Hong Kong Bitcoin Investment: A Beginner's Guide

Investing in Bitcoin can be a daunting task for first-time investors, especially with the unfamiliar jargon and trading procedures. However, with the rise of NFTs and the metaverse, the cryptocurrency market has become increasingly attractive. In Hong Kong, there are several ways to invest in Bitcoin, each with its own advantages and disadvantages. This article will provide an overview of the different methods and platforms available to help you make an informed decision.

Using a Bitcoin ATM

To use a Bitcoin ATM, you will need to set up a Bitcoin wallet on your smartphone. You can also download a Bitcoin wallet on your computer or buy a hardware wallet. When using a Bitcoin ATM, you will typically need to scan the QR code of your Bitcoin address, insert banknotes, and confirm the exchange rate. The process is usually very quick, taking less than 30 seconds, and it offers anonymity. However, it can be costly, with fees of up to 8%.

When using a Bitcoin ATM, it is important to prepare your wallet in advance and bring exact change, as ATMs generally accept only HKD banknotes. Some ATMs may also have specific requirements, such as a minimum note denomination of HKD 500.

It is worth noting that the location of Bitcoin ATMs in Hong Kong can change frequently, so it is advisable to use resources like Coin ATM Radar to find the most up-to-date information on ATM locations and operators.

Buying through a crypto exchange

A crypto exchange is a convenient option for buying Bitcoin as it offers a breadth of features and more cryptocurrencies for trading. Crypto exchanges enable investors to buy, sell, and hold cryptocurrencies and allow users to transfer crypto to their online wallet for safekeeping.

There are many types of cryptocurrency exchanges. Some allow users to remain anonymous and are decentralised, while others require users to submit identifying documentation. Popular exchanges that follow laws requiring users to submit identifying documentation include Coinbase, Kraken, Gemini, and Binance. These platforms are straightforward to use and standard payment methods include Mastercard, Visa cards, and bank transfers.

To set up an account on a crypto exchange, you will likely need to provide personal identification documents and proof of address. The process is largely the same as setting up a typical brokerage account. At most exchanges, you can connect your bank account directly or link it to a debit or credit card. Fees vary for deposits and exchanges also charge fees per transaction.

When creating a cryptocurrency exchange account, it is important to use two-factor authentication and a long, unique password that includes a variety of letters, special characters, and numbers.

It is worth noting that Bitcoin exchanges are not to be treated as banks. It is recommended that you withdraw your coins to a wallet you control after purchasing them, and that you never keep any funds on an exchange for an extended period.

In Hong Kong, there are currently two exchanges that serve the local market: Tidebit and iBTC. Tidebit is an established Hong Kong Bitcoin exchange that allows cash or wire transfers, while iBTC has low fees and small trading sizes.

Using a peer-to-peer exchange

One such exchange is Binance, which is mostly known for its popular online exchange, where it offers a range of products, including a popular P2P listing. Be sure to select HKD and only deal with traders with the highest satisfaction rates.

Another example is XanPool, which allows you to easily buy and sell Bitcoin in Hong Kong and Singapore using PayMe. Funds are not held in custody by the exchange.

Bisq (formerly Bitsquare) is not a company and is not run by anybody. Instead, it acts as a network of users, which you can join by downloading the Bitsquare software. This software might be experimental at times, but it shows promise in leading the way to a truly decentralized future.

Using a broker

Hong Kong is a top crypto haven, providing a regulatory environment for crypto exchanges. The Securities and Futures Commission of Hong Kong (SFC) is the ultimate regulator of crypto exchanges, so all cryptocurrency exchanges must be licensed by the SFC before operating in Hong Kong.

There are several ways to invest in Bitcoin in Hong Kong using a broker.

Local Brokerage Firms

One option is to open an account with a local brokerage firm that offers an international trading platform. This allows investors to trade Hong Kong stocks directly. When choosing a broker, it is important to research the account type (discretionary or non-discretionary), the commission structure, and the regions and countries covered. Some prominent brokerage firms in the US for trading foreign stocks are Interactive Brokers, E*TRADE, Fidelity Investments, and Charles Schwab.

Hong Kong-Based Broker

Another option is to invest through a Hong Kong-based broker. Investors from across the globe can invest online through local stockbrokers based in Hong Kong. However, there may be restrictions based on your country of residence, and Hong Kong brokers must clear certain hurdles to offer services to certain clients. For example, in the US, financial institutions not registered with the SEC cannot solicit US citizens as clients.

Online Brokerage

Hong Kong's biggest online brokerage, Futu Securities, launched retail Bitcoin trading on its platform in 2024. Users can now directly buy and sell Bitcoin and ether using Hong Kong or US dollars. Futu is the first online broker in Hong Kong to offer direct Bitcoin access to retail investors. To attract new users, Futu is offering incentives like Alibaba and Nvidia stock as rewards. Customers who deposit HK$10,000 for 60 days can earn HK$600 of Bitcoin or vouchers and shares.

OTC Exchanges

Over-the-counter (OTC) exchanges are another way to buy Bitcoin in Hong Kong. Some OTC exchanges also deal with cash deposits and withdrawals. It is important to clarify with the exchange or traders beforehand what currencies, notes, and payment forms they accept.

Storing Bitcoin in a wallet

When you purchase Bitcoin, you're given ownership of the amount you bought. You're given two keys: a public key and a private key. The public key is used to encrypt information and is your wallet address, while the private key allows you to decrypt the information or access your Bitcoin. This is the key you need to store and safeguard.

There are generally two categories of storage: custodial and non-custodial, and four types of wallets: desktop, mobile, hardware, and web-based.

• Desktop wallet: A program that resides on your computer. Not the safest storage method.
• Mobile wallet: A program hosted on a mobile device. Not very secure.
• Hardware wallet: A device similar to a USB drive. Secure, depending on if it is connected and how it connects to another device.
• Web-based wallet: A wallet hosted by a web service. Not secure, as you're letting someone else store your keys for you.

Custodial wallets are managed by a third party, such as an exchange, who stores your private keys for you. Non-custodial wallets, on the other hand, are those you use to store your keys without anyone else involved.

Hot wallets are connected to the internet and are convenient for making transactions, but they are vulnerable to hacking. Cold wallets, on the other hand, are not connected to the internet and are, therefore, much safer. Examples of cold wallets include hardware wallets and cold storage wallets.

When choosing a wallet, consider factors such as security, convenience, and cost. Here are some options for storing Bitcoin in a wallet:

• Hardware wallets: These are special-purpose security-hardened devices designed to store Bitcoins. They are typically resistant to physical and digital attacks and can be brought online to make transactions. Examples include the Ledger Nano X and Trezor Model T.
• Mobile wallets: These are hot wallets held on your smartphone, usually self-custodial. While they are quick and easy to use, they may be less secure than cold wallets and are not recommended for storing large balances.
• Paper wallets: This involves printing out a private and public key. While it provides an affordable cold storage option, there is a high risk of user error or wallet damage.
• Exchange wallets: When you buy crypto on an exchange, the funds automatically go to your exchange wallet, which is custodial and hot. While convenient, you don't have total control over your private keys, and there is a risk of hacks and theft.

To enhance security, it's recommended to use a combination of wallets. For example, you could use a hardware wallet for long-term cold storage and a mobile self-custody wallet for spending and transacting with crypto. Additionally, always back up your wallet and create a seed phrase to recover your keys if needed.

Frequently asked questions