China's bitcoin gloom may be Hong Kong's boon as crypto issuers switch to city's exchanges

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scmp.com5y ago

China’s clampdown on cryptocurrencies and the subsequent trading halts on a number of crypto exchanges have caught hundreds of mainland investors unaware and unprepared, driving some entrepreneurs to seek alternative listing of their tokens in Hong Kong to raise funds.

Cryptos, a form of virtual currency created using computer cryptography, have been under China’s regulatory scrutiny since the start of 2017, due to its explosive growth that’s raised concerns that a meltdown of the unregulated market could spill over to financial losses. The ruling Communist Party, scheduled to pick its line-up of leaders for the next five years on October 18, is anxious to maintain social and financial stability ahead of its election.

Smack in the centre of the Chinese regulators’ cross hairs were initial coin offerings (ICO), an unregulated practice of raising capital through issuing cryptocurrencies called tokens, often exchangeable for more established cryptos such as bitcoins or ethers, which can in turn be bartered for products, services, or cash.

What is an ICO, and why is China’s central bank banning it?

Cryptos aren’t legal tender in China, and the central bank has an outright ban on banks or financial institutions holding them, although individuals are allowed to own them.

As many as 65 ICO projects were completed in China in the first seven months of 2017, raising an estimated 2.6 billion yuan (US$398 million), according to the Beijing Internet Finance Association. The Chinese central bank said 90 per cent of the ICOs launched on the mainland were fraudulent, and banned all ICOs on September 4.

Since then, virtual currencies of all types have plunged in value. Bitcoin and Ethereum, the two largest cryptocurrencies by value, declined more than 24 per cent since last week.

“Cutting flesh” was how a bitcoin owner in Fujian province described his feeling, as he watched his investment shrink in value.

A chicken farmer who would only give his surname Wang, he had piled into cryptos last year when the market was abuzz with fervour that new-found technology would upend the traditional concept of money. He bought 8 million yuan (US$1.2 million) worth of cryptos, picking the two largest types bitcoins and ethers, as well as hedging his speculation on lesser known types such as Qtum, he said.

When BTC China, a Shanghai-based exchange, declared it would stop bitcoin trading starting from September 30, the value of the digital currency tumbled. Wang estimated that he’d lost 5 million yuan of real money.

Yesterday, BTC was joined by Bitkan in Shenzhen, which announced that it would suspend over-the-counter transactions of bitcoin and bitcoin cash.

Then today, Shenzhen-based ViaBTC also announced it would cease all trading operations in China by the end of the month, citing the central bank’s recent stance as the reason.

The People’s Bank of China may go a step further and order crypto transactions to stop on all exchanges, Bloomberg reported, citing people familiar with the plan.

Huobi and OkCoin, the two largest exchanges based in Beijing, haven’t responded to questions on whether they would continue the transaction of virtual currencies on their platforms.

But the gloom on the mainland may be a boon for Hong Kong, driving the founders of many cryptocurrency projects to the city, said Aurélien Menant, founder and chief executive of Gatecoin, a cryptocurrency and blockchain token exchange in the city.

“We have received a high number of inquiries from blockchain project founders based in the mainland who would like to list their tokens on our exchange,” Menant said. “Since last Friday, with the rumours of a possible tightening on the regulation of exchanges in the mainland, we have experienced a surge in the number of Chinese clients registering on our platform.”

Fang Tianyu , a high school student from the US who spent a month of his salary he made during an internship in Beijing cryptocurrencies said he wasn’t that worried about the price drop.

“China banned Google too, but its stock price had been going pretty well. I don’t think the Chinese authorities hate blockchain and cryptocurrencies per se. They simply want to regulate it. So I am not anxious in the long term.”