There are too many smart people in Hong Kong, and the currency circle has no "leeks"

Author: Produced by Luo Fei, Tencent News "Periscope"

In just two months, the boom in the currency circle has gradually receded in Hong Kong.

"My team and I have decided to place the core technical team outside Hong Kong, leaving only a few marketing personnel here." The founder of a Web3 product told Tencent News "Periscope". At the end of last year, he had just returned to Hong Kong after leaving due to the epidemic.

After the official release of the "Policy Declaration on the Development of Virtual Assets in Hong Kong" at the end of October last year, in April this year, after customs clearance, Hong Kong, China, intensively held a series of Web3-related activities, ready to actively participate in and embrace the virtual asset business. Web3 is a concept in the development of the global network, related to blockchain-based decentralization, cryptocurrencies, and non-homogeneous tokens (NFT), representing the next stage of the Internet and its ecology.

The peak occurs in the third week of April. That week, at the Convention and Exhibition Center in Wanchai, Hong Kong, four large-scale events including the Web3 Carnival were held at the same time. The hotels in Central, Wanchai and Causeway Bay were almost all "captured" by people from the currency circle who flocked from all over the world.

At that time, even the outdated facilities of the Hong Kong Island Shangri-La Hotel, the price of a night rose directly from the usual 2,000 Hong Kong dollars to 4,000 Hong Kong dollars, and no room could be booked; the pedestrian bridge connected to the Convention and Exhibition Center by the Wanchai MTR came out and was empty for four years. Once there was a crowd of people.

Even Sun Yuchen, the "leek cutting master" in the currency circle who has not appeared in China for many years, also appeared at the Web3 event in Causeway Bay. Most of the people that Tencent News "Periscope" met at the event at the time would talk about "Long Hong Kong" (buy long Hong Kong), and even some people called "fanatics" in the currency circle directly equated this with " Long Crypto” (buy long cryptocurrency).

These "fanatics" are more concentrated in the most downstream groups of the currency circle, that is, the application products of Web3 in the currency circle, such as DeFi, GameFi, etc. They are also the most active group of "cutting leeks" in the currency circle. **Tencent News "Periscope" met them on different occasions in Hong Kong, and found that they are still studying how to quickly find the products listed on the exchange in Hong Kong, sit in the market and control the market. They all have their own investors, product development teams, and traders. **

**The relatively calm ones are those who originally transferred from the traditional financial industry in Hong Kong to the currency circle. These people are more concentrated in the secondary market of the currency circle for transactions and products. They are also the group that most firmly supports and recognizes the Hong Kong government's regulatory approach in the currency circle. **

In the past two months, Tencent News "Periscope" found that some of those fanatical "leek cutting" groups have left one after another to continue their next stop of "digital nomads"-Dubai or Malaysia, the Philippines, etc.; Then retreat to Shenzhen and continue to wait for more detailed rules and regulations in Hong Kong's supervision. Of course, there are still some who choose to stay in Hong Kong very firmly, and strive to apply for relevant licenses in Hong Kong as required.

No matter what their respective choices are, the consensus is the same: Hong Kong is a "sickle", not a leek. The currency circle here is only suitable for smarter people to survive.

Entrance tickets of over 100 million Hong Kong dollars? Dreamer Evacuation

June 1st was originally a big day in the Hong Kong currency circle, that is, the Hong Kong regulatory authorities officially opened the door to apply for a Hong Kong virtual asset exchange license. But this "historic moment" in Hong Kong's Central and Cyberport hardly caused any waves as expected.

According to the incomplete statistics of Tencent News "Periscope", organizations that have announced plans to apply for virtual licenses in Hong Kong include, but are not limited to: HarshKey Pro under Wanxiang Group Xiaofeng; Xu Mingxing’s OKX**, BitgetX, Gate, Greenland Group, etc.

According to the application requirements for cryptocurrency licenses announced by the Hong Kong Securities Regulatory Commission on May 25, companies that already had physical operations in Hong Kong before June 1 can have a one-year transition period to prepare for applying for a license. This has allowed some companies, including OKX, which only have trading business in other places, to land in Hong Kong registered entity companies before June 1.

