First Mover Asia: Hong Kong as Crypto Hub? The City's Strict Banking Requirements May Be an Obstacle

Good morning. Here’s what’s happening:

Prices: Bitcoin spurts but then stabilizes. Other cryptos reverse some Wednesday losses.

Insights: Hong Kong's banks may not yet be ready to help turn the City into a crypto hub.

Bitcoin Spurts, Then Fizzles

Bitcoin and other crypto assets spurted briefly late Thursday after fund management giant BlackRock iShares' unit filed filed paperwork Thursday afternoon with the U.S. Securities and Exchange Commission (SEC) for the formation of a spot bitcoin (BTC) ETF.

But the rally, which regained ground lost the previous day, fizzled out well short of the $26,000 threshold BTC lost nearly a week ago. The largest cryptocurrency was recently trading at $25,556, up nearly 2% over the past 24 hours. Bitcoin swooned late Wednesday amid ongoing worries about U.S. central bank monetary policy overreach and growing U.S. crypto regulatory scrutiny.

Read More: BlackRock's iShares Files Paperwork for Spot Bitcoin ETF

Ether spiked similarly to trade above $1,660, a 0.8% gain from Wednesday same time. Other major cryptos went from the negative territory they'd occupied for much of Thursday to green with SOL, the token of the Solana smart contracts platform Solana, recently up 1.8%, and SAND and AXS also rising more than a percentage point. MATIC, the native crypto of the Polygon blockchain, was down more than 4%. These assets were among 19 mentioned in U.S. Securities and Exchange (SEC) lawsuits that accused exchanges Binance and Coinbase of violating securities laws.

In an email to CoinDesk, Brian D. Evans, the CEO of Web3 venture studio and advisory firm BDE Ventures, noted the investor angst about the increasingly unfavorable U.S. crypto climate.

“I feel like we’re at the beginning of a big shift involving project founders seeking locations to base themselves outside the United States," Evans wrote. "In this sense, the market feels very dislocated. In the United States, they’re left scratching their heads over the intricacies of a regulatory system that hasn’t been updated since the Great Depression."

Evans wrote that this failing has sent projects "searching out better-regulated jurisdictions, such as Hong Kong, Dubai and the U.K."

Read More: SEC’s Binance, Coinbase Suits Create Uncertain Future for Listed Tokens: Legal Experts

He added: "A global reshuffling is taking place that is shaping up to center the next burst of innovation and market exuberance in Asia and the Middle East. In that sense, then, I think the digital asset ecosystem is actually becoming more robust, making the likely fireworks following the next Bitcoin halving all the more surprising to a large number of observers. In short, the bullishness is there, yes, but it’s increasingly being driven by events happening abroad.”

Hong Kong as Crypto Hub? The Banks May Not Be Ready

Take their money!

That’s the message that Hong Kong’s financial regulator is telling some of the City’s banks who refuse to onboard crypto clients.

"The HKMA has consistently communicated the importance of banks following the risk-based approach to managing the risks of individual customers," a Hong Kong Monetary Authority spokesperson told CoinDesk earlier.

It’s not the first time we’ve heard of crypto companies having trouble banking in Hong Kong.

A few months ago, news broke that the Hong Kong branches (which are largely autonomous and operate by local rules) of some of China’s state-owned banks were soliciting crypto business in the City.

There was just one problem. While they might talk a big game about being ready to embrace crypto – unthinkable years ago – potential clients found it nearly impossible to get on-board.

"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 at the time. “We have yet to see major progress in the banking sector to embrace crypto. Hopefully, that will change soon.”

At one time, Hong Kong had the unfortunate reputation of being a money laundering center for organized crime. HSBC paid out record fines for their behavior. It’s a much more conservative, risk-managing organization as a result. Billions in penalties will do that to a company.

Almost understandably, banks don’t want to get involved with crypto. The Securities and Exchange Commission (SEC) and CFTC, which seem to have given themselves a supranational mandate, have accused Binance of co-mingling $12 billion in funds and violating securities laws. The same goes for Coinbase.

Banks would really not want these as a client.

Binance and Coinbase are the big fish and were attacked first, but who knows what exchange could be next. Even if a bank in Hong Kong doesn’t do business in the U.S., it can still be caught up in the regulatory dragnet – if U.S. authorities go after an exchange that’s otherwise legal in Hong Kong – by virtue of it offering USD products.

Of course, one should always remain optimistic, but Hong Kong looks like it has a long way to go before it can be considered a crypto hub.

5:00 p.m. HKT/SGT(9:00 UTC) Eurozone Harmonized Index of Consumer Prices (YoY/May)

7:45 p.m. HKT/SGT(11:45 UTC) United State Fed's Waller Speech

10:00 p.m. HKT/SGT(14:00 UTC) Michigan Consumer Sentiment Index (June)

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Bitcoin Drops Below $25K; Bankrupt Crypto Exchange Bittrex U.S. Set to Allow Withdrawals

Cryptocurrencies fell sharply, with bitcoin (BTC) dropping below $25,000 after the Federal Reserve policy decision to suspend rate hikes for at least one meeting. Path Trading Partners Chief Market Strategist Bob Iaccino broke down the market reaction. Plus, Ripple Chief Legal Officer Stuart Alderoty on strategy after the release of documents tied to William Hinman. And, the U.S. arm of Bittrex was set to open for customer withdrawals Thursday following a ruling by a Delaware bankruptcy court. Bittrex Chief Legal Officer David Maria discussed the news.

Polygon Labs Rolls Out Open Database for Blockchain Use Cases: Called "The Value Prop," the database hosts as many as 39 use cases and over 300 applications, with numbers expected to increase.

Colombia’s Central Bank Partners with Ripple to Explore Blockchain Use Cases: The Latin American country will conduct a pilot to test Ripple's technology for its high-value payments system.

Crypto Exchange Bybit Integrates ChatGPT Into Trading Tools: Traders will be able to analyze market data with the new AI-based feature called "ToolsGPT."

USDT Selling on Curve, Uniswap Spooks Traders Amid Bitcoin Drop: USDT holdings on Curve’s popular ‘3pool’ have risen to over 72% as of Thursday morning, suggesting a sudden disbalance.

Hong Kong Put Pressure on 3 Major Banks to Take On Crypto Exchanges as Clients, Report: The Hong Kong Monetary Authority put pressure on HSBC, Standard Chartered and Bank of China, according to the Financial Times.