During November 2021, the total market value of the encryption market once exceeded the three trillion US dollar mark, which means that it has gradually broken away from the scope of a niche market and developed into an important presence of a large user group.
However, growth in the crypto space often comes with risks. Over the past year or so, there have been a series of financial security incidents, including the collapse of once-prominent crypto spoilers such as Terra, Three Arrows Capital, Celsius, and FTX.
Mainland China has taken a strict regulatory stance on cryptocurrencies in recent years, banning transactions involving them, amid concerns about financial risks, money laundering and capital outflows. However, this policy tightening does not appear to have completely curbed interest in cryptocurrencies among mainland Chinese users.
According to statistics, as of 2022, mainland China remains the fourth largest cryptocurrency trading market in the world. However, for ordinary users, depositing and withdrawing funds is still a hassle. Common centralized exchanges may cause funds to be frozen, and non-standardized over-the-counter transactions can also bring security risks. All these uncertainties hinder the mainstreaming of the crypto market in mainland China.
In sharp contrast to mainland China's strict regulations, Hong Kong has maintained a relatively open attitude towards cryptocurrency trading. As an international financial center, Hong Kong has always attached great importance to financial innovation and market freedom, and is relatively flexible in supervision. The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have always shown an inclusive and open attitude towards cryptocurrencies, encouraging innovation and providing a certain regulatory framework. In this environment, Hong Kong’s unique blockchain ecosystem was also formed. Cryptocurrency exchange shops are a unique product of this ecological background.
Behind Hong Kong money change shops is a historical change
The original meaning of an exchange shop refers to an offline physical store that provides Hong Kong dollar and foreign currency exchange services. It was born out of the historical background of Hong Kong's Asian trade center in the last century. It has deep historical roots in Hong Kong and once formed a large-scale network. In recent years, cryptocurrency exchange shops have begun to bloom everywhere in Hong Kong. Shops of all sizes are flooding the streets of Hong Kong, including some "chain stores" with strong brand effects. Compared with European and American regions where buying and selling cryptocurrencies is very convenient, the proliferation of physical cryptocurrency stores has become Hong Kong’s unique crypto culture.
Cryptocurrency exchange shops were born largely to serve users who were less familiar with crypto trading. As the Hong Kong government legislates to promote the adoption and growth of cryptocurrencies in the region and hopes to establish Hong Kong as the hub of digital assets in Asia, a large number of mainland Chinese users are flocking to Hong Kong, and the city has even become a popular destination for Chinese cryptocurrency users and enthusiasts. potential safe haven. Against this background, cryptocurrency exchange shops have also developed rapidly.
As an emerging market, the main audience of cryptocurrency is still largely concentrated among young people. For them, online exchanges may be a more convenient and trendy choice. This phenomenon is more common in Hong Kong, which is more crypto-friendly. Especially prominent. Although the development of cryptocurrency exchange shops in Hong Kong is related to mainland China’s cryptocurrency policy and industry development, we focus on Hong Kong’s cryptocurrency exchange shop market and the close relationship behind it with mainland users.
In the traditional exchange model, KYC (Know Your Customer) is an unavoidable topic, especially when it comes to trading activities such as "liquidation". However, since mainland China has become a forbidden area for cryptocurrency to a certain extent, cryptocurrency exchange activities for ordinary users have become extremely risky. In contrast, Hong Kong’s local cryptocurrency exchange shops have not yet been included in the formal regulatory system, which means that the cryptocurrency-fiat exchange services they provide are currently not subject to strict KYC controls. This feature is irresistibly attractive to some crypto users in mainland China because they can conduct "KYC-free" swap activities at these exchange shops.
According to a Financial Times report, Hong Kong’s offline cryptocurrency exchange shops are ubiquitous in tourist and shopping areas and are booming, benefiting from surging demand from mainland Chinese tourists and ambiguity over their regulatory status in Hong Kong. Their main appeal is that customers can easily purchase digital assets with cash, often without revealing the source of the funds or identifying information. In stark contrast to the strict licensing rules for online exchanges drafted by Hong Kong to become a hub for virtual asset trading, these over-the-counter cryptocurrency shops allow customers to trade with less or even no verification.
As the demand for cryptocurrency exchange shops in Hong Kong surges from the local to the mainland, this has prompted the rapid expansion of its market size, from a few at the beginning to its current peak period of being spread across all regions in Hong Kong.
