Hong Kong, 1 of the most pregnant and leading financial centers in the globe, has played a large role in the development of cryptocurrencies. For instance, the Chinese territory has birthed some of the most established and successful crypto companies to appointment including the crypto derivatives exchange FTX, along with the digital asset platform Crypto.com.

Nonetheless, as trillions of dollars are traded regularly through crypto exchanges founded in Hong Kong, the "Vertical City" also contains an affluence of physical over-the-counter crypto shops as well. Henri Arslanian, PwC crypto lead and former chairman of the Fintech Association of Hong Kong, told Cointelegraph that the number of traditional OTC crypto brokers in Hong Kong certainly stands out. "These are literally brick and mortar stores for the retail public," he said.

An anonymous source farther told Cointelegraph that while traveling around Hong Kong, he couldn't assist but notice a huge rise in OTC crypto exchanges, some of which even provide access to cryptocurrency ATMs.

Photo of an OTC retail exchange in Hong Kong captured past an anonymous onlooker

OTC retail stores make up Hong Kong'due south crypto culture

Compared with regions like the United States or Europe where buying and selling cryptocurrency on regulated exchanges is adequately easy, Hong Kong'south physical crypto storefronts are a unique trademark that provides individuals with some other way to access crypto.

Kelvin Yeung, CEO and founder of Hong Kong Digital Nugget Exchange, or HKD.com, shed light on the affair. Yeung told Cointelegraph that the HKD.com crypto commutation was founded in 2022, the physical shop was established in Jan this twelvemonth and that they apply over 30 staff members to provide customer service.

Image Source: HKD

Yeung further remarked that HKD.com'south shop acts similarly to a traditional bank, giving customers the opportunity to gain a hands-on approach to buying crypto, along with access to in-person consulting services. Equally such, he believes that retail shops will most likely exist a global tendency moving forwards equally crypto becomes mainstream:

"As more investors and institutional investors get into the industry and digital currency becomes mainstream, there will be a tendency to open physical stores in combination with online platforms."

Yeung added that he believes greater client trust is built betwixt HKD.com and its user base of operations due to its concrete presence. "Our users are primarily between the ages of forty and 70. An older customer base is important for creating mainstream adoption since many of these people notwithstanding hold fiat currency and but trust traditional financial systems," he remarked.

Interestingly, it's not just the older generation purchasing crypto at these physical locations. Priscilla Ng, founder of Coiner HK — some other Hong Kong OTC retail exchange — told Cointelegraph that CoinerHK was launched at the get-go of 2022 to focus on the female person market: "We wanted to create a market for women because we desire to promote the idea that women could be financially contained and practice cocky investment."

Every bit such, Ng shared that CoinerHK's customers are mainly women typically betwixt twenty and 50 years of age and near 70% of them are trading in cash for crypto. Ng also noted that CoinerHK has two physical store locations in the golden area of Hong Kong.

Image Source: CoinerHK

Echoing Yeung, Ng added that having physical OTC exchanges can provide customers with greater opportunities: "We treat them as friends when trading and too give our customers religion in the states since we own physical locations." Ng further remarked that CoinerHK'south Wanchai location also serves as an art gallery that features nonfungible tokens (NFTs).

Regulations could button out physical OTC exchanges

While physical OTC crypto exchanges like HKD.com and CoinerHK appear to be providing greater admission to crypto throughout Hong Kong, a number of regulatory risks are associated with these kinds of establishments.

For case, Arslanian explained that in add-on to regular customers, mainland Chinese tourists have been target clients for these establishments. He noted that many of these shops are located in touristic areas to attract users, only are particularly appealing to Chinese tourists due to the crypto ban in Cathay: "One could assume that if mainland Chinese tourists visit Hong Kong, nothing volition finish them from buying crypto at these OTC shops."

With this in mind, Arslanian believes that in that location could be an increase in retail OTC centers in Hong Kong due to the influx of Chinese tourists interested in buying crypto. On the other hand, Arslanian mentioned that Hong Kong's upcoming regulatory framework for crypto exchanges could cause these shops to shut downwards entirely.

Equally Cointelegraph previously reported, the Financial Services and the Treasury Bureau of Hong Kong accept been considering restricting crypto admission to portfolios with at least $ane million in assets. If passed, the new guidelines would restrict crypto access to roughly 93% of the city'south population.

Although this is a major challenge for concrete OTC shops, Arslanian remarked that OTC stores may only movement their operations hugger-mugger. However, he noted that this would and so pose an increased take chances to customers: "In case something goes incorrect, the public is less likely to study them to the authorities."

In regard to uncertain regulations, Yeung commented that the major challenge currently facing HKD.com is agreement if Hong Kong volition shortly only permit institutional investors to invest in crypto: "This will have a large influence on our business." Arslanian added that regulated crypto exchanges non beingness able to service retail customers is something the crypto community profoundly opposes since this could very well consequence in users turning to unregulated platforms.

Unfortunately, Arslanian further pointed out that information technology would be extremely challenging for concrete OTC shops to receive the correct licenses, fifty-fifty if they attempt to be fully regulated. As of now, Yeung mentioned that HKD.com only requires a valid ID and accost verification to purchase and sell crypto on the exchange.

Information technology'south interesting to see that currently, the only regulated crypto exchange in Hong Kong is OSL, which is besides a unit of measurement of the Fidelity-backed BC group. OSL managing director and head of commutation Andrew Walton explained to Cointelegraph that OSL was purposefully built with regulations in mind, and even skillful self-regulation before some of the current laws were enacted.

In improver, Walton shared that OSL was grandfathered in under Singapore's Payment Services Act, or PSA, and has additionally applied for a digital payment token, or DPT, license through the Budgetary Dominance of Singapore. Impressive regulatory approvals recently allowed OSL to expand its business concern to Latin America. "In Latin America, the OSL Exchange product will be initially available to institutional and professional investors in the region, in Mexico, Colombia and Argentina. OSL's LatAm offering will too seek appropriate licensing as regulatory developments across the region take place," Walton added.

Retail investors are needed from a business concern perspective

While OSL's efforts are indeed notable, Arslanian pointed out that a lot of revenue is typically generated from retail clients buying and selling crypto on exchanges and the retail menses, in plough, attracts institutional clients. As such, he noted that Hong Kong's willingness to strength crypto exchanges to cater only to institutional investors is a hard ask from a business organization perspective. Although this may be, Walton remarked that OSL has seen a significant increase in interest from the institutional segment over the past yr.

Given the continuing regulatory uncertainty for cryptocurrency, Arslanian mentioned that Hong Kong may very well exist best suited for institutional investors, while Singapore could exist more logical for retail customers.