Hong Kong’s Bitcoin Startups Frustrated by “Scared” Banks

Hong Kong’s Bitcoin Startups Frustrated by “Scared” Banks
Comments Off, 24/07/2014, by , in Local Startup News

Ever since China’s central bank started restricting Chinese banks’ dealings with bitcoin companies in December, Hong Kong has emerged as a more viable Asian hub for building out the digital currency’s future.

A flurry of bitcoin startups, including digital-currency exchange ANX and bitcoin debit card provider Cryptex, have laid down roots in the territory recently. Still, many have found their ability to grow curtailed by the same obstacle that constrains bitcoin businesses in China and the U.S.: They can’t open bank accounts.

It’s not because Hong Kong authorities are cracking down, or even because banks in the territory are inherently anti-bitcoin, but because of the dominance that U.S. banks and their increasingly nervous compliance officers hold over the global financial system.

“In Hong Kong you have financial business-friendly regulations. You can really easily open and register a company. You can easily get a license. But then… as soon as you are registered as a money service business you are going to be blacklisted,” says Aurelien Menant, co-founder and CEO of Gatecoin, a Hong Kong-based bitcoin exchange. “It is virtually impossible to open a bank account for a bitcoin business in Hong Kong.”

We caught up with Menant and some other bitcoin startup proprietors from the Bitcoin Association of Hong Kong during a brief stopover in the territory earlier this week. Each voiced the same complaint: because Hong Kong banks value their relationships with U.S. counterparts, they’ve imported the Americans’ fear of anything that could be perceived as a money-laundering risk.

“It’s all about [bank] governance pressure from the U.S.,” says Casper Cheng, founder of bitcoin information portal HKBTC.info.

U.S. bitcoin businesses report similar problems. Given the strict anti-money laundering and know-your-customer rules that have ratcheted up since Sept. 11, and then the financial crisis of 2008, U.S. banks have become increasingly more picky about who they do business with. Bitcoin businesses are not illegal, but many bank compliance officers see them as a risk not worth taking. That conservative approach then seeps out into the rest of the financial world.

“All the [Hong Kong] banks are crazy scared about this stuff. They are putting in more compliance people than analysts. They don’t want to take the risks of hosting a money service business,” said Mr. Menant, noting that it’s not just bitcoin companies that are affected, but all non-bank financial services.

Bitcoin businessmen in Hong Kong feel they are unfairly disadvantaged by the American financial system’s long reach, and they’re not afforded the same cushion that well-funded U.S. bitcoin businesses have from large pools of venture-capital financing.

“It’s very hard when you have one company in the U.S. that has, like, $10 million and they can burn money every year without making any profit for five or six years,” said Robert Lam, who is installing bitcoin ATMs in the city.

Nonetheless, Hong Kong’s bitcoiners are pressing on, some of whom are taking the well-trodden bitcoin route of creating relationships with more bitcoin-friendly bankers in places such as Eastern Europe. (Michael Casey)

In between Bali and the smaller Indonesian island of Lombok there’s a mini-archipelago of three much, much smaller tropical islands.

To get to the idyllic Gili Islands, it takes two hours in a minibus from Lombok’s Mataram airport, followed by a 45-minute boat ride.

Once on the islands, the visitor will discover a pace of life that’s refreshingly slow and easy-going, where people mostly get around on foot or bicycle or, only if absolutely necessary, by horse and cart. There are no gas-powered vehicles and few buildings have more than one floor.

And yet the Gilis now have cryptocurrency.

Your BitBeat correspondent found himself on Gili Air, the smallest of the three islands, during a snorkeling trip around the archipelago earlier this month and was able to confirm a rumor that the local kite-surfing vendor accepted bitcoin. In what may be one of the most out-of-the-way places in the world to accept bitcoin, Stefano Cavalucci from Forlì in Northern Italy decided earlier this year that he’d allow his customers to pay in the digital currency.

Why bitcoin? “Mainly because I like the idea, the concept,” Mr. Cavalucci said. “It’s how we will manage money in the future, I hope. It’s sharing money” he added.

So far, he said he has done one deal in bitcoin.

With a smartphone and tablet and a fiber-optic connection from the local hotel to Lombok, Mr. Cavalucci’s not only able to process QR code scans from customers but also participates in a cloud-mining operation with CEX.io.  Soon, he says, he’ll set up a bitcoin sign to advertise the payment option and sell gadget and T-shirts bearing the bitcoin symbol.

After three years on Gili Air and a business that has slowly but steadily grown, Mr. Cavalucci now has plans to set up a kite-surfing camp in the south of Lombok, “where you can guarantee wind and so attract kiters.” Will his camp accept bitcoin?  “Absolutely.”

This article originally appeared in The Wall Steet Journal

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