Over-the-counter crypto shops are pouring into Hong Kong, but regulation may affect their existence


Hong Kong is one of the most important and leading financial centers in the world and has played an important role in the development of cryptocurrency. For example, some of the most mature and successful crypto companies have been born in China, including crypto derivatives exchange FTX and digital asset platform Crypto.com.

However, since trillions of dollars are regularly traded through the cryptocurrency exchange established in Hong Kong, the “vertical city” also contains a large number of physical off-market cryptocurrency stores. Henri Arslanian, head of cryptocurrency at PricewaterhouseCoopers and former chairman of the Hong Kong Fintech Association, told Cointelegraph that the number of traditional over-the-counter cryptocurrency brokers in Hong Kong must be outstanding. “These are actually physical stores for the retail public,” he said.

An anonymous source further told Cointelegraph that while traveling in Hong Kong, he couldn’t help noticing the substantial growth of over-the-counter cryptocurrency exchanges, some of which even provided access to cryptocurrency ATMs.

Photos of Hong Kong’s off-site retail exchange taken by anonymous onlookers

Off-site retail stores constitute Hong Kong’s crypto culture

Compared with regions such as the United States or Europe where it is relatively easy to buy and sell cryptocurrencies on regulated exchanges, Hong Kong’s physical crypto store is a unique trademark that provides individuals with another way to access crypto.

Kelvin Yeung, CEO and founder of Hong Kong Digital Asset Exchange (HKD), clarified the matter. Yeung told Cointelegraph that the HKD cryptocurrency exchange was established in 2019 and the physical store was established in January this year. They employ more than 30 employees to provide customer service.

Image source: Hong Kong dollar

Yeung further stated that HKD’s stores behave similarly to traditional banks, giving customers the opportunity to experience the method of buying cryptocurrency firsthand and obtain face-to-face consulting services. Therefore, he believes that as cryptocurrencies become mainstream, retail stores are likely to become a global trend:

“As more and more investors and institutional investors enter this industry, digital currency becomes the mainstream, and the trend of combining physical stores with online platforms will emerge.”

Yeung added that he believes that HKD has built greater customer trust with its user base because of its physical existence. “Our users are mainly between 40 and 70 years old. An older customer base is important for creating mainstream adoption, because many of them still hold fiat currency and only trust the traditional financial system,” he commented.

What’s interesting is that it’s not just the older generation buying cryptocurrency in these physical locations. Priscilla Ng, the founder of Coiner HK, another Hong Kong OTC retail exchange, told Cointelegraph that CoinerHK was launched in early 2020, focusing on the female market: “We want to create a market for women because we want to promote the idea that women can be financially Be independent and invest in yourself.”

Therefore, Ng shared that CoinerHK’s customers are mainly women between the ages of 20 and 50, and about 70% of them use cash for encrypted transactions. Ng also pointed out that CoinerHK has two physical stores in prime locations in Hong Kong.

Image source: CoinerHK

Echoing Yeung, Ng added that owning a physical OTC exchange can provide customers with more opportunities: “We treat them as friends when trading, and at the same time make customers have confidence in us because we have a physical store.” Ng further stated , CoinerHK’s location in Wan Chai is also an art gallery featuring non-fungible tokens (NFT).

Regulations may promote off-site transactions

Although off-site cryptocurrency exchanges like HKD and CoinerHK seem to offer more cryptocurrencies throughout Hong Kong, there are many regulatory risks associated with these types of institutions.

For example, Arslanian explained that in addition to regular visitors, mainland Chinese tourists are also the target customers of these institutions.He pointed out that many of these stores are located in tourist areas to attract users, but because China’s encryption ban: “One can assume that if mainland Chinese tourists visit Hong Kong, nothing will stop them from buying cryptocurrency in these OTC stores.”

With this in mind, Arslanian believes that Hong Kong’s retail over-the-counter trading centers may increase due to the influx of Chinese tourists interested in buying cryptocurrencies.On the other hand, Arslanian mentioned Hong Kong’s The upcoming regulatory framework for cryptocurrency exchanges This may result in the complete closure of these stores.

As previously reported by Cointelegraph, the Hong Kong Financial Services and Treasury Bureau has Consider restricting encrypted access A portfolio with at least $1 million in assets. If passed, the new guidelines will restrict the use of cryptocurrency by approximately 93% of the urban population.

Although this is a major challenge for physical OTC stores, Arslanian said that OTC stores may simply move their business underground. However, he pointed out that this brings greater risks to customers: “If there is a problem, the public is unlikely to report it to the authorities.”

Regarding uncertain regulations, Yeung commented that the main challenge facing the Hong Kong dollar is to understand whether Hong Kong will soon allow only institutional investors to invest in cryptocurrencies: “This will have a big impact on our business.” Arslanian added, The inability of regulated cryptocurrency exchanges to provide services to retail customers is strongly opposed by the crypto community, as this is likely to cause users to switch to unregulated platforms.

Unfortunately, Arslanian further pointed out that obtaining the correct licenses for physical OTC stores will be extremely challenging, even if they try to be fully regulated. Up to now, Yeung mentioned that HKD only needs valid ID and address verification to buy and sell cryptocurrencies on exchanges.

Interestingly, currently, Hong Kong’s only regulated cryptocurrency exchange It’s OSL, and it’s too BC Group supported by FidelityAndrew Walton, OSL’s managing director and head of exchange, explained to Cointelegraph that OSL was purposefully established with regulations in mind, and even self-regulated before certain current laws were promulgated.

In addition, Walton shared that OSL is Singapore’s Payment Services Act, Or PSA, and have Also applied for a digital payment tokenOr DPT, through a license issued by the Monetary Authority of Singapore. The recent impressive regulatory approvals have allowed OSL to expand its operations to Latin America. “In Latin America, OSL Exchange products will initially be provided to institutions and professional investors in the region, Mexico, Colombia, and Argentina. With the regulatory development throughout the region, OSL’s Latin American products will also seek appropriate licenses,” Wall Dayton added.

Need retail investors from a business perspective

Although OSL’s efforts are indeed noteworthy, Arslanian pointed out that a large amount of revenue usually comes from retail customers buying and selling cryptocurrencies on exchanges, and the retail flow in turn attracts institutional customers. Therefore, he pointed out that from a business perspective, Hong Kong’s willingness to force crypto exchanges to cater only to institutional investors is a difficult issue. Although this may be the case, Walton stated that the interest of the institutional sector of OSL has increased significantly in the past year.

In view of the ongoing uncertainty in cryptocurrency regulation, Arslanian mentioned that Hong Kong is likely to be the most suitable for institutional investors, while Singapore may be more suitable for retail customers.