How many hundred million dollars to cut leeks in half a year? Hong Kong's currency circle is difficult to replicate the myth of wealth: smart people everywhere

Tencent News "Periscope" author Luo Fei from Hong Kong

In just 2 months, the currency boom gradually receded in Hong Kong.

"My team and I have decided to locate the core technical team outside of Hong Kong, leaving only a few marketing people here." A 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, Hong Kong, China held a series of Web3-related activities after customs clearance in April this year, 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-fungible tokens (NFTs), representing the next stage of the Internet and its ecology.

The peak occurred in the third week of April. That week, at the Convention and Exhibition Centre in Wan Chai, Hong Kong, four large-scale events, including the Web3 Carnival Conference, were held simultaneously, and hotels in Central, Wan Chai and Causeway Bay were almost all "stormed" by the world's coin circles.

At that time, even the outdated Island Shangri-La Hotel, Hong Kong, the price of one night directly increased from the usual HK$2,000 to HK$4,000, and there was no room booked; The pedestrian bridge connecting the Wan Chai MTR to the Convention and Exhibition Centre was crowded for the first time after four years of silence.

Even Justin Sun, a "leek cutting master" who has not appeared in China for many years, also appeared at the Web3 event in Causeway Bay. Most of the people Tencent News "Periscope" saw at the event at the time had to talk about "Long Hong Kong", and even some people who were called "fanatics" in the cryptocurrency circle directly equated this with "Long Crypto" (buying long cryptocurrency).

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

Relatively calm are those who originally transferred from Hong Kong's traditional financial industry to the currency circle, and these people are more concentrated in the secondary market of the currency circle to do transactions and products. They are also the group that most firmly supports and recognizes the Hong Kong government's regulatory route in the currency circle.

Two months later, Tencent News "Periscope" found that some of those fanatical "leek-cutting" groups have left one after another to continue their next stop as a "digital nomad" - Dubai or Malaysia, the Philippines, etc.; Others have retreated to Shenzhen and continue to wait for more regulatory rules in Hong Kong. Of course, there are still others who are very determined to stay in Hong Kong and strive to apply for relevant licenses in Hong Kong as required.

Whatever their respective choices, the consensus is unanimous: Hong Kong is a sickle, without leeks. The currency circle here is only suitable for smarter people to survive.

Over HK$100 million tickets? The dreamers withdrew

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

According to incomplete statistics from Tencent News's "Periscope", the institutions that have announced their plans to apply for virtual licenses in Hong Kong include but are not limited to: HarshKey Pro under Xiao Feng of Wanxiang Group, OKX, BitgetX, Gate, Greenland Group, etc. under Xu Xingxing who left the mainland during the epidemic and lived in Singapore for a long time.

According to the requirements for applying for a cryptocurrency license announced by the Hong Kong Securities and Futures Commission on May 25, companies that already have physical operations in Hong Kong before June 1 can have a one-year transition period to prepare for the license. This has enabled some companies such as OKX that only have trading business outside the country to land in Hong Kong before June 1.

But for new players, the threshold for applying for an exchange license in Hong Kong is much higher – the main reason why the market boom was not stimulated when the government opened the gates to allow the application for a license.

According to the regulatory requirements of Hong Kong, institutions intending 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, and now Hong Kong regulations require exchanges that intend to apply for licenses to build these systems by themselves, which virtually increases the threshold.

A person in charge who is involved 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 dividend, so it is difficult to recruit people. In Hong Kong, hiring an IT for 30,000 Hong Kong dollars is far less useful than hiring an engineer for 10,000 yuan in Shenzhen. Their team may later plan to put IT-related back-office in the mainland to save costs.

For similar reasons, the founders of the aforementioned cryptocurrency app eventually decided to locate their core technology team outside Hong Kong. In his opinion, the cost of recruiting IT for startups 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 of submitting the license to be at least about 100 million Hong Kong dollars, of which in addition to the cost of managers, the "majority" falls on the system technology. And this is just an entry ticket to apply for an exchange license in Hong Kong.

What worries them even more is that even after the system is built, they may face the risk of not being able to approve the license, and there is even the possibility that there will be no business after the approval.

These people believe that Hong Kong regulators should introduce some powerful custodian companies, such as Coinbase and Fireblocks, which are already very mature companies that provide custody services, for exchanges to dock.

