With World-Class Regulations and Influential Developers, Hong Kong Emerges as Bitcoin Hub

Hong Kong regulators pursue “regional hub” goals with impending approval of spot Bitcoin ETFs. Developers at UniSat spearhead major changes to Ordinals.

As Hong Kong explicitly prepares to approve its first spot Bitcoin ETFs, the region is on the cusp of achieving its long-awaited goal as a major hub for the digital asset industry in Asia.

The autonomous region within China has not been an early adopter in the world of Bitcoin, but Hong Kong has been leaving a deeper and deeper footprint in recent years. One event that served as a “starting gun” for Hong Kong’s venture into this global community was the extended series of protests throughout 2019-2020, a dramatic episode that shocked the world and caused a bonanza of bitcoin trading among Hong Kongers. Although these protests would eventually fizzle with mixed results in mid-2020, it left behind the foundations of a new network for Bitcoin developers and enthusiasts, all united by a shared interest in freedom and an overnight explosion in a new economic model.

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The lockdowns of 2020 through 2023 saw a continued growth in the Bitcoin community, but it was only in October 2022 that the government publicly declared a new goal: total reorientation. Mainland China unleashed huge crackdowns on Bitcoin in the intervening years, in particular scattering the world’s largest mining industry with its 2021 ban, and Hong Kong saw a way to distinguish itself with the opposite viewpoint. Fighting what Bloomberg called a brain drain caused by “COVID-related curbs and political unrest,” the government made an attempt to “restore Hong Kong’s credentials as a financial center.” The region remained committed to its plan of legalizing and supporting digital asset retailers even after the industry was rocked by FTX’s collapse, claiming in January 2023 that a “fresh regulatory framework” could encourage investment and economic growth.

The rest of 2023 did in fact see large growth in this digital asset sector along several lines, with major international firms like Standard Chartered establishing new custody firms in Hong Kong and the local firm HashKey launching the first crypto trading mobile app that met all the new regulatory guidelines for retail bitcoin traders. However, although both major foreign investment and the rise of a domestic industry were encouraging, the surest sign for the region’s growth as a powerful hub in Bitcoin took place at a keynote speech at Hong Kong Fintech Week that November. During this speech, Secretary for Financial Services and the Treasury Christopher Hui called attention to a recent scandal where thousands of citizens were defrauded by the Dubai-based exchange JPEX. Hui claimed that “We’ve been asked many times whether JPEX will affect our determination to grow the Web3 market,” and stated that “the answer is a clear no.” He went on to outline the ways that his government would act to both protect consumers and to continue support for the domestic Bitcoin industry in the near future.

Consider this attitude in comparison with the United States, where a near-ecstatic tone of anticipation for the Bitcoin spot ETF must continually be tempered by voices throughout the industry claiming that notorious anti-Bitcoin regulators like Gary Gensler may spike the process outright. Americans have been left to pin their hopes on the lobbying efforts of billion dollar corporations, while government officials proactively reassured Hong Kong’s citizens that major scandals could not deter the overall plan for a pro-Bitcoin future. It’s no wonder that the region has been heralded as Asia’s rising crypto hub as a result.

In fact, Hong Kong regulators have even outshined the US on the specific issue of a spot Bitcoin ETF. On December 26, 2023, an article in the South China Morning Post ran headlines claiming that “Hong Kong is prepared to authorize funds with direct exposure to virtual assets, according to the city’s securities regulator and central bank.” Greater clarification on Hong Kong’s incoming Bitcoin spot ETF was released in early January, as announcements from their Securities and Futures Commission highlighted upcoming policies on everything from how assets or issuers could reach compliance, custody assets, leverage options, and more. 

Although Hong Kongers may enjoy a wave of new access to bitcoin via these new options for investment, it seems somewhat dubious to claim that an area can become a major player in the Bitcoin industry worldwide purely off of regulatory friendliness. However, developments in the Ordinals protocol have certainly proved that developers in Hong Kong can display an outsized influence. 

The Ordinals protocol is a method for inscribing unique data on specific units of Bitcoin; in other words, of creating tokens that are stored on Bitcoin’s own blockchain. Since the pseudonymous creator Domo released the BRC-20 token in April 2023, new inscriptions of this token surged to dominate the entire sphere of Ordinals products. These BRC-20 tokens saw a disproportionate share of interest in Hong Kong and its surrounding areas, and this reached a head when a developer from the city proposed a controversial new update.

The UniSat Wallet, an open source browser extension wallet, proposed a new update for BRC-20 known as theOrdinals Jubilee. UniSat developers claimed that the upgrade would solve the issue of “cursed inscriptions,” an unforeseen problem where certain-numbered tokens would not be recognized by the protocol. In other words, the entire protocol would fork if some versions included these inscriptions, and some did not. UniSat also added that they are dropping a new whitepaper on January 31, claiming that they have developed substantial advancements for all Ordinals users.

BRC-20 creator Domo came out in vocal opposition to the Jubilee upgrade, claiming that its rushed development is “reckless, disregards its peer indexers, and could potentially harm the broader community of BRC-20 users,” adding that “while I am keen to implement protocol enhancements, it is clear these changes may not be safe to integrate.” He even went on to accuse UniSat of pushing this update as “part of a considered, ongoing strategy to gain control of the protocol.” 

Amazingly, despite these hostile comments, both parties did manage to reach an agreement on January 4 that avoids a split in BRC-20 and disregards some of the initial Ordinals protocol. The timely agreement between these two parties shows the significant influence that these Hong Kong developers can exercise over a token with a market cap of $1.76 billion. Between this episode and the proactive encouragement from Hong Kong’s regulators, it does in fact seem that all the qualifications exist for Hong Kong to be counted as an influential zone in the broader Bitcoin community. The government has sought to turn towards digital assets as a way to attract new talent and business opportunities, and the new talent is making a real mark on the space. 

Our community is no stranger to those who only wish to adopt bitcoin as a speculative investment, a way to ultimately earn more Bitcoin or more fiat currency. The new environment in Hong Kong has certainly created plenty of investment opportunities for this type of customer since this pivot began, but broader ambitions are at play, too. Developers from Hong Kong have been at the forefront of potentially reshaping a major Bitcoin protocol, and that is only possible with real dedication and know-how. Moving forward, it’s anyone’s guess to see where the space will grow from here. One thing seems sure, however: Bitcoin has found a new home.