Hong Kong and Singapore, which is the Asian cryptocurrency financial center?

Author: Zhou Zhou, Huxiu

Should I go to Singapore or Hong Kong, China?

For Chinese Web3 entrepreneurs, this is a question.

In November 2022, Hong Kong's FinTech Week and Singapore's FinTech Week were held simultaneously, bringing this competition to a climax.

Talent, money, and companies… The competition between Hong Kong and Singapore for the title of "crypto financial center" or "global Web3 center" has been heating up since September.

On October 31, the Hong Kong government just issued a declaration at the "Hong Kong FinTech Week," expressing its determination to compete as a global virtual asset center; Singapore's central bank managing director Ravi Menon immediately stated on November 3 at the "Singapore FinTech Week" that Singapore hopes to become a digital asset center. Subsequently, Hong Kong invited FTX founder Sam (Sam Bankman-Fried) to the FinTech Week, while Singapore quickly invited Sam's rival Zhao Changpeng, the founder of the world's largest crypto exchange Binance, as well as Vitalik, the founder of the largest decentralized innovation ecosystem—Ethereum. The Web3 investment firm Hashkey Group just obtained a crypto service license in Singapore, and a week later, Hong Kong immediately extended an olive branch, issuing a virtual asset trading license to encourage its development of cryptocurrencies, security tokens, and Web3-related services.

The frequency of releasing these policy dividends is increasing, showing a competitive momentum.

Web3, an industry ecosystem dedicated to data assetization, aims to change the current situation of excessive concentration and monopoly of internet data by tokenizing data, allowing more companies to produce, refine, and create valuable data, while also giving individuals more opportunities to control their own data, assets, and digital identities.

In short, Web3 aims to digitize and tokenize everything valuable in the real world (including the online world), such as a car, a house, a piece of music, a book, or even Messi's goal in the World Cup or Jay Chou's most classic song, so that their value and price are equivalent online, and their value can circulate globally.

In recent years, this emerging field has continuously attracted venture capital.

According to the latest data from the third-party consulting firm McKinsey, venture capital investment in Web3 exceeded $18 billion in the first half of 2022, with a total of $32.4 billion in venture capital for the entire year of 2021.

In addition to some of the startups that have received investments, some companies in the growing Web3 ecosystem have even begun to influence the political landscape to seek broader development space. For example, in the United States, third-party data agency OpenSecrets shows that crypto companies and employees have invested $73 million in the U.S. midterm elections in 2022, surpassing the total contributions from the defense and automotive industries for this election. Several crypto companies that have already grown into giants, such as FTX, Coinbase, and their backing crypto capital giants A16Z and Sequoia Capital, are the biggest "drivers."

With the involvement of the world's largest capital (Sequoia, IDG, A16Z, etc.), the world's major financial centers (New York, Miami, Singapore, Hong Kong, etc.), and the world's largest internet giants (Meta, Google, Amazon, Reddit), Web3 has become one of the most important innovation ecosystems and competitive arenas globally.

Of course, the most important participants in this arena are still Web3 companies and crypto institutions.

From a broad perspective, the current Web3 (crypto finance and crypto technology) ecosystem has already birthed world-class giants. Founded in 2017, Binance ranks sixth among global unicorns, just behind Ant Group and ByteDance, and currently has 120 million users. In contrast, Alipay (Ant Group) was established in 2004, and ByteDance was founded in 2012, which means they were established 13 years and 5 years earlier than Binance, highlighting Binance's rapid momentum.

Some industry insiders even believe that Binance is likely to surpass Ant Group and ByteDance to become the world's largest unicorn. This may not be a far-fetched idea; this month, it successfully destroyed the world's second-largest crypto exchange, FTX, and is "gobbling up" the considerable market share left by this company after its bankruptcy.

Before this, Binance, which is five years younger than ByteDance, already had 120 million users, completed over 2.4 billion transactions on its blockchain, and had over 1,200 startup projects running. Within two years, it issued more than 1.7 million credit cards in the Eurozone and is gradually penetrating and changing the global traditional finance and internet landscape.

