Virtual assets, cryptocurrency, Web 3, and NFT have been hot-button issues during Hong Kong Fintech Week in early November. Also on October 31, the city issued a policy statement on the “Development of Virtual Assets in Hong Kong,” showing global investors and entrepreneurs its commitment to establishing itself as a hub for virtual assets. 

However, it may take a little longer for Hong Kong to beat down Singapore, the epicenter of Asia's Web 3 revolution.

Hong Kong was formerly the leading financial center in Asia and a hotspot for crypto trading due to its strategic location, open regulatory environment, stable legislation, and other factors.  The city was also once home to several influential cryptocurrency exchanges, including BitMEX and FTX. 

Due to the shifting policy climate and rigorous COVID-19 rules limiting international travel, the majority of BitMEX's staff have migrated to Singapore, while troubled FTX has relocated its headquarters to the Bahamas in 2021.

International corporations are also departing Hong Kong. As of June 2021, there were only 254 US companies with regional headquarters based in Hong Kong, an 18-year low, and the number of Japanese-funded companies in Hong Kong also fell to 210. 

Singapore has emerged as the ideal headquarters location for corporations seeking to expand in the Asia-Pacific region since it is comparable to Hong Kong in a variety of areas, including geography, business environment, and financial system. In addition, Singapore has eliminated all entry quarantine requirements since September last year, allowing international businesses to travel nearly as simply as they did before the outbreak.

Affected by COVID-19 restrictions and an exodus of talent, Hong Kong has lost its position as the world's third-largest financial center and Asia's largest to Singapore, according to The Global Financial Centers Index, compiled by Z/Yen Partners and the China Development Institute.

Instead, Singapore is aggressively pursuing businesses and investors by establishing policies that are more crypto-friendly. According to KPMG, investment in Singapore's crypto and blockchain companies surged to $1.48 billion in 2021, ten times the previous year, and nearly half the Asia Pacific total for 2021. 

Chainalysis Inc., a blockchain specialist, reports that Hong Kong's digital token trading volumes grew by less than 10% in the 12 months leading up to June, the lowest increase in East Asia. The city's overall global ranking for crypto adoption fell to 46 in 2022 from 39 in 2021.

Hong Kong's intention to re-establish itself as a crypto hub is raising a commotion in the sector. On the evening of the policy declaration's release, a group of Chinese-origin Web 3 influencers, including Justin Sun and Yi Nengjing, conversed on Twitter Space. Most of them expressed optimism for Web 3's future in the city.

"The spring of Chinese (Web 3) entrepreneurs has come." "We will move the Asia-Pacific headquarters of Huobi and Tron back to Hong Kong in the future," Justin, the owner of crypto exchange Huobi and crypto project Tron, said, adding that Hong Kong may serve as a pilot zone for mainland companies to test cryptocurrency-related businesses.

Interestingly, to avoid being impacted by the severe COVID-19 control rules, Justin explained, the regional headquarters of Huobi and Tron were moved from Hong Kong to Singapore last year. 

From September last year until now, Singapore has been one of the most important gathering spots for Web 3 entrepreneurs, with a large number coming from China, according to Du Jun, co-founder of Huobi. 

Yat Siu, co-founder and executive chairman of Animoca Brands, believed that since the policy declaration was made public, it has been clear that Hong Kong's stance on cryptocurrencies and other digital assets differs greatly from that of mainland China. “It aims to chart its own path to leadership, allowing Hong Kong to become a global and Asian Web 3 hub,” he tweeted.

Aside from the beneficial policies from the government, the city can tap into the mainland's vast high-tech talent pool, giving it a chance to reclaim the title of digital asset powerhouse from Singapore. However, in spite of all of Hong Kong's perks, small-sized startups are still cautious about relocating there.

Alex, who moved from Shanghai to Singapore last year, told PingWest that although his startup's headquarters have been relocated to the city-state, most of the employees remain on the mainland.

"Given Singapore's limited population and the fact that Southeast Asia as a whole cannot compare with China, where the technology industry is well-developed, it is not easy to recruit cost-effective and skilled fintech talent here," he added.

In light of the Hong Kong government's support for digital assets, Alex reconsidered moving to the city. "Being adjacent to Shenzhen will make it easier for me to recruit talent and communicate with the rest of his team,” he said, "but the right time has not yet come, and I'm still concerned about how mainland policies would influence Hong Kong."

Another mainland Chinese Web 3 entrepreneur, Lil, explained why he has no interest in relocating to Hong Kong. “It feels like Hong Kong has become more in line with the mainland in recent years, whether it is financial policy or other aspects,” the man explained, “While Hong Kong now says it is jumping on the digital asset bandwagon, it is unclear when it will need to align with the mainland, where the decentralized crypto world is not welcomed."

Small businesses cannot afford to take risks, unlike large corporations that can migrate at any time; thus, Lil seeks a more stable business climate with consistent policies. "That's why I'm looking to move to North America, Dubai, or Singapore, where everything is more predictable," he told PingWest.

Hong Kong's welcoming environment for digital assets may encourage these industry heavyweights to raise their game. But when faced with smaller players such as Alex or Lil, it is crucial to build sufficient trust before they really make a move, and it's going to be a long process.

But there are prospects worth exploring. "From the policy declaration, Hong Kong seems to be caring more about the financial use of virtual asset businesses, aiming to create a more convenient environment for financial institutions," said Xiao Sa, a Beijing-based lawyer who focuses on the fintech sector. "Financial companies will have more room to grow than technology firms."

“In the mainland, NFT financialization faces legal risks, but in Hong Kong these risks have been reduced due to the policy. Thus, getting a permit in Hong Kong could be a solution for mainland startups,” the lawyer suggested.