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(Kitco News) - As banking institutions in the U.S. shun the crypto industry as part of what many are calling Operation Chokepoint 2.0, crypto firms setting up shop in Asia have found backing from an unexpected source: China’s state-owned banks.
According to a Bloomberg report published Monday, several of China’s largest state-owned banks, including the Hong Kong divisions of Bank of Communications Co., Bank of China Ltd. and Shanghai Pudong Development Bank, have begun offering services to local crypto firms or are exploring the possibility of doing so in the near future.
These banks have been directly contacting crypto businesses in recent months, ever since Hong Kong signaled that it would be taking a more open stance towards the sector last October and would allow retail trading of cryptocurrencies. This move set Hong Kong apart from the approach of the Chinese government and has led to an influx of interest from digital asset firms.
Kitco Crypto previously reported that China had given behind-the-scenes approval for financial institutions to begin engaging with the crypto ecosystem in Hong Kong, with representatives from China’s Liaison Office and other officials regularly attending the region's crypto gatherings to network and swap business cards and WeChat contact information.
The entrance of Chinese lenders as a crypto funding source has come as a surprise to many, including Sung Min Cho, founder and CEO of the decentralized messaging service beoble, who said “it’s something you’d never expect at this point… A cryptocurrency account at a tradfi bank is something groundbreaking.”
Up to this point, crypto-focused companies securing a corporate bank account in China was a challenging endeavor that would take at least three months to accomplish and often required jumping through hoops or navigating legal gray areas and loopholes.
The development comes at an interesting time on the world stage as a slowly spreading banking contagion has institutions in the U.S. and Europe spooked, with the U.S. government specifically targeting crypto-serving banks.
At the same time, Hong Kong is looking to establish itself as a global crypto hub, and the government of China appears more than willing to help facilitate that goal as it offers a way for the mainland to capitalize on the growth of the industry without lifting its broader ban.
As the crisis around Silicon Valley Bank (SVB) and Signature Bank was unfolding in the U.S., multiple global crypto firms, including crypto hedge fund MaiCapital – which held funds at Signature Bank – scrambled to open bank accounts in Hong Kong. Others managed to get out ahead of the crisis, including Hex Trust, which offers custody services for crypto assets. In January, the leadership at Hex Trust made the decision to convert the “vast majority” of the firm's holdings into USD Coin (USDC) and then moved those funds to an unidentified bank in Hong Kong.
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CNHC Group, which offers an offshore Chinese yuan-pegged stablecoin and recently completed a $10 million funding round, had more than $12 million in deposits at SVB, Signature Bank and First Republic Bank as the crisis hit. It has been able to recover roughly $10 million of those deposits and has transferred the majority of those funds to an offshore bank account in China’s Hainan pilot free trade zone, along with a small portion to DBS in Singapore.
According to CNHC Group founder Jack Chou, representatives from the firm have traveled to Hong Kong five times since it announced its new crypto push, and opening bank accounts is “one of the top priorities.” So far, Chou has made attempts with DBS Hong Kong, HSBC, Standard Chartered, Bank of China (Hong Kong) and Hang Seng Bank, but continues to face difficulties as “crypto is still sensitive,” according to the banks.
“That’s the conflict. On the one hand the government is pushing the development of the industry, on the other hand, the city’s banking system does not offer us any services,” Chou said.
Executives like Chou are hoping that as the larger state-owned Chinese banks like the Bank of China take a more open stance towards crypto, the process of establishing accounts for things like paying vendors will become easier, which in turn will help create a more supportive environment for the crypto ecosystem in Asia to grow and thrive.
