In Hong Kong's crypto circle, there are only "sickles," no "lambs"
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In Hong Kong's crypto circle, there are only "sickles," no "lambs"
The crypto circle here is only suitable for smarter people to survive.
Navigating Web3 tides with focused insightsBy Luo Fei
In just two months, the cryptocurrency frenzy has gradually faded in Hong Kong.
"My team and I have decided to place our core technical team outside of Hong Kong, leaving only a few marketing staff here," said the founder of a Web3 product company to Tencent News' "Qianwang." He had only recently returned to Hong Kong at the end of last year after leaving due to the pandemic.
After the official release of the "Policy Statement on the Development of Virtual Assets in Hong Kong" at the end of October last year, post-pandemic Hong Kong hosted a series of Web3-related events intensively in April. The city was ready to actively engage with and embrace virtual asset businesses. Web3 is a concept tied to global internet development, associated with blockchain-based decentralization, cryptocurrencies, and non-fungible tokens (NFTs), representing the next stage and ecosystem of the internet.
The peak occurred during the third week of April. That week, four major events, including the Web3 Carnival Conference, were simultaneously held at the Convention and Exhibition Center in Wan Chai. Areas like Central, Wan Chai, and Causeway Bay were almost entirely occupied by crypto enthusiasts flocking from around the globe.
At that time, even the outdated Island Shangri-La Hotel saw room prices jump from the usual 2,000 HKD per night to 4,000 HKD, yet rooms remained unavailable. The pedestrian bridge connecting Wan Chai MTR station to the Convention Center, silent for four years, saw crowds for the first time.
Even Sun Yuchen, the so-called "master of reaping retail investors" in the crypto world who hadn't appeared in China for years, showed up at a Web3 event in Causeway Bay. Most people Tencent News' "Qianwang" met at the event then talked about "Long Hong Kong," equating it directly with "Long Crypto," especially among those labeled as crypto "fanatics."
These "fanatics" are mostly concentrated in the downstream segment of the crypto world—developing Web3 applications such as DeFi and GameFi. They are also the most aggressive group in "reaping retail investors." Tencent News' "Qianwang" encountered them in various settings across Hong Kong and found they were still focused on how to quickly get their products listed on exchanges, manipulate trading, and control markets. They come complete with investors, R&D teams, and traders.
In contrast, those who moved from Hong Kong's traditional finance sector into crypto remain relatively calm. They focus more on secondary market trading and products. This group is also the most steadfast supporter of Hong Kong’s regulatory approach to crypto.
Two months later, Tencent News' "Qianwang" found that some of these enthusiastic "retail-reaping" groups have already left, continuing their journey as "digital nomads" to their next stop—Dubai, Malaysia, or the Philippines. Others have retreated to Shenzhen, waiting for more detailed regulatory guidelines from Hong Kong. Of course, there are still some who firmly choose to stay in Hong Kong, diligently applying for relevant licenses as required.
Regardless of their choices, they share one consensus: Hong Kong is all "scythes," no "vegetation." Only the smartest can survive in its crypto scene.
01 Over 100 Million HKD Entry Fee? Dreamers Depart
June 1st was supposed to be a big day for Hong Kong's crypto community—the official opening of the application window for virtual asset exchange licenses by Hong Kong regulators. But this "historic moment" barely caused a ripple in Central and Cyberport as previously expected.
According to incomplete statistics from Tencent News' "Qianwang," institutions currently announcing plans to submit virtual license applications in Hong Kong include, but are not limited to: HarshKey Pro under Xiao Feng of Wanxiang Group, OKX under Xu Mingxing, who left mainland China during the pandemic and has been living long-term in Singapore, BitgetX, Gate, and Greenland Group.
According to the crypto licensing requirements released by the Securities and Futures Commission (SFC) on May 25, companies already operating physically in Hong Kong before June 1 can enjoy a one-year grace period to prepare their license applications. This prompted some firms like OKX, which previously operated trading services only overseas, to rush setting up physical entities in Hong Kong before June 1.
However, for new entrants, the bar for applying for an exchange license in Hong Kong is much higher—this is precisely why the government's opening of the application window failed to ignite market enthusiasm.
Under Hong Kong regulations, institutions seeking an exchange license must build their own trading, security, and custody systems before submitting applications. Multiple insiders told Tencent News' "Qianwang" that crypto custody itself demands extremely high technical and security standards. Now that Hong Kong regulators require applicants to build these systems independently, the barrier to entry has effectively risen.
A person involved in applying for a trading license told Tencent News' "Qianwang" that building these systems requires many technical personnel. Hong Kong lacks IT advantages, making hiring difficult. Hiring an IT worker for 30,000 HKD in Hong Kong is far less effective than hiring an engineer for 10,000 RMB in Shenzhen. His team plans to eventually locate its IT backend operations on the mainland to save costs.
For similar reasons, the aforementioned Web3 product startup founder ultimately decided to base his core technical team outside Hong Kong. In his view, hiring IT talent in Hong Kong is too costly for startups.
