FTX’s lingering ties remind Hong Kong of the bullet it dodged and risks ahead to regain edge as Asia’s digital hub

After leaving Hong Kong for the Bahamas, FTX and Alameda Research still had operations in Hong Kong and staff travelling between the two locations

Investors who passed on FTX years ago now say they dodged a bullet and that Hong Kong’s conservative regulatory approach is vindicated

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Published: 8:00am, 28 Nov 2022Updated: 9:32am, 28 Nov 2022

Ten days before his fall from grace in the collapse of the world’s second-largest cryptocurrency exchange, Sam Bankman-Fried was enjoying the limelight in Hong Kong.

Speaking by video from the Bahamas, the 30-year-old founder of FTX – valued then at US$32 billion – expounded on “how new technologies are supporting financial inclusion”, playing to a gallery of financial regulators who were lining up at 2022 Hong Kong FinTech Week to hear how disruptive technology could lead to the betterment of society.

Two days after the 35-minute interview with SBF, as Bankman-Fried is known in the crypto world, a report by Coindesk on a leaked FTX balance sheet revealed that the company’s largest asset was FTT, its own token. That set in motion a series of events that led to a run on FTX, exposed alleged fraud and mismanagement and ended in bankruptcy on November 11, marking one of the fastest implosions in global corporate history.

As liquidators pick through the aftermath of FTX, several global venture capital funds – including SoftBank, Sequoia Capital and the Ontario Teacher’s Pension Plan – wrote off their investments in the exchange. Singapore’s sovereign wealth fund Temasek wrote off US$275 million, possibly losing one of its largest bets in a single investment.

Sam Bankman-Fried, the founder and chief executive of the cryptocurrency exchange FTX, at a press conference during the FTX Arena event in Miami on June 4, 2021. Photo: Miami Herald/Tribune News Service

Hong Kong so far appeared to have dodged the bullet. Local investors speaking with the South China Morning Post said they either passed on, or missed, opportunities to invest in FTX and its related derivatives trading firm Alameda Research. The Securities and Futures Commission (SFC) previously said Hong Kong’s exposure to FTX was “immaterial.”

Still, regulators feel compelled to put up some guard rails to protect local investors, as they acknowledge that Hong Kong’s open economy and convertible currency leave crypto fans vulnerable to fraud and misadventures elsewhere. Financial Secretary Paul Chan Mo-po reiterated Hong Kong’s FinTech Week commitment to building a well-regulated digital assets market. The SFC said that week that it would unveil a public consultation for local retail investors to dabble in virtual assets.

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