China's ICO Crackdown Boosts Hong Kong's Hopes Of Becoming Blockchain Hub

China’s decision to shutter digital-currency exchanges based on the mainland, a strategy meant to extinguish the rampant fraud and abuse associated with initial coin offerings, or ICOs, is brightening Hong Kong's hopes of asserting itself as a hub for blockchain technology.

As Bloomberg reports, while China has at least nominally embraced blockchain technology - even building a prototype digital yuan – Hong Kong’s city government has gone a step further by encouraging blockchain startups to set up shop in the city. One firm run by Johnson Leung, who has found success in finance and shipping, and now runs a blockchain startup, is focusing on applications for container ship operators.

The city’s embrace of blockchain is its latest attempt to nurture a domestic technology industry that could compliment the city’s dominance in banking and shipping. But as Bloomberg notes, betting on blockchain, a technology that has generated a ludicrous amount of hype, much of it undeserved, could be a risky proposition. Despite Hong Kong’s status as a financial hub, the city, one of the most expensive in the world for average working families, has zero “unicorns” – a term for startups valued at over $1 billion.

Skeptics say it’s a risky bet on an unproven technology - one with more than its fair share of hype and, in some cases, fraud. But a growing number of Hong Kong entrepreneurs and policy makers are convinced the online ledger system that underlies cryptocurrencies like bitcoin will eventually reshape everything from financial services to supply chains. They say the city’s laissez faire approach toward regulation, along with its expertise in finance and logistics, make it a natural hub for blockchain startups.


“I don’t see why Hong Kong can’t be a leader of blockchain technology,” said Leung, who co-founded after more than a decade in the financial industry that included stints as a research analyst at JPMorgan Chase & Co. and Jefferies Group LLC. “It’s so new that it’s not like any country has a huge advantage compared to us.”

As Bloomberg explains, the city’s government has been throwing resources at the technology, developing its own digital currency and testing different blockchain use-cases.

The city’s monetary authority is developing its own digital currency and is testing blockchains for trade finance, mortgage applications and e-check tracking. Hong Kong’s securities regulator has joined R3, a global consortium that develops blockchain technology for financial transactions, while a government-backed research institute has worked on a blockchain-based system for tracking property valuations, among other initiatives. Hong Kong Exchanges & Clearing Ltd., the city’s publicly-traded exchange monopoly, plans to start a blockchain platform for early-stage companies and their investors next year.


“Blockchain is a very high priority for us,” said Charles d’Haussy, head of fintech at InvestHK, a government economic development agency.

To be sure, the city is, like China, imposing restrictions on some of the shadier aspects of the blockchain ecosystem – namely ICOs, a new financing trend that involves selling a digital token that’s tied to a given platform or product. In theory, these tokens should get more valuable as the underlying product becomes more widely used. Some ICOs have raised millions of dollars, all without a working prototype – only a white paper that sketches out the company’s idea.

That doesn’t mean Hong Kong is giving the industry carte blanche. This month, the city’s Securities and Futures Commission told investors to be on the lookout for fraud in initial coin offerings - a form of cryptocurrency fundraising - and warned ICO issuers that they may be subject to local securities laws.


“We have to be very careful with this because on the one hand, we encourage innovation and free markets, but on the other hand, we do have to look after our small investors,” Paul Chan, Hong Kong’s financial secretary, said in a Sept. 11 interview.


Still, the city is taking a softer approach toward regulation than China, which banned ICOs this month and called for a halt in trading on domestic cryptocurrency exchanges.

In its battle to lure blockchain companies, Hong Kong is competing directly with its longtime rival, Singapore, which has also taken many steps to explore uses for blockchain technology while also encouraging the creation of a thriving startup community. As Bloomberg points out, Hong Kong doesn’t have a great track record when it comes to tech startups. Its Cyberport business incubator has been criticized as a housing development in disguise, while many local workers are reluctant to leave their steady jobs for riskier ventures because of the extremely high cost of living.

Building a sustainable blockchain hub in Hong Kong won’t be easy. Many applications for the technology, including Leung’s proposal to create digital tokens for the shipping industry, are still largely theoretical. (Leung says his tokens could be used in conjunction with so-called smart contracts to reduce the risk of default on shipping agreements.)


At the same time, competition to lure the most promising blockchain firms is fierce. Singapore, Hong Kong’s biggest regional rival, is pouring resources into its local fintech industry, as are other financial hubs including Dubai.

One official with InvestHK, the portion of the city government responsible for luring foreign investment, said that the city is keenly aware of the hype surrounding blockchain but has decided to move ahead anyway.

“There is hype, and there is the fast grab of money with ICOs in some cases,” d’Haussy said. “But what we are looking at building here in Hong Kong is an infrastructure for new businesses and existing businesses, to make sure the technology and innovations remain a key enabler for financial sector growth.”

So far at least, blockchain has been closely associated with fintech, or financial technology, which city officials believe should give Hong Kong an edge in attracting companies, given its large financial sector. Many of the city’s early startups include financially focused firms like BitMEX, a bitcoin derivatives exchange; Bitspark, a remittance platform; and Kenetic Capital, a blockchain investment firm. While Hong Kong doesn’t publish statistics on the growth of the local blockchain industry, InvestHK’s d’Haussy said anywhere from 10 to 20 companies are expected to raise funds via ICOs in the city over the next six months.

However, with the technology still largely unable to scale, the question of whether these companies will be able to survive long enough to achieve profitability before their backers throw in the towel. Not every function – especially not in the world of finance – is suitable for automation and decentralization. What works with blockchain, and what doesn’t, has yet to be thoroughly explored.