But for new players, the threshold for applying for an exchange license in Hong Kong is much higher—this is also the main reason why the market did not spark a boom when the government opened the gates to allow applications for licenses.

According to Hong Kong's regulatory requirements, institutions planning to apply for an exchange license may submit an application after building their own trading, security, and custody systems. A number of people familiar with the matter told Tencent News "Periscope" that the custody of the currency circle itself has very high technical and security requirements. Hong Kong regulations now require exchanges that intend to apply for licenses to build these systems themselves, which virtually increases the threshold.

A person in charge who is participating in the application for a trading license told Tencent News "Periscope" that these systems require a lot of technical personnel, and Hong Kong itself does not have an IT bonus, so it is difficult to recruit people. In Hong Kong, 30,000 Hong Kong dollars to recruit an IT is far less useful than an engineer with 10,000 yuan in Shenzhen. Their team plans to put IT-related background in the mainland to save costs.

For similar reasons, the founders of the aforementioned cryptocurrency application products finally decided to place the core technical team outside Hong Kong. In his view, the IT cost for start-up companies in Hong Kong is too high.

**Two people who are trying to apply for an exchange license told Tencent News "Periscope" that they expect the cost before submitting the application license to be at least about 100 million Hong Kong dollars. It falls on the system technology. And this is just an entry ticket to apply for an exchange license in Hong Kong. **

What makes them even more worried is that even after the system is built, there may be a risk that the license cannot be approved, and there is even the possibility that there is no business after approval.

These people believe that Hong Kong supervision should introduce some powerful custody companies, such as Coinbase and Fireblocks, which are already very mature companies providing custody services, for exchange docking.

Tencent News "Periscope" learned that some teams who left Hong Kong had already settled down in Malaysia last month. They can rent a Daping floor at a monthly rent of 60,000 RMB in the local city center, and there are very cheap IT technicians in the local area. These evacuated teams believe that compared to Hong Kong, it is even more advantageous to do currency circle projects in Southeast Asia.

Tencent News "Periscope" learned from different sources that OSL, one of the existing local compliance exchanges in Hong Kong, has decided to withdraw and has been looking for buyers in the market after the Spring Festival this year, but so far no one has taken over. As of press time, OSL has not been able to comment on the news.

The exchange is affiliated to BC Technology Group, a Hong Kong-listed company. The company's 2022 financial report shows that the company's losses continue to increase. Among them, OSL's cryptocurrency revenue in 2022 is 71.48 million Hong Kong dollars, which is only about one-third of the previous year's 270 million Hong Kong dollars.

One of the sources told Tencent News "Periscope" that the company had been suspected of shell speculation before, and its stock price had soared by 60% because of the concept of blockchain. But now, the shell of the Hong Kong stock market is worthless, and the main asset of listed companies is the exchange. According to public information, the shell company once belonged to Gao Zhenshun, the Hong Kong shell king, and Gao still ranks as the executive director of the listed company.

Regulators are actively embracing it, but it is still difficult for currency circle companies to open accounts

For entrepreneurial teams engaged in cryptocurrency projects in Hong Kong, account opening has become the first hurdle that needs to be solved urgently.

Many practitioners told Tencent News "Periscope" that although the regulators have been very active and hardworking, the effect has not been as expected. In the past few months, it has been difficult for them and their peers to successfully open a corporate account in Hong Kong.

Compared with the prudence and quietness of market participants, the staff of the Hong Kong regulatory agencies are the busiest in this round of virtual asset boom in Hong Kong. This mainly includes the Intermediary Department and the Information Technology Division of the Hong Kong Securities Regulatory Commission. The former governs Licensing Section and Intermediary Agency Supervision Section.

In addition, there is the Hong Kong Monetary Authority, which is now mainly leading matters such as stable currency and custody in Hong Kong.

At present, in addition to the upstream and mining machine-related parts of the currency ecological chain, which are not suitable for landing in Hong Kong, the middle and lower reaches of funds, exchanges, and decentralized Web3 product ends all have the possibility of landing in Hong Kong.

An industry insider who has a lot of daily dealings with the above-mentioned regulatory authorities in Hong Kong told Tencent News "Periscope" that, like the supervision in other regions, the easiest thing for the Hong Kong regulatory authorities to start to supervise is the trading sector, including exchanges and funds.

