Global Bitcoin Currency Markets: Asian Entrepreneurs

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Hong Kong- During the day, David Shin is an investment banker at a large financial company. And in the evening and all other time, he’s an entrepreneur working hard for Hong Kong’s bitcoin currency market.

Although bitcoin as a virtual currency has long term risks and is still in its development, Shin is actively raising funds to attract clients and hire staff, setting up a bitcoin exchange platform for all companies. Shin, 38, plans to start his company CryptoMex by the end of April.

“I believe bitcoin will bring a brave new world to us,” he said. “Internet is just the beginning of a revolutionary advent as a communication protocol. And over time, as it’s increasingly easy to use, its rapid growth is the same thing that’s happened to bitcoin.”

Shin joined the technical experts, financiers, and cryptography experts, and they identified the adversed regulatory environment in Mainland China will motivate Hong Kong—a special administration region to be a hub of bitcoin trade. Hong Kong’s governmental attitude also prefers a laissez-faire approach in regulating bitcoin.

Bitcoin is not backed by any government, and mined by executing complex computer algorithms. Such digital currency is currently not regulated, and this produces an opportunity for computer programmers and speculators—a “Wild West” for investors. However when bitcoin supporters seek governmental acceptance, national authorities began to carefully investigate bitcoin. Tokyo based bitcoin exchange MtGox’s bankruptcy had attracted attention and generated negative publicity. This deepened regulators’ worry for this brand new currency.

Mainland China so far has taken a strict regulatory initiative toward bitcoin. In December last year, the Chinese officials restricted bitcoin banking and trading platforms and successfully lowered bitcoin’s value by half in just two weeks. Although the government claimed that the public can freely trade bitcoins online, many Asian entrepreneurs worry that the government will eventually ban bitcoin’s use offline too, like they did with virtual Tencent’s Q coins in 2009.

However, Hong Kong is relatively relaxed regarding financial regulations. Since its transfer of sovereignty to Mainland China, it has remained independent in political and financial system. As Hong Kong’s de facto central bank, Hong Kong Monetary Authority said at least for now there’s no direct supervision of bitcoin.

Asian entrepreneurs, especially those in Hong Kong are essentially conducting regulatory arbitrage. Despite lack of precise information, it is widely believed that China is the world’s second largest bitcoin market, right after the U.S., where regulatory restrictions started emerging as well. With the advantage of proximity, Asian entrepreneurs in Hong Kong hope to attract China’s business to fulfill people’s demand in bitcoin.

“Like water, bitcoin will enter Hong Kong with least resistance,” Michael Chau said. He’s a finance professor at University of Hong Kong. “Hong Kong is geographically close to Mainland China, and became part of it in 1997. Hong Kong has the potential to the Bitcoin center for the Chinese market.”

Mr. Yuan Ji Guang established “BitCashOut” bitcoin trading platform in Hong Kong, and its customer base has doubled since China’s December 2013 notification was released. Three weeks ago, Hong Kong’s largest trading platform ANX Bitcoin launched a physical store, whether customers can buy bitcoins directly from the counter. The company claimed it’s the world’s first physical bitcoin store. ANX also set up multiple Bitcoin vending machines last week.

Robocoin is a bitcoin ATM manufacturer. It’ll set up Hong Kong’s first bitcoin ATM this spring, and plans to set up about 100 bitcoin ATMs worldwide. However, the company’s CEO Jordan Kelly said none will be set up in Mainland China.

“There are many Chinese entrepreneurs contacted us, and they hope to become Robocoin’s distributors,” Kelly said. He also added that once the company receives the Chinese official approval,  it’ll set up at least 200 ATMs in China by the end of this year.

Shin said he first recognized bitcoin’s prospect last year. However, now the price has risen to over $500. He raised over $2.5 million, and established IceDrill, a company which manufactures high speed ASICs for bitcoin mining.

Now he intends to sell his shares in Canadian bitcoin mining, and focuses on his Hong Kong start-up. He said Hong Kong could be the “Asian capital of Bitcoin”. Shin recently hired bitcoin expert Jake Smith to promote his company as a bitcoin trading platform to the Chinese.

Shin said, “When the Chinese government regulates bitcoin and imposes restriction to bitcoin trading, the Chinese investors will turn to Hong Kong, rather than Singapore, or South Korea.”

Hong Kong’s current regulatory status is still pending, so there’s uncertainty as well as opportunity. If Mainland China further suppresses bitcoin, Hong Kong may be forced to reconsider its position in global bitcoin market.

Invesco’s chief economist, Hong Kong actuarist John Greenwood said that the Chinese government will impose strict regulation if bitcoin becomes so popular that threatens China’s capital control.

“Mainland Chinese residents can use bitcoin to conduct transactions, shopping from Europe, North America, or any other places in the world.” “It’s like a hole on the dam, a loophole in the Chinese foreign exchange system.”

Over the past a few start-ups faced challenges, so Shin also warned that Asian entrepreneurs need to be prepared for failure.

Once prestigious bitcoin platforms- BTCST and BitFunder had stopped their operation. BTCST provided Bitcoin denominated securities, claiming a weekly return rate of 7%. The SEC(Securities and Exchange Commission) accused the company of financial fraud, and a Ponzi scheme.

“Bitcoin’s operating environment has become clearer now,” Shin said. “The Hong Kong government recognizes bitcoin as a commodity, so we have clear rules in two different regions.”

In addition, it’s a worldwide challenge to improve infrastructure and increase consumer awareness for bitcoin.

For example, there are few companies who accept bitcoin. In Hong Kong, there’re only a hotel, florist, tailor, one music teacher, and a Beijing style pancake shop who adopt bitcoin payment system.

In January, bitcoin trading platform ANX’s three founders showed up in bustling entertainment district Lan Kuei Fong on New Year’s Eve and distributed over 50,000 red envelops which contained more than $1 worth of bitcoin to people.

“I always shop online with bitcoin”, network marketer Ben Liu said. He said he used his smartphone to scan a two-dimensional code on the coupon and just received this image as a bar code.

However, Liu is a minority who uses bitcoin. Despite bitcoin’s popularity, many still don’t understand what it is and some even link bticoin to drugs and frauds.

After work, the ANX founders went to a nearby bar to verify if it started receiving bitcoin. After a few beers, managing director Ken Lo picked up the bill and asked to pay the bill with bitcoin.

“A customer think since our name is ‘Bit Point Bar’ we’re a bitcoin merchant. And he helped us set up bitcoin payment system too,” bar manager Gaga Lam said. “We have not really tried.”

Lam’s Ipad Mini showed her BitPay account page, and Asian billionaire Li Ka-Shing invested in the company which processes bitcoin transactions.

“We’re doing better than BitPay,” said the ANX’s Lu. “We process the transactions faster and charge much lower than banks and credit card companies, and there’s no problem of chargeback. Bitcoin supporters will love to come to this bar and pay with bitcoin.”