VICTORIA CITY, HK – China’s ban on cryptocurrencies has accelerated banks from mainland China to establish partnerships in Hong Kong, where crypto is perceived to be more welcome. As Chinese banks court Hong Kong crypto businesses, Hong Kong has pushed to become the hub for digital assets in Asia, if not the world. 

China’s crypto ban

In 2021, China declared all cryptocurrency-related activity illegal, including trading, mining, and holding cryptocurrency. The ban was imposed as part of the country’s broader crackdown on financial risks and to prevent speculation and fraud.

China’s stance toward crypto is motivated by concerns over capital outflows, financial stability, and social stability. Authorities believe the highly volatile nature of crypto poses significant risks to investors and could incentivize illegal activities such as fraud, money laundering, and terrorist financing. 

China has enforced its ban by cracking down on crypto exchanges, freezing bank accounts associated with crypto trading, and blocking access to trading platforms overseas. Despite the ban, some crypto-related activities still occur by using VPNs to evade restrictions. 

Chinese banks court Hong Kong

The Bank of China, Bank of Communications, and Shanghai Pudong Development Bank have started offering banking services to Hong Kong’s crypto firms or have made inquiries. The maneuvering of state-owned banks into Hong Kong signals that Beijing may potentially relax the crypto ban, but only time will tell. 

Though the attraction to Hong Kong is palpable, crypto companies still face challenges in securing corporate bank accounts. Digital asset companies can wait three months to open an account, compared to one month for non-crypto accounts. 

These challenges have led to crypto businesses seeking lenders from other countries, such as India and Japan. Bolstering the attraction of Hong Kong is its virtual bank, ZA Bank Ltd., an over-the-counter crypto money exchanger described as “web3 friendly.”  

Crypto companies flock to Hong Kong

Despite China’s efforts to stamp out offshore exchanges, mainland China remains the world’s fourth-largest crypto market. Companies such as BTSE, KuCoin, Huobi, and Binance have jockeyed into positions hoping to tap into China's soaring demand for digital coin trading. 

These and other companies believe Hong Kong’s more crypto-friendly environment and regulatory approval from a top-tier financial hub like Hong Kong could trailblaze a path for them to gain legal access to the Chinese market. 

Hong Kong’s crypto firms

Hong Kong has long been a financial hub with a well-established banking system and a deep pool of investment capital. This makes it an attractive destination for businesses of all industries, especially now for crypto companies after its Securities and Futures Commission (SFC) passed legislation to regulate crypto trading platforms.

With its proximity to mainland China, its status as a fintech sandbox for crypto companies, and its regulatory framework, Hong Kong is seen by many entrepreneurs as a safe place to experiment with digital financial products in a controlled environment. 

Hong Kong is quickly becoming the gateway to the Chinese market for cryptocurrencies and other digital assets. As Hong Kong’s infrastructure grows, Beijing may be forced to lift its crypto ban. The political climate plays a big role here, but given its design, blockchain technology will always be impossible to restrict fully.