Hong Kong was once a crypto hot spot, home to initial coin offerings and exchanges galore, before regulators began knocking on doors and talking about banning retail investment, which scared most industry participants away to other jurisdictions.
Johnny Ng is working to bring them back, with inadvertent help from U.S. regulators.
A member of the city’s Legislative Council (LegCo), Ng sent a viral tweet last month inviting crypto exchanges globally – and Coinbase specifically – to apply for a license in Hong Kong. Four days earlier, Coinbase had been sued by the U.S. Securities and Exchange Commission (SEC), so it was plausible to think the company was looking for a new home.
Elected to LegCo last year, Ng has arguably become the de facto head of the legislature’s crypto caucus. He has lobbied Hong Kong chief executive John Lee to support digital assets in a high-profile way. This year, Lee gave a speech at the inauguration of the Institute of Web 3.0 Hong Kong. It was a big deal given Hong Kong’s former status as a crypto hub.
His efforts come at a time when an increasingly inhospitable U.S. government is driving digital asset firms offshore while other jurisdictions jockey to become crypto hubs.
On the city’s Web3 push, Ng said, “I wouldn’t say it’s just me, but I am a part of it.”
REALIST: “Bigger exchanges are more stable,” says Hong Kong legislator Johnny Ng, but “even the biggest can fall.”
From skeptic to believer
I recently met Ng for lunch in the Admiralty district of Hong Kong. We went to what he called his canteen, an upscale dim sum place with a view of the harbor. The shrimp dumplings came each in its own little basket, with gold brushed onto their skin. The staff knew his favorite table, slightly secluded from the rest, and addressed him as Legislator Ng.
Ng said he first heard about Bitcoin around 2011 when he was working on facial recognition technology. A friend asked if he wanted to start mining. Ng said he wasn’t convinced then.
Six years later, when BTC was trading at a couple thousand dollars, he read the Bitcoin white paper and became interested. He started to look into why it was valued, attended local meetups and found true believers.
Now he’s one too. Since becoming part of LegCo last year, he’s been promoting Web3.
Being a member of Hong Kong’s LegCo isn’t a full-time job so Ng also co-founded an accelerator for Web3 startups called G-Rocket. He claimed there’s no conflict of interest because he declared his stake on a public registry and has recused himself from voting on Web3-related bills.
New licensing regulations
Exchanges have to get licenses under Hong Kong’s new regulations to provide virtual asset trading services, and they will be operating under defined and strict parameters. For prospects like Coinbase, this is potentially appealing because they now have a clear route to operate under regulation.
While a great deal has been made about allowing retail investors access to virtual assets, the coins Hong Kong residents will be able to access will be limited to those with large market capitalization that meet other criteria, including having a 12-month track record and being included in two indices that meet the regulator’s guidelines.
The most common question Ng has fielded from licensed players is whether they can list more types of coins, but he said there will need to be meaningful volume first and Hong Kong is taking it “step by step.”
So far, only OSL and HashKey Group have Type 1 and 7 licenses under the previous opt-in regime, which means their applications for a license under the new regime should be smooth. When I said to Ng that at least one of those two isn’t profitable, Ng said you can’t judge the licensing regime from the first two platforms that come under it. “To be honest,” he said, “no one knows what they’re doing. They’re not very into this, they just got the license first.”
Only larger players may be able to get licenses, he said, given the requirements for capital, hiring of responsible officers and experience.
“Bigger exchanges are more stable,” Ng said, though he hedged by saying there’s no certainty. “Even the biggest can fall.”
Beijing’s long shadow
Ng is quick to say that “Hong Kong isn’t a country, it’s just an administrative region” of mainland China. But he said the “One Country Two Systems” model allows Hong Kong to do things which suit it.
“In the previous government [under former chief executive Carrie Lam], the opposition made passing laws a mess because they kept filibustering,” Ng said. (The opposition Democratic Party members resigned en masse after members were disqualified for supporting Hong Kong independence and refusing to recognize Beijing’s sovereignty over the city). “If you slow down government,” he said, “it doesn’t work.”
There is still the question of whether Hong Kong will fall in line with Beijing’s stance on crypto. Ng said Beijing was never against the tech, just the hype, which lured retail investors into bad investments. “China has 1.4 billion people with different levels of education,” he said.
Ng is part of a consultative body, the Chinese People’s Political Consultative Conference, which plays an advisory role to the mainland Chinese government. Wearing that hat, Ng submitted proposals to the Chinese government on blockchain in 2018 and Web3 earlier this year. He said he hasn’t received a response to either.
Underdog
One reason Ng gave for advocating on behalf of Web3 is the technology’s potential to increase social mobility for young people. “Being born in the ’80s makes you a crypto elder,” he said.
The grandson of a migrant from Zhongshan in China, Ng said he grew up poor, born on the Kowloon peninsula. It’s a long held joke in this city that the richest don’t leave Hong Kong Island, across the harbor from Kowloon.
Looking back on his youth, he said the same families who were rich then in Hong Kong remain the richest now.
“Traditionally successful entrepreneurs may not be interested in this industry,” he said. “Even if they are, they might not know how to play it.”
Exit question
I asked Ng whether he’s going to tweet an invite to Binance, the largest crypto exchange globally, which like Coinbase has been targeted by the U.S. SEC. Unlike Coinbase, which is unequivocally a U.S. company, Binance has at times been cagey about where it’s headquartered, and SEC charges against the exchange go beyond allegedly listing unregistered securities: Binance is also accused of allowing commingling of funds, inflation of trading volume, and actively skirting regulation.
“Binance?” Ng said with a laugh. “Yes, I didn’t mention that name.” He explained that he invited Coinbase because it’s publicly listed (unlike closely held Binance). If Coinbase were to come, it’d show Hong Kong policy is competitive.
No more named invitations are forthcoming, Ng said. “Everyone is welcome.”
