Crypto fraud cases spike year-over-year: Hong Kong data

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As a seasoned crypto investor with a keen interest in global market trends, I’ve followed Hong Kong’s evolving stance on cryptocurrencies with great anticipation. Having lived through China’s ban on crypto trading, I was excited to see the city’s more favorable approach to virtual assets. However, recent news of a surge in crypto-related fraud cases in Hong Kong has left me with mixed feelings.

The Hong Kong police have revealed that there has been a notable surge in the employment of cryptocurrencies for fraudulent purposes, as reported for the period between 2022 and 2023.

Starting around mid-2023, Hong Kong has emerged as an attractive destination for cryptocurrency trading due to its well-structured regulatory system. In contrast, mainland China implemented a ban on all crypto trading back in December 2021.

In the past year, Hong Kong law enforcement has reported a significant surge in crimes related to virtual assets. The data reveals that such incidents rose from 2,336 instances in 2022 to over 3,415 instances in 2023. The total value of these cases amounted to approximately HK$4.3 billion. Notably, more than 90% of these crimes were fraud-related.

— Wu Blockchain (@WuBlockchain) June 1, 2024

In contrast to the Chinese mainland’s stance, Hong Kong, which is a part of China, exhibits a more favorable attitude towards cryptocurrencies. Key Chinese government entities have endorsed the use and adoption of digital currencies within the region.

I analyzed the crime data from Hong Kong police reports and found that the number of cryptocurrency-related crimes significantly increased between 2022 and 2023. Specifically, there were 2,336 reported cases in 2022, which grew to over 3,415 cases in 2023. The total monetary value of these crimes reached HK$4.33 billion (approximately $553 million). More than 90% of these incidents were classified as fraud cases.

As a crypto investor, I’ve come across two common forms of deceit used by fraudsters in the virtual asset service platform scene, based on the recently disclosed information.

In the initial form of deceit, con artists trick people into transferring cryptocurrencies anonymously to their digital wallets.

Since cryptocurrencies operate independently of central banks and governing bodies, individuals have the ability to establish personal wallets anonymously, making it challenging for law enforcement agencies to uncover users’ true identities.

As a financial analyst, I’ve come across a type of cryptocurrency scam where the perpetrators utilize overseas platforms that fall under Hong Kong’s regulatory jurisdiction. This makes it more complex for law enforcement agencies to trace and halt the flow of ill-gotten funds.

As a seasoned analyst, I’ve noticed that Hong Kong authorities have been actively responding to the surge in crypto-related frauds by implementing stringent measures and bolstering supervision.

To build trust among investors and shield the financial system from deceitful practices, the city intends to permit only trustworthy and law-abiding cryptocurrency exchanges to function within its borders.

Hong Kong poised to approve 11 crypto exchanges

According to a Bloomberg article, Hong Kong’s securities regulatory body announced that eleven cryptocurrency exchanges are nearing the acquisition of licenses. This comes a year after the introduction of guidelines for digital assets, which is an effort to establish Hong Kong as a significant player in the crypto industry.

As a researcher, I’ve come across information on the Securities & Futures Commission (SFC) website stating that applicants such as Crypto.com and Bullish have been granted licenses. In simpler terms, these entities have met the SFC’s requirements and are now authorized to conduct regulated activities in Hong Kong.

These platforms are among those with significant global trading volumes.

Major digital asset trading platforms like OKX and Bybit, known for high levels of transaction activity, have declined to submit permit applications. In contrast, Binance Holdings Ltd., the global leader in cryptocurrency exchanges, did not make an application, nor did US giants Coinbase Global Inc. and Kraken.

Multiple job seekers disclosed to WuBlockchain that the Hong Kong Securities and Futures Commission (SFC) demanded applicants for licenses to pledge they would abstain from serving mainland Chinese users in any part of the globe. Consequently, exchanges including Binance, OKX, HTX Gate decided against submitting their applications due to this requirement.

— Wu Blockchain (@WuBlockchain) June 1, 2024

As a crypto investor, I’ve recently learned that the Hong Kong Monetary Authority has given all digital asset trading platforms until the end of June 2023 to obtain a license or be classified as a “relevant person” under their regulatory framework. This means that these exchanges will need to meet certain requirements in order to legally offer their services to local investors like myself. If they fail to comply, they may face restrictions or even closure.

Actual permits will be issued once the SFC confirms consistent compliance.

Strategic ambitions to become a crypto hub

As a financial analyst, I would describe it this way: In the latter half of 2022, Hong Kong initiated its transition into a significant virtual asset hub as part of a larger strategy to revitalize its role as a global financial powerhouse amidst political turmoil.

The city’s plans for cryptocurrency involve broadening the scope of licensed exchanges, introducing Bitcoin and Ether exchange-traded funds (ETFs) for direct trading, and creating guidelines for stablecoins and digital bond sales on tokenization platforms.

As a researcher studying the digital asset market, I’ve observed that Hong Kong is facing robust competition from cities like Dubai and Singapore in their quest to establish themselves as leading hubs for digital assets. While Hong Kong’s stringent regulatory framework is designed to bolster investor protection and thwart money laundering and terrorism financing activities, it unfortunately comes with substantial compliance costs.

At present, HashKey exchange and OSL Group have successfully acquired their licenses, while approximately two dozen other companies are in the process of applying by the February 29th cut-off date.

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2024-06-01 17:50