Two individuals attempting to apply for exchange licenses told Tencent News' "Qianwang" they estimate needing at least around 100 million HKD before submitting their applications. Aside from management costs, the bulk of this expense lies in system technology. And this is merely the entry ticket for applying for an exchange license in Hong Kong.
What worries them more is that even after building the systems, they might still face rejection—or worse, obtain a license with no business to operate.
They believe Hong Kong regulators should introduce established custodial service providers like Coinbase and Fireblocks, allowing exchanges to connect directly.
Tencent News' "Qianwang" learned that a team that left Hong Kong has settled in Malaysia last month. There, they can rent a large apartment in the city center for just 60,000 RMB monthly, with access to very cheap IT talent. These departing teams believe that Southeast Asia offers even greater advantages for crypto projects compared to Hong Kong.
Tencent News' "Qianwang" learned from multiple sources that OSL, one of Hong Kong's existing compliant exchanges, has decided to exit and began seeking buyers to acquire it after Chinese New Year this year—but so far, no buyer has stepped forward. This report could not obtain comment from OSL by publication time.
OSL belongs to BC Technology Group, a listed company on the Hong Kong Stock Exchange. The company's 2022 financial report shows growing losses, with OSL's crypto revenue reaching only 71.48 million HKD in 2022—less than one-third of the previous year's 270 million HKD.
One source told Tencent News' "Qianwang" that the company previously had suspicions of stock speculation, with its share price surging 60% after incorporating blockchain concepts. But now, shell companies in the Hong Kong stock market have lost all value, and the listed entity's main asset is the exchange itself. Public records show this shell company once belonged to Hong Kong's "shell king" Gao Zhenshun, who remains an executive director of the listed company.
02 Regulators Embrace Enthusiastically, Yet Crypto Firms Still Struggle to Open Accounts
For startup teams engaged in crypto projects in Hong Kong, opening bank accounts has become the first urgent hurdle.
Multiple industry practitioners told Tencent News' "Qianwang" that despite regulators being proactive and diligent, results haven't met expectations. Over recent months, they and their peers have struggled to successfully open corporate accounts in Hong Kong.
Compared to the caution and silence of market participants, the busiest players in this wave of Hong Kong's virtual asset boom have been the regulators themselves—including the SFC's Intermediaries Division and Information Technology Division, with the former overseeing licensing and intermediary supervision.
Additionally, there's the Hong Kong Monetary Authority (HKMA), which currently leads initiatives on stablecoins and custody.
Currently, except for upstream mining-related segments unsuitable for Hong Kong, downstream components such as funds, exchanges, and decentralized Web3 products may potentially establish presence in Hong Kong.
An industry insider who frequently interacts with the above Hong Kong regulators told Tencent News' "Qianwang" that, like other jurisdictions, Hong Kong regulators find it easiest to start with regulating trading activities, including exchanges and funds.
"Exchanges are like casino operators. Regulate the casino operators well, and the rest of the crypto ecosystem will naturally become healthier," he said.
Tencent News' "Qianwang" learned from multiple sources that over recent months, most leading Chinese-background crypto companies have sent representatives to Hong Kong to engage with these regulators, including Cobo, the wallet company under crypto figure "Shen Yu" Mao Shixing, and Binance Group led by Zhao Changpeng.
This has made former regulatory officials suddenly highly sought-after in Central—many in the crypto space previously stayed far removed from traditional finance and Hong Kong regulators.
A person who transitioned from traditional finance in Hong Kong to crypto told Tencent News' "Qianwang" that early Chinese crypto communities were mainly composed of grassroots miners and engineers, with few truly understanding finance. At its core, crypto is essentially finance.
Multiple sources told Tencent News' "Qianwang" that Hong Kong regulators, led by the SFC and HKMA, have shed their earlier image of being "hard to deal with" and have become more approachable and easier to communicate with.
Tencent News' "Qianwang" learned that figures such as Financial Secretary Christopher Hui were proactively reaching out to meet with Hong Kong-based virtual asset finance professionals even during the pandemic.
Now, besides rolling out procedures like crypto trading fund licenses and exchange licenses as scheduled, regulators plan to soon announce details on stablecoin licensing and are even exploring diversified virtual asset derivatives such as spot Bitcoin ETFs, according to Tencent News' "Qianwang."
But a crypto entrepreneur in Hong Kong told Tencent News' "Qianwang" that despite support from relevant government departments, he registered his company in Hong Kong and set up at Hong Kong Science Park, yet still hasn't opened a bank account and cannot conduct corporate transactions. He recalled that the Hong Kong Trade Development Council and InvestHK were the ones who actively invited him to come.
Multiple practitioners said that any business involving crypto finds it hard to open corporate accounts.
It's reported that HKMA staff have proactively provided registered crypto-related businesses in Hong Kong with a list titled "Hong Kong Banks Friendly to Blockchain Industry." Tencent News' "Qianwang" has seen this list, containing over ten banks including DBS Bank. However, banks still reject account applications from these companies.
Tencent News' "Qianwang" learned that during the third week of June, HKMA officials were continuously communicating with institutions including HSBC, hoping to accelerate account-opening processes for crypto-related companies. However, it's unclear whether any bank has changed or adjusted its account-opening policies.