Tencent News "Periscope" learned that a team that left Hong Kong had settled in Malaysia last month. They can rent large flat floors for 60,000 yuan a month in the local city center, and there are also very cheap IT technicians. These evacuated teams believe that doing coin circle projects in Southeast Asia is even more advantageous than Hong Kong.

Tencent News "Periscope" learned from different sources that OSL, one of the existing 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 no one has taken over so far. As of press time, OSL has not been able to comment on the news.

The exchange is affiliated with BC Technology Group, a Hong Kong-listed company. The company's 2022 financial report shows that the company's losses continue to increase, of which OSL's cryptocurrency revenue in 2022 was HK$71.48 million, less than one-third of the previous year's HK$270 million.

One of the sources told Tencent News "Periscope" that the company was suspected of shell speculation before, and its stock price once soared 60% due to the concept of loading into the blockchain. But today, 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 was once affiliated with Hong Kong shell king Gao Zhenshun, and Gao is still listed as an executive director of a listed company.

Regulators have actively embraced it, and it is still difficult for enterprises in the currency circle 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.

A number of practitioners told Tencent News "Periscope" that although the regulator has 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 corporate accounts in Hong Kong.

Compared with the caution and quiet of market participants, the busiest staff of Hong Kong's regulators in this round of virtual asset boom are the staff of Hong Kong regulators, which mainly include the Intermediary Division of the SFC and the Information Technology Division, the former which has jurisdiction over the Licensing Division and the Intermediary Supervision Division.

In addition, there is the Hong Kong Monetary Authority, which now mainly leads the stablecoin and custody of Hong Kong.

At present, in addition to the upstream mining machine-related parts of the cryptocurrency ecosystem chain that are not suitable for landing in Hong Kong, midstream and downstream funds, exchanges and decentralized Web3 products have the possibility of landing in Hong Kong.

An industry insider who has dealt with the above-mentioned regulatory authorities in Hong Kong on a daily basis told Tencent News "Perispect" that like the supervision in other regions, the easiest thing for the Hong Kong regulatory authorities to start supervising now is the trading process, including exchanges and funds.

"The exchange is open to casinos, and if you manage the casinos, 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 leading companies in the currency circle with Chinese backgrounds have found people to come to Hong Kong to connect with these regulatory authorities, including Cobo, the wallet company of the "Godfish" Mao World Bank, and Changpeng Zhao's Binance Group.

This also makes some people who used to work in regulators become the sweet potatoes of Hong Kong's Central for a while - many people in the currency circle, before that, they were very far from traditional finance and even farther away from Hong Kong's supervision.

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

Different sources told Tencent News that now the regulatory authorities headed by the Hong Kong Securities and Futures Commission and the Monetary Authority have changed the image of "difficult to deal with" in the early years, and have become relatively grounded and easier to contact and communicate.

Tencent News "Perispect" learned that including the Secretary for Financial Services and the Treasury of the Hong Kong SAR Government, Hui Zhengyu, and others have 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", in the near future, they will also launch matters related to stablecoin licenses, and even discuss diversified virtual currency derivatives, such as spot Bitcoin ETFs.

However, a currency entrepreneur in Hong Kong told Tencent News "Periscope" that with the support of relevant government departments, he went to Hong Kong to register a company and landed in the Hong Kong Science and Technology Park, but he still has not been able to open a bank account and cannot use the company to pay for the time being. According to his recollection, it was the HKTDC and InvestHK that actively invited him to Hong Kong.

A number of practitioners said that it is not easy to open a corporate account where the business involves the currency circle.

It is reported that the staff of the Hong Kong Monetary Authority has been very proactive in giving a list of "banks friendly to the blockchain industry in Hong Kong" to enterprises that have registered relevant currency circle business in Hong Kong. Tencent News "Periscope" has seen this list of as many as a dozen banks, including DBS Bank. However, banks still refuse to open accounts with 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 known which bank has changed or adjusted its account opening strategy.

Tencent News "Periscope" also learned that some people familiar with the banking process have even started an intermediary business, that is, helping to package the content of the enterprise, avoiding the description related to the currency circle to successfully open a bank account, charging 20,000-40,000 Hong Kong dollars at a time. According to people familiar with the matter, the bank that the intermediary cooperates with is HSBC. As of press time, Tencent News "Periscope" could not 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, for example, the Investment Promotion Agency, which is responsible for investment promotion, is more concerned about how many companies come to Hong Kong a year, but the bank responsible for opening an account only cares about its own risk control and belongs to the supervision of the HKMA.

