Mainland Chinese Take Advantage of Hong Kong's Crypto Gray Areas [Advance Cash ]

Mainland Chinese Take Advantage Of Hong Kong'S Crypto Gray Areas

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Almost every month, Zhang travels from the Futian district of Shenzhen to a mall populated by fast food joints and a few empty stores in Hong Kong's business district to buy crypto.

During a trip in June, the 27-year-old - whose daily job includes "a little bit of everything that makes money" - exchanged cash for around 10,000 to 20,000 Rmb (1 380 to $2,760) of USDT, a stablecoin pegged to the US dollar.

Zhang, who declined to give his full name on the sensitivity of crypto trading on the mainland, said having digital currencies is useful for “transferring money to other places,” adding that he would make the 90-minute cross-border trip “whenever there is a need”.

Cryptocurrency transactions are illegal on the mainland, where Beijing has also banned foreign exchanges from serving local customers on the internet. But in Hong Kong, crypto trading is legal, and the city is looking to become a digital asset trading hub.

Loosely regulated brick-and-mortar crypto stores are prevalent in tourist and shopping areas of the city. The stores are booming, helped by growing demand from mainland Chinese visitors and ambiguity over their regulatory status. Their main appeal is that they can help customers easily purchase digital assets with cash, often without disclosing the origin of the money or their identity.

Unlike the strict licensing rules crafted for online exchanges in the city's drive to become a virtual asset trading hub, these over-the-counter crypto stores allow customers to purchase large volumes of cryptocurrency. with lighter or even zero checks.

Before China and Hong Kong fully reopened their shared border in February, customers from mainland China made up "less than 5%" of customers at Crypto HK, an OTC crypto company with two branches in the city, the official said. founder Merton Lam. "Now it's probably like half," he said.

Roger Li, co-founder of One Satoshi, a crypto store that has nine branches in Hong Kong, said the company's overall transaction volumes from January to May were about 20-25% higher than the same period last year. For the full year, he expected trading to grow between 35 and 40 percent.

Li said he hadn't taken on mainland clients due to concerns over Beijing's crypto ban, but he was optimistic about easing restrictions - a widely held belief in crypto circles. of the city after Hong Kong announced plans to become a virtual asset hub in October.

“I would say about 30% of new inquiries are actually from mainland Chinese customers,” Li said. “What we advise them is that they can trade with us soon,” he said. said, "the regulatory landscape in China is likely to change."

Hong Kong introduced a new regime for cryptocurrency exchanges in June that requires all online platforms operating in the city to apply for a license.

Yet unlike other jurisdictions, including the United States and Singapore, which are clamping down on crypto following the collapse of FTX and other top exchanges, Hong Kong is looking to encourage its growth.

Even with the new regulations, most OTC stores remain outside the mandate of the Hong Kong Securities and Futures Commission.

"I think for any new regulations, that would also be something the government would continue to look at," Elizabeth Wong, head of the commission's fintech unit, said in a briefing last month.

Carlton Lai, head of blockchain research at Daiwa Capital Markets, said OTC stores were mainly used as easy ways to send and withdraw money to unlicensed online exchanges.

"There are probably more [stores] Hong Kong than other places for a number of reasons, such as these businesses are largely unregulated and tend to be easy to start, as long as you have enough capital," he said. added.

Some stores welcome greater regulation of the industry. "Having regulation will be great for the development of our industry," said David Huang, whose business card reads "crypto explorer" at OTCXpert, an OTC crypto platform.

In April, the company opened a store at Chungking Mansions, a densely populated and sprawling building in Kowloon that is home to immigrant communities from across Asia.

OTCXpert's "know your customer" process included asking new customers for identification before allowing them to transact, Huang said.

Other stores don't require customers to show ID, with slogans such as "no KYC" and "apply in as fast as 10 minutes" advertised on OTC store websites.

This leaves them well below the investor protection controls required for online platforms seeking licenses to trade crypto with retail clients.

"Government regulators haven't said what we have to do," Huang said of OTC stores, adding that having a clear guideline was "pretty important."

But Hong Kong's lack of control over OTC stores and their proximity to mainland China, which remained the world's fourth-largest market for crypto trading in 2022, made it attractive to Chinese citizens still drawn to the business class. assets, customers said.

“In China, people are very sensitive, because they [Beijing] banned it,” said David, a research consultant from Shanghai on his first trip to buy crypto in Hong Kong since the pandemic began. He refused to give his last name for fear of reprisals when he returned to China.

“But so far I haven't used it to move money. I just hope it can appreciate so I can afford very expensive apartments.