Binance is just one of the leading companies in the entire virtual asset ecosystem; Web3 social, Web3 gaming, Web3 wallets, public chains, DEX (decentralized exchanges), NFT platforms, DeFi (decentralized finance)… some tracks are just getting started, while others are already taking shape, and the best among them are expected to become global tech unicorns in the future.

If we compare Binance's capital size, user numbers, and investment style to Tencent, new tracks may give rise to companies and institutions of the scale of JD.com, Meituan, and Bilibili.

This emerging field is on the "eve" of a massive explosion across multiple tracks. Some industry insiders analyze that this is also why Hong Kong and Singapore, despite knowing the enormous risks ahead, are still vigorously developing virtual assets and Web3.

Falling Behind

Compared to Singapore, Hong Kong seems to be lagging in its initial steps.

"Many Web3 entrepreneurs who were originally in Hong Kong have gone to Singapore. As a Chinese person, I feel this is quite shameful," said Wu Shuang, a student at the University of Hong Kong and founder of the 0xU Hong Kong University Blockchain Community.

Many of Wu Shuang's friends have chosen to work at Web3 institutions in Singapore rather than stay in Hong Kong.

Huxiu has found that most of the top 10 universities in the country, including Tsinghua University, Peking University, Shanghai Jiao Tong University, the University of Hong Kong, and the Hong Kong Polytechnic University, have spontaneously established Web3 clubs.

Although these clubs currently do not have a large membership, a considerable number of students among them have a high interest and enthusiasm for Web3 and hope to work in Web3-related fields in the future, representing potential innovative talent in the Web3 sector.

Singapore, which clearly supports innovation and entrepreneurship in the Web3 field, has naturally become their first choice in Asia. The talent and institutional driving effect is evident.

According to incomplete statistics from Huxiu, Singapore has issued at least seven licenses and permits to companies engaged in cryptocurrencies and Web3 in the past two months, including Coinbase, Blockchain.com, Circle, HashKey Capital, CHINTAI, Japan's SBI crypto division, and Paxos. This has solved a significant number of employment issues in Singapore; for instance, Paxos alone plans to hire at least 130 employees for its Singapore office.

"The best people in business and industry often appear in Singapore, and they are closely connected with the university blockchain community there. This is their biggest advantage," Wu Shuang lamented.

Julie Chen, who previously studied as an exchange student at the National University of Singapore, is currently interning at an investment firm that specializes in investing in Web3 companies. She said, "The atmosphere in Singapore is more open; even in school, you can widely connect with many industry professionals. The Web3 club at the National University of Singapore invites professors, senior students who have started blockchain companies, and VC founders living in Singapore to give lectures almost every week. You can see it on the school's official website, and each lecture has about seventy to eighty attendees."

Universities are just a small reflection of this industry landscape; leading companies, capital, and talent are the true forces that can shake the foundations of an industry in a region.

This trend has been particularly evident in recent years. Huxiu has found that a large number of family office partners, founders of listed companies, fund managers, and executives from internet giants have flocked to Singapore due to Web3. Some of them have decided to settle there, bringing high-quality talent and knowledge to Singapore.

Some family offices in Singapore have recently recruited many senior talents from Hong Kong and mainland China to manage their Web3 funds. Many of them come from quality divisions of companies in Hong Kong, such as JPMorgan, Binance, and OKX.

In fact, initially, Hong Kong was not weak in its strength in Web3. Before the pandemic, Hong Kong was once considered an important city for crypto financial innovation. It successfully nurtured many leading institutions in the crypto industry, such as FTX, Amber Group, Crypto.com, and BitMEX. However, three years of the pandemic and policy factors have led many Web3 startups, crypto institutions, and crypto capital to leave Hong Kong in search of cities with clearer policies.

Clearly, a clear and specific regulatory policy and philosophy are key to developing Web3. Taking FTX as an example, although it just went bankrupt in November, it was once among the top three crypto trading institutions globally, capable of bringing sufficient employment, consumption, and corporate investment to the local area. When it was founded in 2019, FTX set its headquarters in Hong Kong, and after three years of development, it reached a valuation of $32 billion, establishing subsidiaries in the U.S., Europe, and other regions, and was ranked third by Forbes as "the most valuable private fintech company in the U.S. in 2022."