Which is, of course, one of the reasons why the industry is so interesting: The risks are large, but the payoffs, in terms of job creation and the attendant tax-revenue and growth bump, is potentially huge.


Jim in MN Mon, 09/25/2017 - 00:10 Permalink

There are no actual wars left anywhere on Earth. Bit of mopping up vs. ISIS and whatever the Saudis think they're doing in Yemen. And I guess Afghans being Afghans.I expect those will (ahem) 'die down' soon.The biggest secret story of them all: Peace on Earth.  The Mexican drug war will be the largest actual conflict on the planet.Discuss.....

Jim in MN Jim in MN Mon, 09/25/2017 - 00:19 Permalink

I hope that ZH considers this as a guest post.  I am open to alternative views.  
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What If World Peace Arrived….And No One Noticed? By Jim in MN   What if it already has? Reading another tired weeks’ serving of doomsday news, suddenly a strange feeling hit me; as an analyst, it’s my job to see trends, and even though I’m sometimes early or even a little (um) paranoid at times, which is why I love Zero Hedge so much…well let’s just say I’m damn good at my job. But this funny feeling wasn’t about my job.   It was about the world.  Specifically the Middle East, but as I began to check all my news and information sources and do serious research, really what I am observing, and reporting to you today as breaking news, is…..peace. Simply and quietly, peace appears to have broken out on Planet Earth. Some long-standing conflicts were resolved over the past several years.  These include the Sri Lankan civil war, the Colombian conflict with FARC guerillas, and several African wars.  Those serve now as a backdrop.  Add the Lebanese civil war and the Irish ‘troubles’ if you want to go back a bit farther. But even the ‘hot wars’ that dominated headline news and killed millions, often civilians, over the past few years have now, much more suddenly, dried up.  Ukraine.  Syria.  Iraq.  Libya.  Mali.  Sudan. Indonesia.  Philippines.  Central America. What are we left with?  The largest wars now are in Yemen, Afghanistan and mopping-up against ISIS.  None of these feature truly mass civilian casualties with the arguable exception of Yemen.  And while that is a tragic and apparently pointless set of Saudi/US massacres, for that to be the most significant remaining war in the entire world is in and of itself so surprising as to be mind-boggling. I would suggest three major items that stem from this rather amazing outbreak of global peace. First, let’s just take notice, and perhaps thank God or whoever you choose to offer gratitude to.  Over a billion people in dozens of major cities are not being shelled, forced to flee, or sent to a war front.  Shopkeepers and schoolteachers—the true measure of a society’s viability—are able to go about their business.  How remarkable. Second, there is absolutely no media mention of this whatsoever.  You, reading this today, know something that no one else that you know ‘in real life’ knows—and it’s a profound piece of historically significant news!   Why is that?  Is it perhaps the ultimate example of psychological programming?  People simply can’t see an enormous thing that is right in front of them.  Go ahead, read the world news sections of the BBC or your favorite news outlet.  Go do it right now.  Find any hot wars or mass civilian casualties?  Neither did I.  I did find a new peace deal in Mali, a huge minefield cleared in Zimbabwe, a few deaths of protestors in Sudan and Cameroon.  I believe that in context this is called ‘peace’ in Africa.  Go do the same for Asia, for Latin America. My final point as I wish all of you a peaceful future:  what if this is actually a populist peace dividend?  What if the US’ growing focus on domestic corruption and economic stagnation has taken some wind out of our foreign proxies’ sails?  What if the Clinton team told all our erstwhile mercen—er, allies to just wait until her swearing-in for new orders—orders that never came?  What if the US Independent voter has just delivered world peace—and no one’s noticed? Let’s pray that it lasts.   --Jim in MN, September 22, 2017

In reply to by Jim in MN

old naughty Jim in MN Mon, 09/25/2017 - 04:23 Permalink

out of respect for an 8y+, here is my 25 cents worth:  "there are no actual wars anywhere left on Earth"...  "what if this is actually a populist peace dividend? "I 2 hope these were true yet I would not pray that it lasts (futile exercise). I would humbly add a what if, sort of a 2-bit re-act:what if, the pieces on the grand chessboard are all re-shuffled, to sayprevious winners are posted to pay while previous losers are posted to gain?stratfor had pieces written on Turkey and India, check them out...and if UK surprised all to "let" HK reppatriated so as to "put it under China's thumb"; and yet they kept it on as the fourth larghest financial center even after 20 years... I say we need to stay alert of these winners-losers shuffles and visible hand playing (so media didn't report...) and hidden hand stirring !!!

In reply to by Jim in MN

auricle Mon, 09/25/2017 - 00:22 Permalink

How are ICO's any different than penny stocks? There have literally been hundreds of thousands that have come and gone through the decades. Never producing anything but a con and scam. 

tmosley auricle Mon, 09/25/2017 - 09:18 Permalink

They are certainly a vehicle that can be used for fraud, and that IS being used for fraud, but they aren't ALL frauds. That is why I have encouraged people to stay away until at least the second or third or fourth round of them comes around and a few bear fruit. Let the people who run these things right build up reputations, and invest based on that.

In reply to by auricle

Silver Savior Mon, 09/25/2017 - 02:19 Permalink

Dude whatever side you are on blockchain is huge! You can also be totally into gold and silver too. Use crypto as a tool to get more gold and silver. Money comes out of nowhere!

HRClinton Mon, 09/25/2017 - 02:35 Permalink

I thought that the Chinese were supposed to be smart. Not as smart as we thought then.If they were smart, they'd issue an honest, national crypto currency, backed by PM.The best of old and new.