OTC crypto shops flood Hong Kong, but regulations may impact their presence


Hong Kong is a popular otc crypto trading hub, but the city’s strict laws may soon come to impede its growth. The government in Hong Kong aims to regulate bitcoin and other cryptocurrencies by banning their use for payments or securities transactions. As many as 2 million people in Hong Kong trade cryptocurrency on a daily basis with an estimated HK$440 billion worth of bitcoins being traded annually. This figure would be dwarfed if it were converted into traditional currency

The “is cryptocurrency legal” is a question that many people are asking. There are currently no laws in Hong Kong that directly address cryptocurrencies, but the government may soon regulate them.

Hong Kong, being one of the world’s most important and influential financial cities, has played a vital role in the development of cryptocurrencies. For example, the Chinese territory has given birth to some of the most well-known and successful crypto enterprises to date, such as FTX, a crypto derivatives exchange, and Crypto.com, a digital asset platform. 

Despite the fact that Hong Kong’s crypto exchanges handle billions of dollars on a daily basis, the “Vertical City” also has a plethora of actual over-the-counter crypto businesses. According to Henri Arslanian, a PwC crypto lead and former chairman of the Hong Kong Fintech Association, the number of conventional OTC crypto brokers in Hong Kong stands out. He said, “These are truly physical and mortar establishments for the general population.”

Furthermore, an unnamed source informed Cointelegraph that when driving about Hong Kong, he couldn’t help but notice a significant increase of OTC crypto exchanges, some of which even provide access to cryptocurrency ATMs.

An unknown spectator took a photo of an OTC retail exchange in Hong Kong.

Hong Kong’s crypto culture is made up of OTC retail outlets.

Compared to areas such as the United States or Europe, where buying and selling cryptocurrency on regulated exchanges is relatively simple, Hong Kong’s actual crypto stores are a distinctive brand that gives people another method to acquire bitcoin.

Kelvin Yeung, the CEO and creator of the Hong Kong Digital Asset Exchange, or HKD, clarified the situation. According to Yeung, the HKD crypto exchange was launched in 2019, the actual store opened in January of this year, and the company employs over 30 people to offer customer care.

OTC crypto shops flood Hong Kong, but regulations may impact their presenceHKD is the source of this image.

HKD’s store, according to Yeung, functions similarly to a typical bank, allowing consumers to have a hands-on approach to purchasing cryptocurrency as well as access to in-person advisory services. When a result, he predicts that as crypto becomes more widespread, retail outlets will become a worldwide trend:

“As more investors and institutional investors enter the market and digital currency becomes more popular, physical storefronts will be opened in tandem with online platforms.”

Because of HKD’s physical presence, Yeung feels that stronger consumer trust is developed between the company and its users. “The majority of our consumers are between the ages of 40 and 70. “An older client base is critical for widespread acceptance since many of these individuals still use fiat cash and only trust conventional banking institutions,” he said.

It’s worth noting that these physical sites aren’t simply for the elder age. CoinerHK, a Hong Kong OTC retail exchange, was founded by Priscilla Ng at the beginning of 2020 to focus on the female market: “We decided to develop a market for women because we want to promote the concept that women can be financially independent and practice self-investment,” she told Cointelegraph.

As a result, Ng said that CoinerHK’s clients are mostly women between the ages of 20 and 50, with roughly 70% of them selling cash for cryptocurrency. Ng also said that CoinerHK has two physical sites in Hong Kong’s golden district.

OTC crypto shops flood Hong Kong, but regulations may impact their presenceCoinerHK is the source of this image.

“We treat them as friends while dealing and also offer our clients trust in us since we possess physical stores,” Ng said, echoing Yeung. Ng also said that CoinerHK’s Wanchai site doubles as an art gallery, displaying nonfungible tokens (NFTs).

Physical OTC exchanges may be pushed away by regulations.

While physical OTC crypto exchanges like HKD and CoinerHK look to be increasing access to crypto in Hong Kong, these types of businesses come with a variety of regulatory hazards.

For example, Arslanian stated that some businesses have targeted mainland Chinese visitors in addition to regular consumers. “One could assume that if mainland Chinese tourists visit Hong Kong, nothing will stop them from buying crypto at these OTC shops,” he said. Many of these shops are located in touristic areas to attract users, but they are especially appealing to Chinese tourists due to the crypto ban in China: “One could assume that if mainland Chinese tourists visit Hong Kong, nothing will stop them from buying crypto at these OTC shops.”

With this in mind, Arslanian thinks that the inflow of Chinese tourists interested in purchasing cryptocurrency would lead to an expansion of retail OTC centers in Hong Kong. Arslanian, on the other hand, believes that Hong Kong’s planned legal framework for crypto exchanges would force these businesses to go down completely.

Hong Kong’s Financial Services and Treasury Bureau have been contemplating banning crypto access to portfolios with at least $1 million in assets, as Cointelegraph previously reported. The proposed regulations, if implemented, would limit crypto access to around 93 percent of the city’s population.

Despite the fact that this is a significant barrier for physical OTC stores, Arslanian said that OTC retailers may simply relocate their operations underground. However, he warned that this would put consumers at risk: “In the event that anything goes wrong, the public is less inclined to disclose it to the authorities.”

In terms of ambiguous rules, Yeung said that the biggest problem for the HKD right now is determining whether Hong Kong would soon only let institutional investors to participate in crypto: “This will have a significant impact on our company.” The crypto community is very opposed to registered crypto exchanges being unable to serve retail clients, according to Arslanian, since this may lead to users going to unregulated sites.

Unfortunately, even if actual OTC stores attempted to be properly regulated, Arslanian pointed out that obtaining the appropriate permits would be incredibly difficult. HKD now simply needs a valid ID and address verification to buy and sell bitcoin on the exchange, according to Yeung.

It’s worth noting that OSL, which is part of the Fidelity-backed BC group, is now Hong Kong’s sole licensed crypto exchange. Andrew Walton, the managing director and head of exchange at OSL, told Cointelegraph that the exchange was designed with regulations in mind, and that it even practiced self-regulation before some of the current rules were created.

Walton also revealed that OSL was grandfathered in under Singapore’s Payment Services Act, or PSA, and that it has filed to the Monetary Authority of Singapore for a digital payment token, or DPT, license. OSL was recently able to extend its company into Latin America thanks to impressive regulatory clearances. “The OSL Exchange product will be offered to institutional and professional investors throughout Latin America, starting with Mexico, Colombia, and Argentina.” “As legislative changes throughout the area take place, OSL’s LatAm service will seek proper license,” Walton noted.

From a business standpoint, retail investors are required.

While OSL’s efforts are commendable, Arslanian pointed out that retail customers buying and selling crypto on exchanges often produce a lot of income, and the retail flow draws institutional clients. As a result, he believes Hong Kong’s desire to restrict crypto exchanges to cater primarily to institutional investors is a difficult ask. Although this may be true, Walton said that over the last year, OSL has witnessed a considerable rise in institutional interest.

Given the ongoing regulatory uncertainties surrounding cryptocurrencies, Arslanian said that Hong Kong would be preferable for institutional investors, while Singapore might be better for ordinary clients.

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