However, for a long time, Hong Kong's regulatory framework was not friendly to innovative enterprises in Web3, which forced FTX to spend a lot of time looking for countries and regions with more complete regulatory frameworks to develop more compliantly. Ultimately, it chose to relocate its headquarters to Nassau, the capital of the Bahamas. This country, located between North and South America, hopes to become the crypto financial center of the Americas. Through a more friendly DARE Act, it also attracted another crypto giant, OKX, which believes that the Bahamas is policy-friendly towards crypto asset institutions, and its unique geographical location can serve as a hub for expanding business into North and South America.

Whoever formulates detailed policies earlier and issues licenses earlier will attract more crypto institutions and Web3 companies.

From this perspective, Singapore is indeed ahead in Asia.

As early as May of this year, Singapore's Deputy Prime Minister Heng Swee Keat stated that he wants to turn Singapore into a "decentralized financial center."

Looking globally, there are regions that have acted even earlier than Singapore. The newly appointed Indian Prime Minister Rishi Sunak publicly stated in April this year that he wants to make the UK a "global crypto asset center." Across the ocean, Miami's Mayor Francis Suarez has been even more "radical," as he publicly expressed his willingness to help Web3 entrepreneurs move to Miami at the end of 2020, aiming to make Miami the "Silicon Valley of Web3." He is not just talking; Francis Suarez himself is a crypto asset enthusiast, and for the past two years, his salary has been paid entirely in virtual currency, and he launched the first city cryptocurrency in the U.S., MiamiCoin.

An industry insider pointed out that Miami's level of crypto development is already two to three years ahead of Hong Kong. According to statistics from the third-party data agency CB Insights, Miami's startups raised about $3 billion in 2021, nearly three times the amount raised in 2020, and its venture capital in the crypto field skyrocketed from $6 million in 2020 to $745 million in 2021, a growth of over 100 times. In terms of the number of tech talents, Miami has naturally attracted global entrepreneurs like FTX. According to statistics from the recruitment platform LinkedIn, the migration rate of tech professionals to Miami increased by 15.4% year-on-year from March 2020 to March 2021, ranking first among major tech cities in the U.S. In terms of the density of hiring crypto tech talent, it ranks just behind San Francisco, New York, and Los Angeles.

Moving faster also means having to bear stronger regulatory pressure and higher financial risks. This is the price that "the first few to eat crabs" must pay.

Taking FTX as an example, this company reached a valuation of $32 billion just three years after its establishment, receiving investments from globally renowned institutions such as Temasek, Sequoia Capital, SoftBank Vision Fund, and Canada's third-largest pension fund. It once set Hong Kong as its global headquarters (later relocated) and established subsidiaries in the U.S., Europe, and other regions. Its U.S. subsidiary, FTX US, was even ranked third by Forbes as the most valuable private fintech company in the U.S. in 2022, clearly a rising international giant.

However, due to the industry still being in its early stages, many companies in the sector have poorly defined regulations, and there have even been instances of misappropriating customer funds. FTX suddenly collapsed in November (2022), revealing a liquidity gap of up to $10 billion to $50 billion, shocking the financial world.

FTX's collapse triggered a series of chain reactions, with 134 affiliated companies already filing for bankruptcy. It is reported that Sequoia Capital and Temasek lost over $200 million, while SoftBank Vision Fund and Canada's third-largest pension fund lost nearly $100 million, and a number of small giants in the industry are also facing bankruptcy crises.

The speed of the incident and the extent of its impact have been compared to the "Lehman crisis," prompting intervention from U.S. regulatory authorities. However, the event has already occurred, and the bankruptcy of such giants often has a relatively adverse impact on the local city's ecosystem. For example, crypto institutions often establish deep collaborations with more retail companies and financial institutions in their local cities, and once they collapse, the repercussions will radiate to local users, retail businesses, and financial institutions.

Some industry insiders have analyzed the website traffic of FTX, noting that people in countries such as Japan, South Korea, Germany, and Singapore have been significantly affected, especially since FTX established subsidiaries in Japan and Europe, where many individuals and institutions suffered severe losses.

This may also be one of the reasons why Hong Kong has not yet clearly expressed its support for virtual assets and Web3 at the government level.

However, as major global financial centers continue to lay out their strategies, and as these cities gather more and more Web3 companies and talent, gradually establishing a competitive edge, Hong Kong can no longer sit idly by and has decided to take action.

