We still remember clearly when Hong Kong abruptly decided it wanted to be a cryptocurrency hub. It was late 2022, and the city, reeling from Covid-19 restrictions, needed to get its mojo back as quickly as possible. The timing was almost comical, coinciding neatly with FTX’s dramatic implosion.
Almost 3 ½ years later, Hong Kong’s crypto industry has made important strides, mostly in the regulatory space. These include launching a mandatory licensing regime for exchanges (VATP) via the Securities and Futures Commission, approving Bitcoin and Ether ETFs, establishing stablecoin regulations, and allowing regulated retail trading. Overall, these moves have fostered a secure environment for institutional and retail capital.
While Hong Kong is often compared to Singapore because of geographic proximity and some historic rivalry, it is the United Arab Emirates (UAE) that has emerged as a superior digital asset hub. On the one hand, licensing in the UAE can be faster and more tailored to startups than in Hong Kong, and its 0% tax on crypto trading and mining is attractive. Additionally, the UAE provides direct access to significant Middle Eastern capital, including sovereign wealth funds and family offices.
Digital assets research firm Chainalysis notes that in the 2024 to 2025 reporting window, the UAE economy received upward of $56 billion in crypto value, growing at 33% annually. While this growth rate is slower than the 86.4% growth rate in the previous period-over-period cycle, it still demonstrates steady continuity in the country’s crypto economy. “The robust expansion of merchant services across smaller transaction sizes indicates that crypto is transitioning from a primarily speculative or investment vehicle to a practical payment solution with real-world utility for UAE consumers and businesses,” Chainalysis said.
Perhaps most important of all, the UAE seems sure of its crypto ambitions in a way Hong Kong does not. This is not only reflected in the favorable regulatory regime and the broader pro-crypto stance of Abu Dhabi and Dubai; it can also be seen in the high local crypto adoption rate. In fact, at 30%, it is well above Hong Kong’s 3% and the global average of 7%. By the estimates of stablecoin solutions provider Triple-A, the UAE’s crypto adoption rate is the world’s highest.
In contrast, Hong Kong continues to grapple with mainland China’s tight restrictions on digital assets. Following a Nov. 28 meeting, the People’s Bank of China reiterated that digital assets do not share the legal status of fiat currency and are not permitted as a means of payment in commercial transactions. The PBOC emphasized that under Chinese law, crypto-linked business activity constitutes illegal financial activity.
Of particular note was the PBOC’s denunciation of stablecoins, which are seeing rapid adoption globally and are on the cusp of mainstream acceptance in many countries and regions—including Hong Kong. “Stablecoins, a form of virtual currency, currently fail to effectively meet requirements for customer identification and anti-money laundering, posing a risk of being used for money laundering, fundraising fraud, and illegal cross-border fund transfers,” the PBOC said in a statement.
China’s leadership has never been comfortable with decentralized virtual currencies and has instead sought to develop central bank-controlled digital money, the e-CNY. But compared to dollar-backed stablecoins, the digital yuan has much narrower appeal.
Beijing’s antipathy towards cryptocurrency on the mainland inevitably influences investor perceptions of Hong Kong’s attractiveness as a digital asset hub. While those in the know understand that Hong Kong has plenty of room to experiment with crypto because of the One Country, Two Systems governance model, concerns remain about how the mainland’s restrictions could affect broader crypto market growth.This tension between Hong Kong’s crypto ambitions and mainland China’s restrictions on digital assets is likely to persist, which in the long run could put it at a significant disadvantage compared to the UAE.