID-19 lockdowns. There was initial enthusiasm, but the hype started to wane after 18 months. Despite this, Hong Kong remained committed to its vision of becoming a vibrant hub for virtual assets.
What challenges has Hong Kong faced in its pursuit of Web3 and cryptocurrencies?
Challenges have included the volatile nature of the cryptocurrency industry, highlighted by high-profile failures like FTX and Three Arrows Capital. Regulatory scrutiny from U.S. and Chinese authorities has also been a challenge, with exchanges like Coinbase and Binance facing SEC charges. Hong Kong must balance its aspirations with its economic dependence on China and the U.S.
How does the Hong Kong government view Web3 and cryptocurrencies?
The Hong Kong government views Web3 and cryptocurrencies as presenting great development potential for the digital economy. It has released a strategy statement outlining its commitment to establishing the city as a vibrant hub for virtual assets. Importantly, the U.S. SEC does not consider major cryptocurrencies like Bitcoin and Ethereum to be securities.
What steps has Hong Kong taken to support its Web3 and cryptocurrency goals?
In August 2022, Hashkey and OSL became the first cryptocurrency exchanges in Hong Kong to offer retail trading services. Previously, Bitcoin trading occurred in unregulated markets. The government has shown determination in laying the groundwork for Web3 and cryptocurrency development.
What is the long-term sustainability of Hong Kong's Web3 and cryptocurrency pursuits?
The long-term sustainability is uncertain due to potential regulatory changes in China and the U.S. Experts suggest that while Hong Kong's future as a fintech hub appears promising in the short term, the city's legal standing with China and evolving regulations could pose risks to the sector.
How does China's crypto adoption impact Hong Kong's Web3 efforts?
China's crypto adoption, despite trading restrictions, is notable. China ranked tenth in global crypto adoption in 2022. This suggests that users in China access crypto services through VPNs. Hong Kong may prefer to establish regulations for digital assets rather than impose an outright ban, potentially benefiting from hosting cryptocurrency exchanges.
Beyond cryptocurrencies, what other aspects of Web3 are relevant to Hong Kong?
Web3 encompasses more than just cryptocurrencies; it includes virtual reality, NFTs, and digital goods and services. Businesses operating in these areas, like Moongate, an NFT-based ticketing company, may become drivers of Hong Kong's economic growth.
Is there certainty that Hong Kong's Web3 and cryptocurrency plans will succeed?
The success of Hong Kong's Web3 and cryptocurrency plans remains uncertain, given the rapidly evolving nature of the industry. However, the government appears determined to take calculated risks rather than risk being left behind in this technological landscape.
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