"Exchanges run casinos. If you manage the casinos well, the ecology of the currency circle behind will naturally become healthy." He said.

**Tencent News "Periscope" learned from different sources that in the past few months, most of the leading companies in the currency circle with Chinese backgrounds have found people to come to Hong Kong to connect with these regulatory agencies, including the big names in the currency circle "Shenyu" Mao Shixing's wallet company Cobo and Zhao Changpeng's Binance Group, etc. **

This also made some people who used to work in regulatory agencies become sweet pastries in Central Hong Kong for a while-many people in the currency circle were very far away from traditional finance before that, and farther away from Hong Kong's supervision.

A person who transferred to the currency circle after working in traditional finance in Hong Kong for many years told Tencent News "Periscope" that the Chinese currency circle was mainly composed of grassroots and engineer-born miners in the early days, and there were not many people who really understood finance. The essence of the currency circle is actually finance.

Different sources told Tencent News "Periscope" that the regulatory authorities headed by the Hong Kong Securities Regulatory Commission and the Hong Kong Monetary Authority have changed their early "difficult to deal with" image and become relatively down-to-earth and easier to contact and communicate with.

Tencent News "Periscope" learned that Xu Zhengyu, the Secretary for Financial Affairs and the Treasury of the Hong Kong Special Administrative Region Government, and others had taken the initiative to invite financial professionals related to virtual assets in Hong Kong to meet during the epidemic.

Now Hong Kong’s regulatory authorities have launched procedures such as virtual currency trading fund licenses and exchange licenses as scheduled, according to Tencent News “Periscope” learned that in the near future, they will also launch issues related to stablecoin licenses, and even We are discussing about diversified virtual currency derivatives, such as spot bitcoin ETF and so on.

However, an entrepreneur in the currency circle in Hong Kong told Tencent News "Periscope" that with the support of relevant government departments, he went to Hong Kong to register his company and landed in the Hong Kong Science and Technology Park, but he still has not yet opened a bank account. Pay with the company. According to his recollection, it was the Hong Kong Trade Development Council and Hong Kong Invest Hong Kong that actively invited him to come to Hong Kong.

Many practitioners said that it is not easy to open a business account whenever the business involves the currency circle.

It is reported that the staff of the Hong Kong Monetary Authority have been very proactive in giving companies that have registered in Hong Kong related to the currency circle a list of "friendly banks in Hong Kong to the blockchain industry". Tencent News "Periscope" has seen this list of as many as a dozen banks, including DBS Bank and others. However, banks will still refuse to open accounts for these companies.

Tencent News "Periscope" learned that in the third week of June, the Hong Kong Monetary Authority and other relevant personnel have been communicating with institutions including HSBC, hoping to speed up the account opening process for relevant companies in the currency circle. However, it is not yet known which bank has changed or adjusted its account opening strategy.

Tencent News "Periscope" also learned that some people who are familiar with the banking process have even started an intermediary business, that is, helping to package the content of the company, avoiding descriptions related to the currency circle, and successfully opening a bank account. A fee of 2- It ranges from 40,000 Hong Kong dollars. Informed sources said that the intermediary bank is HSBC. As of press time, Tencent News "Periscope" has not been able to contact HSBC for comment.

A person in the currency circle who also did not open an account told Tencent News "Periscope" that this is because Hong Kong's government departments and enterprises are separated. However, the bank responsible for opening the account only cares about its own risk control and is under the supervision of the Monetary Authority.

There is no "leek" in the Hong Kong currency circle: too many smart people

Hong Kong has no shortage of wealthy tycoons. Therefore, many people still hope to seize this round of opportunities in Hong Kong to do business related to the currency circle around the rich, such as funds or derivatives.

Ye Yizhou is a successful case. He is currently the head of Frontier Rational Asset Management Co., Ltd., the only currency-compliant hedge fund in Hong Kong.

At the beginning of 2022, the management scale of the fund exceeded 100 million US dollars. It obtained the 100% virtual currency trading license from the Hong Kong Securities Regulatory Commission in early 2022, and won the 2022 global cryptocurrency fund field net income selected by Barclays earlier this year. The third place in the list, that is, the return on net income of 9.2%-the industry generally loses 50%. Tencent News "Periscope" learned that Ye Yizhou's fund will distribute nearly 70 million Hong Kong dollars in dividends to LPs (limited partners) by the end of 2022.