Hong Kong's Determination

On October 31, 2022, Hong Kong officially released the "Policy Declaration on the Development of Virtual Assets in Hong Kong" (hereinafter referred to as the "Declaration"), formally announcing to global investors and entrepreneurs its determination to develop into a global virtual asset center and Web3 center.

The declaration was issued on the first day of Hong Kong's FinTech Week, the most important day for the financial industry in Hong Kong. Almost all the guests invited by Hong Kong were industry insiders related to Web3 and crypto finance—from the Financial Secretary of Hong Kong, the president of the Hong Kong Monetary Authority, to Animoca Brands co-founder Yat Siu, FTX co-founder Sam, and executives from Citibank and Tencent Financial Technology. Almost all attendees discussed the development of Web3 in Hong Kong.

The content of the declaration also clarified the entire Hong Kong government's attitude and basic tone towards Web3 and crypto finance: embracing NFTs (non-fungible tokens), embracing stablecoins, embracing DLT (distributed ledger technology), embracing Web3 and the metaverse.

"Radical" and "proactive" are the impressions entrepreneurs have of the new Hong Kong government. An entrepreneur close to several Hong Kong government officials told Huxiu that after John Lee took office as the Chief Executive of Hong Kong on July 1, 2022, the entire style of the Hong Kong government changed, and many policies became more clearly directed—attracting more international and domestic talent. Some crypto giants and investment institutions have heard the call to lay out their strategies. Lennix, the financial market director of crypto institution OKX, stated that the signal conveyed by Hong Kong is very important, and the policies are relatively clear. The first hurdle is an asset of 8 million HKD, and then they can invest in ETFs. Seeing the Hong Kong government moving towards an increasingly open attitude has given us enough confidence to invest in Hong Kong.

Compared to Singapore, although Hong Kong has been a step slower in Web3 policies, it remains the strongest city in Asia in terms of foundation. This is not only because Hong Kong has a strong traditional financial industry but also due to its strong entrepreneurial atmosphere and more professional financial services.

"The strongest entrepreneurial atmosphere still comes from Chinese and American people; most people entering the Web3 industry have a strong desire to start their own businesses," said Wang Miao, a Web3 practitioner who just settled in Singapore.

Web3, like early internet companies, is all about speed. As a serial entrepreneur, Wang Miao stated that Web3 team members may only get six hours of sleep each day while working over 12 hours a day for six months. In contrast to Chinese employees, local Singaporean employees have a culture of leaving work on time and are very unaccepting of the overtime culture of Chinese internet companies.

However, local policies in Singapore require that to establish a company there, at least 3-5 local Singaporean employees must be hired. These employees, lacking the so-called fighting spirit, lead to increased entrepreneurial costs and diluted combat effectiveness. Therefore, even in an industry with many entrepreneurs, the entrepreneurial atmosphere for local projects in Singapore is not strong. Several Chinese entrepreneurs have told Huxiu that the hardworking characteristics of Hong Kong people may be the real advantage for Hong Kong in developing Web3.

Before and after the declaration was released, there were undercurrents in various sectors in Hong Kong.

Hong Kong's Web3 entrepreneurs—Leon, the founder of CrossSpace, noticed that now the Cyberport and Science Park in Hong Kong actively contact Web3 companies to discuss residency matters. This is a significant change; previously, some startups expressed their desire to settle in the park but did not succeed because the government had not clearly stated its support for this field.

With the strong support of the Hong Kong government, various levels of government and relevant institutions are actively introducing quality Web3 companies, and the entire atmosphere has undergone a refreshing change.

Even Stephen Chow announced his entry into Web3 during this period. Huxiu learned that Stephen Chow had already begun exploring Web3 last year but had not announced it due to policy and public opinion reasons. With the support of the Hong Kong government, many companies can genuinely put their plans for developing Web3 on the agenda.

Although Hong Kong has lost many important companies, its foundation remains. Currently, institutions such as OSL (crypto exchange), Matrixport (crypto financial institution), Animoca Brands (Web3 gaming company), and Hashkey Capital (Web3 capital) are still based in Hong Kong.

