Original Source | Zinnia Lee, Forbes Asia Media Person

Translation Editor | Baize Research Institute

Translation Editor | Baize Research Institute

Sam Bankman-Fried's time in Hong Kong was relatively short but profitable. During the three years he spent in the city, the workaholic known for sleeping in the office founded FTX, a crypto derivatives exchange that quickly became one of the busiest trading platforms in the world. The success of the business has made Sam Bankman-Fried the richest person in the crypto space with a fortune of $26.5 billion at the age of 29. Then he left Hong Kong.

In September, Sam Bankman-Fried flew to the Bahamas. When FTX's operations team welcomed the Prime Minister of the Bahamas to their new headquarters, he surprised many of his fans with the unfamiliar sight of him in a suit. Why choose the Bahamas?

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Image: Sam Bankman-Fried, CEO of crypto derivatives exchange FTX

Hong Kong has developed into a hotbed for blockchain and crypto-related businesses. Many elites in the global encryption industry started in Hong Kong, including exchanges CryptoCom, Bitfinex, OSL, etc. Tether, the world's largest stablecoin, was also launched in Hong Kong. According to blockchain data firm Chainalysis, Hong Kong saw an inflow of $60 billion worth of crypto assets between July 2020 and June 2021.

But regulatory uncertainty in Hong Kong has been a catalyst for some crypto firms to move operations to other markets, where regulators are rolling out rules to support the crypto industry more quickly.

Singapore is the closest location, and since opening its doors to the crypto industry in January 2020, Brian Armstrong’s Coinbase, Changpeng Zhao’s Binance, and Winklevoss twins’ Gemini have successively set up operations in Singapore and applied for operating licenses in the country.

The Monetary Authority of Singapore (MAS) said it had received 170 applications for crypto licenses from crypto-related service providers as of July. While the financial regulator has rejected two applicants so far, the other three candidates, ASX Independent Reserve Bank, DBS Bank's brokerage arm and Singaporean fintech company Fomo Pay, have announced in the past three months that they have Obtain an encryption license. Crypto exchange Coinhako said in November that it also received provisional approval from MAS, making it the latest crypto exchange to be regulated in the country. So far, around 70 crypto-related service providers have been granted temporary waivers, allowing them to operate without a license for six months.

CryptoCom, the world's third-largest crypto exchange by 24-hour trading volume, moved its headquarters from Hong Kong to Singapore this year, according to CoinGecko. Eqonex Group, a Nasdaq-listed digital asset financial services firm, launched its crypto derivatives exchange in Singapore last year, while only operating other businesses in Hong Kong. The company, formerly known as Diginex, is constrained by Hong Kong's regulatory regime, which bans crypto derivatives and limits trading services to professional investors.

Richard Byworth, chief executive of Eqonex Group, said: "Those two things we really don't feel are the right thing to do and are actually against the way we design our products."

Hong Kong introduced an optional licensing regime in 2019 for platforms that allow investors to buy and sell security tokens, which are digital forms of traditional stocks and bonds, but most crypto assets fall outside the scope of the framework. In addition, approved exchanges can only serve professional investors with at least HK$8 million (US$1 million) in liquid assets. They are also banned from offering trading in crypto futures and derivatives to investors.

So far, the only one that has obtained a license in Hong Kong is the crypto exchange OSL. The Securities and Futures Commission (SFC) said in November that it was considering applications from several other companies.

Now, regulators in Hong Kong are discussing the possibility of implementing a compulsory licensing regime for exchanges offering trading in cryptocurrencies, including bitcoin and other crypto assets that were previously excluded. However, the proposal still proposes to limit crypto exchanges operating in Hong Kong to serving only high-net-worth investors.

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Image: Wayne Trench, CEO of Hong Kong digital asset trading platform OSL

But some believe the policy will lead to greater risk for retail investors if their only option is to use unregulated exchanges to trade crypto assets in Hong Kong. "As much as you want to ban it, people will always find a way to trade crypto assets, and they will buy them elsewhere," said Henri Arslanian, head of encryption at PricewaterhouseCoopers, an international accounting and auditing firm, in Hong Kong. Ironically, this puts the public at greater risk."

According to a survey recently released by payment giant Visa, about one-third of Hong Kong residents have invested in, transferred or traded crypto assets in exchange for goods and services. Such results show that Hong Kong residents are second only to the United States in terms of participation in digital assets.

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IMAGE: Visitors to Hong Kong Fintech Week walk past a booth displaying the logos of Bitcoin and Ethereum, Nov. 4, 2021.

Meanwhile, Singapore has opened its borders to vaccinated travelers from at least 18 countries. In addition to starting to ease travel restrictions, Singapore's aggressive approach to regulation has made it even more attractive. China recently banned all crypto exchanges and mining, while South Korea shut down nearly 40 non-compliant crypto exchanges in September.

Coinbase's debut in Japan in August has had a positive impact on the country, which has been at the forefront of regulating crypto assets since the 2017 hack of the Mt. Gox exchange that lost $460 million in bitcoin . But crypto-related crime remains a problem for Japan, where Japanese trading platform Liquid fell victim just a few months ago.

To be sure, Singapore will not rest on its laurels. Singapore still has to decide whether to allow trading in crypto derivatives, ranging from the futures and options that already exist in traditional markets, to the more innovative "perpetual futures," a futures contract with no expiration date.

The Monetary Authority of Singapore said last year that it would not regulate crypto derivatives unless they were offered on an approved exchange, and the agency warned retail investors of their risks.

The reality is that only a handful of countries have started discussing crypto derivatives. According to PwC’s Arslanian: “There is no one-size-fits-all, perfect crypto regulatory regime, and all the crypto industry wants is clarity and the ability to do business.”

The Bahamas stands out in this regard, as it moved quickly in late 2020 to develop a comprehensive framework for crypto spot and derivatives trading, giving it a first-mover advantage.

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.

risk warning:

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.