Unlike most traders in the currency circle who were "born from grassroots", Ye Yizhou is a "regular army" trader from Wall Street. In 2014, Ye Yizhou chose to return to Hong Kong and joined a local stock hedge fund company. During this period, he started investing in Bitcoin very early because of his personal interest. He told Tencent News "Periscope" that at that time there was no clear supervision of bitcoin transactions in the market, and he and his friends started to get involved in large-scale bitcoin secondary market transactions in 2017. Later, he resigned from the organization to start a business, and set up Rational Capital Co., Ltd. in Hong Kong.

After witnessing the traditional financial crisis in 2008 and the 5 rounds of the currency circle in the last 6 years, Ye Yizhou told Tencent News "Periscope" that Hong Kong is not suitable for all people in the currency circle, and it is not even suitable for some people who want to enter from traditional finance. People who carry out "dimensionality reduction strikes" in the currency circle. In his words, "you have to have the ability to strike before you get in", rather than just follow the blind flow rashly.

There are many people who think similarly to Ye Yizhou, and their backgrounds are similar to Ye Yizhou’s: Graduated from a famous American school, Hong Kong has been engaged in traditional finance for many years, and chooses to follow the regulatory route in Hong Kong. The core goal is to find rich people in Hong Kong to raise funds for funds and cryptocurrency trade.

This group of "regular soldiers" has successively obtained fund licenses or is applying for exchange licenses. Compared with the introduction of regulatory regulations for the currency circle business related to transactions, the Hong Kong government has not yet started the supervision of downstream Web3 products in the currency circle.

Relatively speaking, Web3 products are the easiest place to "cut leeks" in the currency circle. The biggest difference between these Web3 products and Web2 products is the addition of financial attributes to provide users with economic incentives. For example, GameFi, the game product of Web3, can "make money while playing games". In this ecology, there are two types of cryptocurrencies such as Bitcoin and non-homogeneous tokens (NFT). Generally speaking, users can earn in-game reward NFT by completing tasks, etc., and then transfer the NFT out and trade it on exchanges and NFT markets to obtain benefits.

Tencent News "Periscope" learned that many Web3 products have already locked the funds of the two tokens of the entire project from the beginning of the project, and it is even accurate to how long the product will be "cut" and cashed out after the product is launched. The logic of listed companies is similar, that is, to control trading volume and funds. Subsequently, the value of all tokens of the project instantly becomes 0. If the player does not realize before the project party leaves the field, it means that they are cut off.

This is more like a drumming game. In the jargon of the currency circle, this is a "typical leek cutting". **Among the Web3 projects with Chinese background in the currency circle, the last and most successful "cut leek" project is STEPN, which is a Gamefi game known as "running can also make money", and its market value once exceeded 1 billion US dollars in less than half a year , the earliest batch of its original users came from the mainland. According to Tencent news "Periscope", the team has benefited hundreds of millions of dollars in half a year. As of press time, the team had not been contacted for comment. **

However, many people in the Hong Kong dollar circle told Tencent News "Periscope", "Hong Kong has no leeks, only sickles", and there is no soil for Web3 products to "cut leeks". This is because the Hong Kong market is dominated by professional investors, and if you want to play the game of drumming and passing flowers, you need enough retail investors. Two people who transferred from traditional finance to the currency circle told Tencent News "Periscope" that professional investors are regular soldiers who have graduated from prestigious schools and have professional financial knowledge, and more often they play the role of "scythe". Not leeks.

"The most rich people here are rich people, but you can't get rich people."** Someone concluded that because the rich people have raised a group of professional investors. **

This is also one of the reasons why most of the Web3 entrepreneurial teams who wanted to come to Hong Kong to build their dreams chose to leave Hong Kong in the past two months.

People come and go, and it is impossible to count the people who left, but there are also many people who stayed. According to the information disclosed by the Financial Secretary of Hong Kong in his latest speech, Hong Kong has attracted more than 150 Web3 companies to settle in the start-up incubation center Cyberport in the past six months.