Hong Kong's emergence provides a new option for Asian talent, especially for those from the mainland who want to engage in Web3. "Singapore's visa is difficult to obtain, while recently there has been a significant talent gap in Hong Kong. The Hong Kong government is actively introducing more policies to attract mainland technical talent to Hong Kong. Now, speed is of the essence, and it is foreseeable that the Hong Kong government will vigorously support these quality enterprises in the near future," Leon said.

For startups, the differences in policies between Hong Kong and Singapore have led some Chinese Web3 practitioners to flow into Hong Kong while others have moved to Singapore.

An extremely loose environment may lead to bad money driving out good money, while a relatively strict screening environment may instead lead to good money driving out bad money. This puts the understanding, execution efficiency, and foresight of the two governments regarding Web3 to the test.

For instance, choosing which companies to attract with policies (Singapore tends to attract more crypto exchanges), which companies to eliminate, and which companies to invest in (the Web3 investment directions chosen by Singapore's Temasek and Hong Kong's investment funds) will gradually shape the two regions into two distinctly different virtual asset ecosystems. In the long run, as long as the policies continue without interruption, having an additional choice of ecosystem and environment will undoubtedly be a boon for all Web3 entrepreneurs.

Global Competition

The competition between Hong Kong and Singapore is a microcosm of the global development of Web3.

Today, Web3 is becoming a global arena for competition.

Looking globally, Silicon Valley, New York, Miami, London, Dubai, Tokyo… almost all international financial and tech centers have announced their emphasis on the development of Web3 and the virtual asset ecosystem. Politicians from multiple countries have also rarely expressed their importance to Web3 simultaneously this year.

In Asia, besides Singapore, cities like Bangkok in Thailand, Seoul in South Korea, and Tokyo in Japan are also very active in Web3 development and have strong competitiveness for the future.

In May 2022, Japanese Prime Minister Fumio Kishida stated that the arrival of the Web3 era could lead to economic growth in Japan. He mentioned that integrating new digital services such as the metaverse and NFTs would bring economic growth to Japan. "As we enter the Web3 era, I strongly believe we must resolutely promote this environment from a political perspective."

A Tokyo city council member, Yu Ito, even publicly unveiled plans to transform Tokyo into a crypto financial center, claiming that embracing crypto assets could help Tokyo compete with London and Hong Kong. Web3 and crypto finance are gradually becoming factors that can influence the financial and technological advancement of an international city.

However, while Japan places great political importance on Web3 and has strong advantages in cultural IP, its disadvantages are also quite apparent.

Animoca Brands is considered the most typical leading Web3 institution in Hong Kong. Its VC investor Jenny has long been exploring and investing in Web3 projects in Singapore, Japan, Hong Kong, Seoul, and other Southeast Asian countries. She believes that these regions each have their strengths and weaknesses.

For example, in Jenny's view, Japan, despite having some of the best game and manga IPs in the world and a good user base and market, currently has lower activity regarding capital for Web3 compared to other regions, and the number and efficiency of relevant technical talents are slightly lagging behind China and the U.S. However, the authorities are actively discussing revising the currently strict digital asset tax policies and striving to expand the use of services like the metaverse and NFTs, which is promising for the future.

An industry insider pointed out that Japan's overly strict regulations on Web3 significantly hinder its development, stating, "Japan's digital asset taxation is too heavy." It is reported that many officials in Japan have recognized this issue and are calling for regulatory relaxation.

Like Japan, South Korea also has relatively strict regulations. The difference is that South Korean conglomerates and giants deeply influence the development of Web3 in the country.

Currently studying at Korea University, Julie has been exposed to crypto and Web3 for a long time. Having lived in Singapore and Hong Kong, she found that South Koreans have the highest enthusiasm for cryptocurrencies among various regions in Asia.

This may be related to the social reality in South Korea. Huxiu has discovered that unlike other countries, South Korean conglomerates have extended their reach into various major tracks of Web3. For example, Samsung has almost laid out the upstream and downstream of the South Korean Web3 industry chain, from mobile phones, banks, and the internet to crypto exchanges, wallets, and NFT platforms, leaving little room for local startups to survive. The narrow upward mobility is reflected across various industries in South Korea, leading to fewer South Koreans innovating and starting businesses in Web3 and more people fantasizing about getting rich overnight.

