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

Hong Kong police have officially announced that there is a significant increase in the use of cryptocurrencies in fraudulent activities between 2022 and 2023.

Since mid-2023, Hong Kong has become a viable destination for cryptocurrency trading, supported by a systematic regulatory framework. This distinguishes it from mainland China, where all crypto trading has been banned since December 2021.

Hong Kong police data shows that the number of crimes involving virtual assets rose sharply from 2,336 cases in 2022 to 3,415 cases in 2023; The total amount of this figure is HK$4.3 billion, of which more than 90% are fraud cases. https://t.co/GX72bFN00R

— Wu Blockchain (@WuBlockchain) June 1, 2024

Despite being part of China, Hong Kong’s approach to cryptocurrency is particularly more supportive; Chinese government institutions are supporting crypto adoption in the region.

According to Hong Kong police data, on July 1, crimes involving cryptocurrencies increased from 2,336 cases in 2022 to over 3,415 in 2023, reaching HK$4.33 billion (about $553 million). More than 90 percent of these were fraud cases.

The information disclosed highlights two primary types of virtual asset servicing platform scams used by fraudsters.

In the first type of fraud, scammers trick victims into sending anonymous cryptocurrency to their virtual wallets.

Since cryptocurrencies are not controlled by central banks or governments, users can create private wallets without providing personal information, making it difficult for police to track their identities.

The second type of crypto fraud involves fraudsters using offshore platforms regulated by Hong Kong, making it difficult for police to track and stop illicit funds.

Meanwhile, Hong Kong authorities are taking significant steps to tighten regulations and increase oversight to combat the rise in crypto-related scams.

The city aims to increase investor confidence and protect the financial ecosystem from fraudulent activities by ensuring that only compliant and reputable exchanges operate within its jurisdiction.

Hong Kong set to approve 11 crypto exchanges

Hong Kong’s securities regulator said 11 cryptocurrency exchanges are closer to receiving a license, a year after it introduced a digital asset rulebook aimed at creating a hub for the industry, according to a Bloomberg report.

According to the Securities and Futures Commission’s website, applicants including Crypto.com and Bullish are “deemed licensed.”

These platforms are among the platforms with significant global trade volumes.

Leading digital asset platforms such as OKX and Bybit, which often see significant activity, have withdrawn their permit offers. Binance Holdings Ltd., the world’s largest stock exchange. and leading US platforms Coinbase Global Inc. or Kraken did not apply.

Exclusive: Several applicants told WuBlockchain that the Hong Kong SFC required license applicants to promise that they would not develop mainland Chinese users in any region of the world, leading exchanges such as Binance OKX HTX Gate to withdraw their applications.… https:// t.co/85nl2yN25V pic.twitter.com/GUkB5ZC4BS

— Wu Blockchain (@WuBlockchain) June 1, 2024

Hong Kong has set a June 1 deadline for crypto exchanges to be licensed or recognized as such. It should be assumed that companies are at least licensed to operate and market services to local investors.

Actual permits will be issued once SFC confirms consistent compliance.

Strategic goals to become a crypto hub

Hong Kong’s shift towards becoming a virtual asset hub began in late 2022 as part of broader efforts to reestablish its status as a financial hub following political unrest.

The city’s crypto initiatives include expanding licensed exchanges, introducing spot Bitcoin and Ethereum exchange-traded funds (ETFs), and developing frameworks for stablecoins and digital bond issuance on tokenization platforms.

Hong Kong faces competition from Dubai and Singapore in its bid to become a leading digital asset hub. The city’s strict regulatory framework aims to improve investor protection and prevent money laundering and terrorism financing, but it also imposes significant compliance costs.

Currently, HashKey exchange and OSL Group have received full licenses, and nearly two dozen companies have applied to operate crypto exchanges by February 29.