The following is the current address distribution of the main activity areas of cryptocurrency exchange shops in Hong Kong provided by Google Map:
CoinUnited: CoinUnited is an old cryptocurrency platform. Its offline business scope currently covers the entire Hong Kong. Its Bitcoin ATMs have formed a large network in Hong Kong.
TideBit is a private trading platform. Users can conduct on-chain transactions and keep their assets independently. At the same time, the company has reached cooperation with many well-known cryptocurrency companies around the world, and its capital chains are spread all over the world.
HKD is a world-leading digital asset trading platform recognized by users for its unique multi-layer architecture design.
Coiner is a company founded in 2020 that focuses on providing cryptocurrency-related services. The company mainly operates over-the-counter (OTC) business and has established online and offline blockchain communities in Hong Kong.
COINHERO is a Hong Kong-based company focused on providing convenient Bitcoin and crypto ATM services.
Onesatoshi is a company specializing in cryptocurrency consulting services. They primarily provide clients with professional consulting and advice to help them make informed decisions in the cryptocurrency space.
CryptoPARD CryptoPARD is a cryptocurrency institution located in Tsim Sha Tsui and the landmark Langham Place in Mong Kok. Their cryptocurrency exchange desk enables users to exchange and trade cryptocurrencies conveniently.
Coingaroo is a cryptocurrency company established in 2020 and founded by Lu Qitai (Lotus).
(The above information is all from the Internet)
How users conduct cryptocurrency transactions through Hong Kong exchange shops
Compared with using centralized exchanges to deposit and withdraw funds, using cryptocurrency exchange shops to deposit and withdraw funds is extremely convenient and fast. The following will introduce the deposit and withdrawal procedures of cryptocurrency exchange shops in Hong Kong.
When you enter the store, the first thing you see is an electronic display that displays the day's deposit and withdrawal exchange rates. The staff at the reception desk will ask you whether you want to withdraw or deposit money, and guide you to a professional safe house according to your needs to provide one-on-one service.
In the safe house, staff will verify your deposit and withdrawal amounts and the trading platform or wallet you used, and inform you of the day's deposit and withdrawal exchange rates. Different exchange shops may have different deposit and withdrawal amounts, and large deposits and withdrawals usually require an appointment in advance.
After confirming with the staff, you need to fill in a paper form, including personal information such as name, phone number, exchange price and amount, and personal signature.
After filling in your personal information, the formal deposit and withdrawal process begins. If you want to sell virtual assets, simply scan the wallet QR code provided by the store to complete the transaction. Once the service staff confirms the amount received, they will pay you the equivalent amount in Hong Kong dollars in cash.
If you want to buy the corresponding cryptocurrency, you need to provide the Hong Kong dollar cash to be exchanged and confirm the exchange or wallet where the deposit is made. After staff confirm the exchange rate with you, they will send the equivalent amount of cryptocurrency to your exchange account or wallet.
In order to keep handling fees to a minimum, most exchange shops use TRC20 addresses for deposits and withdrawals by default. Of course, it also supports transactions on other chains, but there may be slight differences in handling fees.
Currently, more standardized cryptocurrency exchange shops will require first-time users to present their identity documents before exchanging to complete KYC authentication to ensure compliance and the security of fund sources.
It should be noted that there are still many cryptocurrency exchange shops in Hong Kong that do not require KYC. In these exchange shops, users do not even need to provide any information about their personal identity to exchange fiat currencies and cryptocurrencies. As far as the exchange process is concerned, this kind of exchange shop is almost the same as an ordinary exchange shop, but usually it will charge a higher handling fee as a risk premium.
In the author's opinion, it is not recommended that users go to cryptocurrency exchange shops that do not require KYC for exchange. Compared with its so-called "convenience", the financial risks it brings are obviously more worthy of vigilance.
Behind the exchange shop is the inevitable economic intertwining between Hong Kong and mainland China.
The emergence of cryptocurrency exchange shops is a unique product of a specific region, reflecting many economic and cultural trade-offs, as we mentioned earlier. For the people of Hong Kong, money exchange shops are actually a product with historical and cultural significance. As the economic and trade center of Asia, Hong Kong naturally has the demand for exchange between multiple legal currencies. If these huge demands are completely dependent on the government, it will obviously be difficult for the government to handle them all efficiently. Therefore, private financial institutions with exchange functions, namely cryptocurrency exchange shops, emerged.
