Hong Kong places big bets on Web3 — Is there a global hub in the making?

• The Hong Kong government vied for a big chunk of the Web3 investments pie.
• Hong Kong’s opportunity came as the U.S. regulatory climate turned hostile.

With key lessons learned over the last 10-year epoch, blockchain technologies, or Web3, as they are more commonly known, looked to capture mainstream consciousness in what is increasingly being regarded as the industry’s moving decade.

The sector has evolved from the parochial attitudes of asset trading to a broader scope encompassing non-fungible tokens (NFTs), decentralized finance (DeFi), gaming finance (GameFi), and many more use cases that have yet to be unlocked.

Hong Kong spots Web3 potential

Unsurprisingly, regions around the globe have begun to aggressively seek ways to capitalize on the enormous growth potential that Web3 has to offer. Hong Kong could prove to be the trailblazer in the East Asian region.

Hong Kong’s Financial Secretary, Paul Chan Mo-po, placed great hopes in Web3 and said that the decentralized technology would power the next wave of breakthrough growth in the digital sphere.

In a blog post, the region’s finance chief stated that while smartphones and mobile internet were key contributors in the early growth phase of digital entertainment, big industry players were keeping a keen eye on emerging Web3 verticals. These included NFTs and GameFi for the next big push.

Having said that, Chan acknowledged that Web3’s scope extended far beyond the limited realm of digital entertainment.

“The core blockchain technology of Web3, with its characteristics of disintermediation, security, transparency, immutability and low cost, can be applied in many fields such as finance, commerce, trade, supply chain management, and even daily life.”

The minister’s comments came as the Special Administrative Region (SAR) government looked to establish Hong Kong as a global cryptocurrency hub. After following a conservative policy of restricting retail investors from trading on centralized crypto exchanges, the local government rolled forth significantly friendlier digital asset legislation earlier this year.

As part of the new framework, the financial regulator, the Securities and Futures Commission (SFC) allowed licensed trading platforms to serve the general public apart from institutional investors. However, the platforms were directed to adhere to an elaborate set of guidelines.

The liberal framework has been met with positive responses. Earlier this month, Hong Kong issued its first retail crypto trading license to local player HashKey. OSL, another prominent digital trading platform, was granted approval to open its doors to retail traders around the same time.

More recently, Hong Kong Virtual Asset Exchange (HKVAX), received in-principle approval from the SFC to carry out its crypto trading services.

Will Hong Kong become the global hub of cryptos?

Finance Secretary Chan reminded that the local government has been aggressively pushing Web3 technologies, citing the example of one-of-a-kind government-backed tokenized green bonds issued in February. Furthermore, he highlighted the government’s allocation of $50 million to Cyberport to bolster the growth of Web3.

For the uninitiated, Cyberport is Hong Kong’s own version of Silicon Valley, albeit totally government-run.

The government executive said that the investments started to reap fruits, as the tech hub was home to more than 180 Web3-related companies. These included unicorns and licensed virtual asset trading platforms.

Regarding the developments around the Web3 task force, Chan said that he recently chaired a meeting with the group members. The task force was constituted in June to promote Web3 development in Hong Kong.  The unit comprises 15 non-official members from relevant market sectors, with the participation of key government officials and financial regulators.

Crypto rises in the east

Hong Kong’s aggressive push to foster its Web3 ecosystem was in stark contrast to mainland China’s crackdown on the industry. Recall that China put a complete ban on cryptocurrency trading and mining in September 2021.

However, the dragon hinted at the possibility of reopening its market to the digital assets industry.

Overall, the industry was increasingly looking eastward for expansion opportunities as the regulatory climate in the U.S. was turning too hot to handle. Lawsuits against behemoths like Coinbase and Binance, as well as a skeptical view of many crypto assets, have sparked conversations about relocating to friendlier jurisdictions.