Thomas Daniels
Hong Kong police have reported a notable increase in cryptocurrency-related fraud cases, with a rise from 2,336 incidents in 2022 to over 3,415 in 2023, resulting in losses amounting to HK$4.33 billion (approximately $553 million). Over 90% of these incidents were categorized as fraud.
Since mid-2023, Hong Kong has emerged as a favorable environment for cryptocurrency trading, backed by a structured regulatory framework. This is in stark contrast to mainland China, where cryptocurrency trading has been prohibited since December 2021. Despite being part of China, Hong Kong’s supportive stance towards cryptocurrency is reinforced by Chinese government agencies endorsing crypto adoption in the region.
The data highlights two primary types of fraud employed by scammers on virtual asset service platforms. The first involves deceiving victims into transferring cryptocurrency to anonymous wallets, exploiting the decentralized nature of cryptocurrencies, which allows users to create private wallets without disclosing personal information. This anonymity complicates the process for law enforcement to trace the identities of fraudsters.
The second type involves fraudsters utilizing overseas platforms regulated by Hong Kong, making it difficult for local authorities to track and intercept illicit funds.
In response to the surge in crypto-related scams, Hong Kong authorities are intensifying regulations and oversight to combat fraudulent activities. The objective is to ensure that only compliant and reputable exchanges operate within the jurisdiction, thereby bolstering investor confidence and safeguarding the financial ecosystem.
Hong Kong Nears Approval for 11 Crypto Exchanges
According to a Bloomberg report, Hong Kong’s securities regulator has indicated that 11 cryptocurrency exchanges are close to securing licenses, following the implementation of a digital-asset rulebook aimed at establishing the city as a crypto hub. Applicants, including prominent names like Crypto.com and Bullish, are “deemed to be licensed,” as per the Securities & Futures Commission’s website.
These platforms are among those with substantial global trading volumes. Notably, OKX and Bybit have withdrawn their bids for permits, while Binance Holdings Ltd., Coinbase Global Inc., and Kraken did not apply. Hong Kong had set a June 1 deadline for exchanges to be either licensed or deemed so, allowing firms to operate and market services to local investors pending the issuance of actual permits upon confirmed compliance by the SFC.
Strategic Ambitions to Become a Crypto Hub
Hong Kong’s transition to becoming a virtual asset hub began in late 2022, as part of broader efforts to reclaim its status as a financial center post-political unrest. The city’s crypto initiatives encompass the expansion of licensed exchanges, the introduction of spot Bitcoin and Ether exchange-traded funds (ETFs), and the development of frameworks for stablecoins and digital bond issuance via tokenization platforms.
Facing competition from Dubai and Singapore, Hong Kong aims to enhance investor protection and prevent money laundering and terrorism financing through a stringent regulatory framework, despite the significant compliance costs. Presently, HashKey exchange and OSL Group have fully obtained licenses, and approximately two dozen companies have applied to operate crypto exchanges by the February 29 deadline.
