Hong Kong, one of the largest and most important financial centers in the world, has played an important role in the development of cryptocurrencies. For example, Chinese territory has spawned some of the most established and successful crypto companies to date, including the FTX crypto derivatives exchange, as well as the Crypto.com digital asset platform.
Yet, with trillions of dollars traded regularly through Hong Kong-based crypto exchanges, the “Vertical City” also contains an abundance of physical over-the-counter crypto stores. Henri Arslanian, head of crypto at PwC and former chairman of the Fintech Association of Hong Kong, told Cointelegraph that the number of traditional OTC crypto brokers in Hong Kong certainly stands out. “They are literally brick and mortar stores for the retail public,” he said.
An anonymous source further told Cointelegraph that while traveling to Hong Kong he couldn’t help but notice a huge increase in OTC crypto exchanges, some of which even give access to cryptocurrency ATMs. .
OTC retail stores are Hong Kong’s crypto culture
Compared to regions like the United States or Europe where buying and selling cryptocurrency on regulated exchanges is quite easy, Hong Kong physical cryptocurrency storefronts are a unique brand that offers individuals another way to access crypto.
Kelvin Yeung, CEO and founder of Hong Kong Digital Asset Exchange, or HKD, shed light on the matter. Yeung told Cointelegraph that the HKD crypto exchange was founded in 2019, the physical store was established in January of this year, and that they employ more than 30 staff to provide customer service.
Yeung further noted that HKD’s store acts the same as a traditional bank, providing customers with the opportunity to gain a hands-on approach to buying crypto, as well as access to advisory services. in person. As such, he believes retail stores will most likely be a global trend as crypto becomes mainstream:
“As more investors and institutional investors enter the industry and digital currency becomes mainstream, there will be a trend to open physical stores in combination with online platforms.”
Yeung added that he believes greater customer trust is established between HKD and its user base due to its physical presence. “Our users are predominantly between 40 and 70 years old. An older clientele is important to create widespread adoption, as many of these people still hold fiat currency and only trust traditional financial systems,” he said. points out.
Interestingly, it’s not just the older generation buying crypto in these physical locations. Priscilla Ng, founder of Coiner HK – another Hong Kong OTC retail exchange – told Cointelegraph that CoinerHK was launched in early 2020 to focus on the female market: “We wanted to create a market for women because we want to promote the idea that women could be financially independent and practice self-investment. “
As such, Ng said that CoinerHK’s customers are predominantly women typically between the ages of 20 and 50, and around 70% of them trade money for crypto. Ng also noted that CoinerHK has two physical stores in the Golden Quarter of Hong Kong.
Echoing Yeung, Ng added that having physical over-the-counter exchanges can provide clients with greater opportunities: “We treat them as friends when negotiating and also give our clients confidence in us. since we have physical locations. ” Ng further noted that CoinerHK’s Wanchai location also serves as an art gallery that features non-fungible tokens (NFTs).
Regulation could crowd out physical over-the-counter exchanges
While physical over-the-counter crypto exchanges like HKD and CoinerHK appear to offer better access to crypto across Hong Kong, there are a number of regulatory risks associated with these types of establishments.
For example, Arslanian explained that in addition to repeat customers, mainland Chinese tourists have been target customers for these establishments. He noted that many of these stores are located in tourist areas to attract users, but are particularly attractive to Chinese tourists due to the China crypto ban: “One would assume that if mainland Chinese tourists visit Hong Kong, nothing will stop them from buying cryptos at these OTC stores.”
With that in mind, Arslanian believes there may be an increase in OTC retail hubs in Hong Kong due to the influx of Chinese tourists interested in buying crypto. On the other hand, Arslanian mentioned that Hong Kong upcoming regulatory framework for crypto exchanges could result in the complete closure of these stores.
As Cointelegraph previously reported, the Hong Kong Financial Services and Treasury Office have been consider restricting access to crypto portfolios of at least $ 1 million in assets. If passed, the new guidelines would restrict access to crypto to around 93% of the city’s population.
While this is a major challenge for physical OTC stores, Arslanian noted that OTC stores can simply move their operations underground. However, he noted that this would then pose an increased risk to customers: “If something goes wrong, the public is less likely to report it to authorities. “
Regarding uncertain regulations, Yeung commented that the main challenge HKD currently faces is understanding whether Hong Kong will soon allow only institutional investors to invest in crypto: “This will have a great influence on our business. ” Arslanian added that regulated crypto exchanges that cannot serve retail clients is something the crypto community strongly opposes, as it could very well cause users to turn to unregulated platforms.
Unfortunately, Arslanian further pointed out that it would be extremely difficult for over-the-counter physical stores to receive the correct licenses, even if they attempt to be fully regulated. For now, Yeung has mentioned that HKD only needs a valid ID and address verification to buy and sell cryptos on the stock exchange.
It is interesting to see that currently the only regulated crypto exchange in Hong Kong is OSL, which is also a unit of the BC Group supported by Fidelity. OSL Managing Director and Exchange Chief Andrew Walton told Cointelegraph that OSL was purposefully built with regulations in mind and even practiced self-regulation before some of the current laws were enacted.
In addition, Walton indicated that OSL has acquired rights under Singapore Payment Services Act, or PSA, and a in addition requested a digital payment token, or DPT, licensed through the Monetary Authority of Singapore. Recently impressive regulatory approvals have allowed OSL to expand its business in Latin America. “In Latin America, the OSL Exchange product will initially be available to institutional and professional investors in the region, in Mexico, Colombia and Argentina. OSL’s offering in Latin America will also seek to obtain appropriate licenses as regulatory developments in the region occur, ”Walton added.
Retail investors are needed from a business perspective
While OSL’s efforts are indeed notable, Arslanian pointed out that a lot of revenue is typically generated by retail clients buying and selling cryptos on exchanges and that the retail flow, in turn, attracts institutional clients. . As such, he noted that Hong Kong’s willingness to force crypto exchanges to target only institutional investors is a difficult question from a business perspective. While this may be the case, Walton noted that OSL has seen a significant increase in interest from the institutional segment over the past year.
Given the lingering regulatory uncertainty for the cryptocurrency, Arslanian mentioned that Hong Kong might very well be best suited for institutional investors, while Singapore might make more sense for retail clients.