Tencent News' "Qianwang" also learned that some individuals familiar with banking procedures have turned this into a brokerage business—helping companies repackage their information to avoid mentioning crypto-related activities to successfully open bank accounts, charging between 20,000 to 40,000 HKD per case. Insiders revealed that this broker works with HSBC. Tencent News' "Qianwang" couldn't reach HSBC for comment by publication time.
A crypto professional who also failed to open an account told Tencent News' "Qianwang" that this happens because Hong Kong's government departments and enterprises operate separately. For example, investment promotion agencies like InvestHK care more about how many companies land in Hong Kong each year, while banks handling account openings prioritize their own risk controls and fall under HKMA supervision.
03 No "Retail Investors" in Hong Kong's Crypto Scene: Too Many Smart Players
Hong Kong isn't short of wealthy tycoons. Therefore, many still hope to seize this opportunity in Hong Kong to build crypto-related businesses targeting the rich, such as funds or derivatives.
Ye Yizhou is a relatively successful example. He heads Qianyan Youli Asset Management Limited, currently the only compliant crypto hedge fund in Hong Kong.
The fund started with over 100 million USD in assets under management in 2022, obtained a full virtual currency trading license from the SFC at the beginning of 2022, and ranked third in Barclays' 2022 Global Cryptocurrency Fund Net Return Ranking this year with a 9.2% net return—while the industry generally suffered 50% losses. Tencent News' "Qianwang" learned that Ye Yizhou's fund distributed nearly 70 million HKD to LPs (limited partners) by the end of 2022.
Unlike most "grassroots" crypto traders, Ye Yizhou is a "regular force" trader from Wall Street. In 2014, Ye chose to return to Hong Kong and joined a local equity hedge fund. During this time, driven by personal interest, he began investing in Bitcoin early on. He told Tencent News' "Qianwang" that as Bitcoin trading lacked clear regulation back then, he and his team started large-scale secondary market Bitcoin trading in 2017. Later, he left the institution to start his own venture, founding Youli Capital Management Limited in Hong Kong.
Having witnessed the 2008 traditional financial crisis and five cycles in the crypto world over the past six years, Ye Yizhou told Tencent News' "Qianwang" that Hong Kong isn't suitable for all crypto participants, nor even for some wanting to enter crypto from traditional finance for a "downgrade attack." In his words, "you need the ability to strike before entering," rather than blindly rushing in.
Many share Ye Yizhou's views, with similar backgrounds: graduated from top U.S. universities, worked in Hong Kong's traditional finance for years, choosing Hong Kong's regulated path, aiming to raise funds from Hong Kong's wealthy to run crypto trading funds.
These "regular forces" have gradually obtained fund licenses or are applying for exchange licenses. While regulations for crypto-related trading businesses are gradually emerging, Hong Kong's government has yet to initiate oversight for downstream Web3 products.
Web3 products are relatively the easiest places to "reap retail investors" in the crypto world. The biggest difference between Web3 and Web2 products is the addition of financial attributes, offering users economic incentives. For example, Web3 gaming products like GameFi allow users to "earn money while playing games." This ecosystem includes two types of tokens: cryptocurrencies like Bitcoin and non-fungible tokens (NFTs). Typically, users earn in-game NFT rewards by completing tasks, then transfer these NFTs out and trade them on exchanges or NFT markets for profit.
Tencent News' "Qianwang" learned that many Web3 projects lock in funding pools for both tokens from inception, even calculating precisely when to cash out after launch—similar to manipulating listed companies by controlling trading volume and capital flows. Afterward, all project tokens instantly become worthless. If players don't cash out before the project team exits, they get reaped.
It's more like a game of musical chairs. In crypto jargon, this is "classic retail reaping." The last notably successful "retail-reaping" project among Chinese-background Web3 initiatives was STEPN, a GameFi app claiming you can "earn money by running." Its market cap briefly exceeded 1 billion USD within half a year, with early users primarily from mainland China. According to Tencent News' "Qianwang," the team earned hundreds of millions of USD in half a year. This report could not contact the team for comment by publication time.
But multiple Hong Kong-based crypto figures told Tencent News' "Qianwang" that "Hong Kong has no retail investors, only scythes"—there's no fertile ground for Web3 products to "reap retail investors." This is because Hong Kong's market consists mainly of professional investors. To play musical chairs, you need enough retail participants. Two individuals who transitioned from traditional finance to crypto told Tencent News' "Qianwang" that professional investors are typically graduates from elite schools with solid financial knowledge—they're "regular forces" who mostly act as "scythes," not "vegetation."
"There are plenty of tycoons here, but you can't reap the tycoons," someone summarized, because tycoons employ armies of professional investors.
This is also one reason why most Web3 startups hoping to chase dreams in Hong Kong ultimately chose to leave over the past two months.
People come and go; it's impossible to count those who've left, but many remain. According to information disclosed in the latest speech by Hong Kong's Financial Secretary, over the past several months, more than 150 Web3 companies have settled at Cyberport, the startup incubation center.
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