Hong Kong police have officially disclosed a significant increase in the use of cryptocurrencies in fraud activities between 2022 and 2023.

Since mid-2023, Hong Kong has become a favorable location 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.

Despite being part of China, Hong Kong’s approach to cryptocurrency is notably more supportive, with Chinese government agencies backing crypto adoption in the region.

On July 1, according to data from Hong Kong police, crimes involving cryptocurrencies surged from 2,336 cases in 2022 to over 3,415 cases in 2023, amounting to HK$4.33 billion (about $553 million). Over 90% of these were fraud cases.

The disclosed information highlights two primary types of virtual asset service platform fraud used by scammers.

In the first type of scam, fraudsters deceive victims into sending anonymous cryptocurrency to their virtual wallets.

As cryptocurrencies are not controlled by central banks or governments, users can set up private wallets without providing personal information, making it difficult for the police to trace their identities.

The second type of crypto scam involves fraudsters using overseas platforms regulated by Hong Kong, which complicates the tracking and stopping of illicit funds by the police.

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

By ensuring that only compliant and reputable exchanges operate within its jurisdiction, the city aims to bolster investor confidence and safeguard the financial ecosystem from fraudulent activities.

Hong Kong poised to approve 11 crypto exchanges

Per a Bloomberg report, Hong Kong’s securities regulator said 11 cryptocurrency exchanges are closer to obtaining licenses, a year after implementing a digital-asset rulebook aimed at fostering a hub for the industry.

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

These platforms are among those with significant global trading volumes.

Prominent digital-asset platforms such as OKX and Bybit, which typically see substantial activity, withdrew their bids for permits. Binance Holdings Ltd., the world’s largest exchange, did not apply, nor did top US platforms Coinbase Global Inc. or Kraken.

Hong Kong set a June 1 deadline for crypto exchanges to either be licensed or deemed so. Firms must at least be deemed licensed to operate and market services to local investors.

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

Strategic ambitions 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 restore its status as a financial center following political unrest.

The city’s crypto initiatives include expanding licensed exchanges, introducing spot Bitcoin and Ether 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 center. The city’s strict regulatory framework aims to enhance investor protection and prevent money laundering and terrorism financing, though it also imposes significant compliance costs.

Currently, HashKey exchange and OSL Group have fully obtained licenses, and around two dozen companies have applied to operate crypto exchanges by the Feb. 29 deadline.