First Mover Asia: China’s State-Owned Banks Are Soliciting Hong Kong Crypto Business, but Opening an Account Is Hard

It's the CFTC vs. Liquidity

Good morning. Bitcoin is starting the Asia business day down 3.8% to $26,958 after the U.S. Commodity Futures Trading Commission (CFTC) sued crypto exchange Binance and founder Changpeng Zhao, alleging it offered unregistered crypto derivatives in the U.S.

Binance’s BNB token is down 5.9% to $308 on the allegations.

The question on the traders' minds is how much of a going concern Binance is now that the CFTC has struck this blow. On the one hand, Binance’s CEO called the CFTC complaint “unexpected and disappointing,” yet, in February, the exchange said it is prepared to pay monetary penalties to “make amends” for sins of the past.

At the same time, there is some debate about how much traders are shrugging off the CFTC’s allegations versus how much bitcoin has an ability to react to news because of a lack of liquidity.

“When you have low liquidity, you tend to get very quiet markets,” Dan Gunsberg, co-founder of Solana-based derivatives liquidity protocol Hxro, said during a recent CoinDesk TV appearance. “You get these jumps in the market and these liquidity vacuums, where things move to a new price and immediately settle down again.”

At the same time as the CFTC goes after Binance, the decentralization narrative continues.

Decentralized derivatives exchange GMX's token rose by 4% during the last 24 hours, almost in parallel to how tokens of decentralized ether liquid staking platforms rose in February when the U.S. Securities and Exchange Commission took aim at staking.

But just because something is decentralized, doesn’t mean regulators can’t go after it.

China Banks' Push for Hong Kong Crypto Business Faces Headwinds

China’s state-owned banks’ Hong Kong branches – semi-autonomous entities that operate under Hong Kong's rules – are actively soliciting crypto business, in anticipation of the first phase of the Special Administrative Region's regulatory framework in June. But opening an account with them is another thing altogether.

Bloomberg reported Monday that the banks making the pitches have gotten the green light from Beijing, and their respective headquarters.

Sources from multiple crypto companies in Hong Kong that had either been pitched by the banks’ sales representatives, or made inbound inquiries, all say that the criteria for opening an account is burdensome and the know-your-customer/anti-money laundering (KYC/AML) process is longer than opening a regular business account.

For instance, banks prefer that executives and key personnel at the crypto company reside in Hong Kong. A definite blocker would be if they are mainland Chinese nationals or U.S. citizens. If the company is owned by a Singapore-based parent, that firm would need to be a licensed entity by the Monetary Authority of Singapore.

Sources were also told to expect a long account-opening process.

Is it really progress?

These banks, such as Bank of China and Bank of Communications, are some of the world’s largest, and it’d be unthinkable a few years ago that they would be actively soliciting crypto business considering Beijing’s hardline stance on the issue and the general hesitation of large banks to engage with crypto.

After all, in the U.S., Silvergate and Signature found their market niche for this exact reason, with analysts saying the crypto industry will have a “difficult time finding traditional banks that will work with it” post their demise. These two banks made – and lost – their fortune with crypto: At the turn of the decade, they were both small, unknown banks before embracing crypto; Silvergate reported $2.12 billion in assets in December 2019 and peaked at $16 billion in December 2021.

Although both Silvergate and Signature grew significantly throughout crypto’s boom years and institutionalization, their relatively small size means that they fell faster than they would have if they were larger like some of their peers.

But not everyone thinks this is the first chapter of something new, considering the tough onboarding process.

"The city’s digital assets regulation is overall friendly and encourages banks to work with crypto companies, however, banks still currently have stringent requirements in place which makes it difficult for crypto businesses to expand and grow,” Adrian Wang, founder and CEO of Metalpha, a Hong Kong-based digital assets wealth management company, said to CoinDesk. “We have yet to see major progress in the banking sector to embrace crypto. Hopefully, that will change soon.”

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