Today’s cryptocurrency exchange shops can be seen to a certain extent as derivatives of the traditional exchange shop model in the new era. As mentioned above, the crypto market has grown into an important area that cannot be ignored, and the demand it generates needs to be met urgently. At the same time, as mainland China’s encryption policies continue to tighten, the demand for encryption users in mainland China is actually in an extremely depressed state, and the opening of Hong Kong’s policies is undoubtedly the most cost-effective release channel for them.
Merton Lam, founder of Crypto HK, an over-the-counter cryptocurrency trader with two branches in Hong Kong, said in an interview: “Before mainland China and Hong Kong fully reopened their common border in February this year, China Mainland Chinese customers only account for less than 5% of Crypto HK’s total customers. By July, the proportion of mainland Chinese customers had grown to about 50%.”
Roger Li, founder of OneSatoshi, a cryptocurrency exchange shop with nine branches in Hong Kong, said in response to relevant questions that the company's total trading volume from January to May increased by about 20-25% compared with the same period last year. He expects full-year transaction volume to grow by 35% to 40%. He is not currently accepting clients from mainland China due to concerns about a cryptocurrency ban, but he is optimistic that restrictions will be eased - a view that comes after Hong Kong announced plans to become a virtual asset hub last October There is a widespread presence in the cryptocurrency community in the region.
In addition, Hong Kong itself is also in a special historical period. As the door to encryption opens in Hong Kong, the local encryption audience in Hong Kong is also increasing, including some middle-aged and older age groups. Compared with younger groups, these groups have weaker learning and acceptance capabilities. The complexity of exchanges and decentralized wallets is not friendly to them, and the traditional offline model (i.e., cryptocurrency exchange shops) is not suitable to a certain extent. Opening the door to the crypto world for them.
The future of Hong Kong’s crypto market
For many speculators who believe in "wealth comes from risk", cryptocurrency exchange shops are undoubtedly a "perfect" business that caters to the trend. What is certain is that in the coming period, cryptocurrency exchange shops will continue to maintain a considerable market size, and keen investors will also make huge profits as a result.
However, the biggest problem at present is that it is impossible to predict when this short-term trend period will end. At the same time, as far as the current income situation is concerned, the risks brought by receiving funds from unknown sources and regulatory policies may be far beyond the balance of some handling fees.
In June this year, Hong Kong implemented a new cryptocurrency exchange regime, requiring all online trading platforms operating in Hong Kong to apply for a license. However, even with the new regulations in place, most OTC shops remain outside the regulatory scope of Hong Kong's Securities and Futures Commission.
Currently, many cryptocurrency exchange shops in Hong Kong do not require customers to show their identity documents, and some even openly declare on their websites that “KYC is not required” and “can apply in 10 minutes.” This means there will always be some cryptocurrency OTC shops that fall into a regulatory “grey area.” However, regulation cannot turn a blind eye forever.
In the future, the Hong Kong government’s supervision of cryptocurrency exchange shops will definitely come, and may be carried out as early as possible. Regulation will most likely come in the form of requiring licenses and prohibiting non-residents from crypto trading. If this model is implemented, most exchange shops in the gray area are likely to face a double dilemma.
As for the business of cryptocurrency exchange shops, I am afraid that it will inevitably become a "profit dessert" for large institutions. The impact of regulation will also be felt throughout every OTC transaction in the future.
in conclusion
In recent years, with the rapid development of the cryptocurrency market, cryptocurrency exchange shops have gradually become a unique phenomenon in Hong Kong. As an international financial center, Hong Kong maintains a relatively open attitude towards cryptocurrency trading, attracting a large number of mainland Chinese users to trade. Many cryptocurrency exchange shops in the gray area meet the needs of different users with their convenience, speed, and no need for KYC, and have become an important way for them to gain access to the world of cryptocurrency.
However, with the rapid development of the cryptocurrency market, it also brings some risks and challenges. Issues such as regulatory uncertainty and hidden dangers in funding sources in the cryptocurrency exchange shop market require attention. Especially some exchange shops that do not require KYC, although they provide convenience, they also bring more financial security risks.
Facing the future, as supervision gradually strengthens, cryptocurrency exchange shops will face more compliance challenges. Regulators may require these shops to obtain licenses and impose restrictions on transactions by non-residents. This will have a certain impact on the business model and market structure of exchange shops.
Taken together, cryptocurrency exchange shops represent financial and cultural trade-offs as products of a specific context. In future development, convenience and compliance need to be balanced to ensure the safety of users' funds and the legality of transactions. At the same time, investors should also be cautious about the risks of exchange shops and participate in the cryptocurrency market rationally to avoid potential losses.