This monopoly is not without precedent and reasoning. For instance, in China, some internet giants control the best capital, technology, and talent. If Web3 is opened up domestically, these companies often get priority in obtaining regulatory licenses and are the first to attract the most users for Web3 products. However, how to prevent domestic internet giants from controlling opportunities in the forefront of innovation like Samsung is also a question worth pondering.

It is worth mentioning that this group of Web3 practitioners may be the most thorough adherents of globalization. They believe in globally distributed work. Yuki, a practitioner in the Web3 ecosystem, previously worked at a large crypto company and then joined a public chain called Moonbeam with over 20 employees. She told Huxiu that although their company currently has only about 40 people, colleagues are spread across the U.S., China, Canada, France, Spain, South Korea, the UK, and other countries across five continents. Leon, the founder of CrossSpace, which is based in Hong Kong, also stated that although they were only established a few months ago and have only about twenty employees, they are distributed in Hong Kong, Singapore, Dali, and Japan, and as they expand, they will almost recruit "company ambassadors" in every significant region and country globally.

Being a small organization with employees spread across five continents is quite common in the Web3 industry. This has made Web3 practitioners a highly mobile group, often participating in events and exchanges worldwide, allowing them to choose to settle in suitable locations rather than being confined to first-tier cities in developed countries like traditional tech and finance industries.

Such characteristics give some economically lagging but comfortable and low-cost countries and regions a competitive advantage against developed economies.

Institutions can be based in Singapore or Hong Kong, but employees can choose to be in Thailand or Vietnam. Bangkok and Vietnam are becoming new gathering places for some Asian Web3 practitioners.

Jenny has noticed that Bangkok's advantages not only bring it closer to Southeast Asian users but also offer a low cost of living, allowing entrepreneurs to enjoy a good quality of life there.

She observed that the grassroots Web3 atmosphere in Thailand, Vietnam, and the Philippines is becoming increasingly vibrant, with some Web3 games even solving local people's livelihood issues in the past. Since Web3 games are still in their early stages, they require a large number of real users to play and provide feedback to iterate on game experiences and economic models. Truly sustainable Web3 games can aggregate different types of players (determined by time costs) and achieve a symbiotic relationship.

Huxiu has found that some Web3 game projects, due to their "play-to-earn" characteristics, have helped a small portion of ordinary Vietnamese people solve their basic living needs. However, this is not a long-term solution. For Vietnam to achieve sustainable and stable development, continuously attracting quality Web3 startups and actively regulating them may be the key to truly seizing the dividends of this technological development.

Jenny also discussed the development of Web3 in India, which is currently relatively conservative. She believes that India's strong IT industry is a significant advantage for its Web3 development, but the complex language landscape and low average willingness to pay among users will pose short-term challenges for companies and investment institutions looking for Web3 opportunities in India.

Huxiu has discovered that this country, which the West believes is most likely to surpass China economically in the future, has already attracted the attention of several heavyweight investment institutions in the Web3 field.

Sequoia Capital has invested unprecedented funds in India and Southeast Asia

One such institution is Sequoia Capital, known as the "uncrowned king" in the internet venture capital world. In 2022, it launched a venture fund of about $2 billion in India, exceeding the total amount raised in the past five years and setting a new record for Sequoia's annual investment scale in India. It is reported that some of this funding will be used to expand investments in the Web3 field. Another is Binance, the "monopoly giant" in the crypto trading market. Its executive Tigran revealed Binance's development plans for the Indian market, believing that India could become a global center for Web3 talent.

Web3 is a technology, culture, and ecosystem that covers an extremely broad spectrum, and like the internet, it will "transform" the world in all aspects.

The choice of countries and cities regarding their core or marginal position in the global Web3 development process is particularly important. Singapore is a neutral country, naturally possessing conditions to attract capital, and it is developing this advantage to the fullest. In contrast, Hong Kong has more choices; it inherently has a continuous supply of the most cost-effective and hardworking technical talent from mainland China, a long history as a financial port, a large number of quality financial institutions, highly professional financial talent, and rich cultural resources.

In fact, as long as policies can maintain the current momentum, Hong Kong remains the most promising contender for the title of Asia's crypto financial center and Web3 center.