There are no "leeks" in the Hong Kong currency circle: there are too many smart people

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

Ye Yizhou is a successful case. He is the principal of Frontier Asset Management Limited, the only currency compliant hedge fund in Hong Kong.

The fund, which initially managed more than $100 million in 2022, obtained a 100% virtual currency trading license from the Hong Kong Securities and Futures Commission in early 2022, and ranked third in Barclays' 2022 global cryptocurrency fund field net income rankings earlier this year, that is, a return on net income of 9.2% - a general loss of 50% in the industry. Tencent News "Periscope" learned that Ye Yizhou's fund paid dividends of nearly HK$70 million to LPs (limited partners) at the end of 2022.

Unlike most cryptocurrency traders who were "grassroots born", Ye Yizhou is a "regular army" trader from Wall Street. In 2014, Yip chose to return to Hong Kong and joined a local equity hedge fund company. During this period, he started investing in Bitcoin early because of his personal interest. He told Tencent News "Periscope" that there was no clear regulation of bitcoin trading in the market at that time, and he and his friends began to get involved in large-scale bitcoin secondary market transactions in 2017. Subsequently, he left the institution to start a business and set up Rational Capital Limited Management Company in Hong Kong.

After witnessing the traditional financial crisis in 2008 and the five-round cycle of the currency circle in the past six years, Ye Yizhou told Tencent News "Periscope" that Hong Kong is not suitable for all people in the currency circle, and even not for some people who want to enter the currency circle from traditional finance to carry out "dimensionality reduction strikes". In his words, "you have to have the ability to strike to get in", rather than recklessly swept in with the blind current.

There are many people who think similar to Ye Yizhou, and the background is similar to Ye Yizhou: graduated from a famous American school, has been doing traditional finance in Hong Kong for many years and chose to take the regulatory route in Hong Kong, and the core goal is also to find rich people in Hong Kong to raise funds and do cryptocurrency trading.

This group of "regular troops" have successively obtained fund licenses or are applying for exchange licenses. Compared with the successive regulatory regulations on the transaction-related currency circle business, the Hong Kong government has not yet launched the supervision of downstream Web3 products in the currency circle.

Web3 products are relatively the easiest place for the cryptocurrency circle to "cut leeks". The biggest difference between these Web3 products and Web2 products is that they add financial attributes to provide users with economic incentives. For example, Web3's game product GameFi can "make money while playing games". In this ecosystem, there are cryptocurrencies such as Bitcoin and non-fungible tokens (NFTs). Generally, users can earn in-game reward NFTs by completing tasks, etc., and subsequently transfer this NFT out and trade it on exchanges and NFT markets to obtain benefits.

Tencent News "Periscope" learned that many Web3 products have locked the capital disk of the entire project's two tokens from the beginning of the project, and even accurate to how long after the product is launched, "cut" to cash out and leave the market - this is similar to the logic of trading listed companies, that is, controlling the trading volume and capital disk. Subsequently, the value of all tokens of the project instantly becomes 0. If the player does not cash out before the project team leaves, it means that they are cut.

It's more like a game of drumming and passing flowers. In the jargon of the currency circle, this is "typical cutting leeks". Among the Web3 projects with Chinese backgrounds in the currency circle, the last and most successful "cutting leeks" project is STEPN, a Gamefi game known as "running can also make money", with a market value of more than $1 billion in less than half a year, and the earliest batch of its original users came from the mainland. According to Tencent News "Periscope", the team benefited hundreds of millions of dollars in half a year. The team has not been reached for comment as of press time.

However, a number of people in the Hong Kong dollar circle told Tencent News "Periscope" that "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 switched from traditional finance to the currency circle told Tencent News "Periscope" that professional investors are regular troops who have graduated from famous schools and have professional financial knowledge, and they play the role of "sickle" more often than leeks.

"The most people here are the rich, but you can't cut the rich." Some conclude that because the rich raise a group of professional investors.

This is one of the reasons why most Web3 startup teams who want to come to Hong Kong to dream in the past two months finally choose to leave Hong Kong.

People come and go, and it is impossible to count the people who left, but there are many people who stay. According to the information revealed by the Financial Secretary in his latest speech, Hong Kong has attracted more than 150 Web3 companies to set up in Cyberport, a start-up incubator, in the past six months.

Paying a dividend of HK$70 million when the market plunged, Hong Kong's first currency circle compliant hedge fund targeted the rich