By Leonhard Weese, Bitcoin Association of Hong Kong
Buying Bitcoin safely, conveniently and cheaply is still difficult in Hong Kong. While its legal status as a virtual currency is clear, banks and other financial institutions tend to refuse services to Bitcoin companies or even individuals associated with Bitcoin.
As a result, buying Bitcoin can be confusing and frustrating and there are plenty of scams to be alert to. Trading frequently happens on peer-to-peer platforms, through cash or on overseas exchanges. Bitcoin trading activity should not happen in the dark, and there is no legal reason why somebody would feel the need to conceal their purchases or sale of cryptocurrency in Hong Kong.
As banks take an openly hostile approach to cryptocurrency trading activity, you may be at risk of seeing your account “flagged” or even shut down when mentioning Bitcoin, or when making or receiving large or repeated transactions from overseas accounts associated with cryptocurrency – for example, exchanges or brokerages.
|Editorial note: This guide is fully independent and does not include any affiliate links or paid-for content. Buyers should be aware that the value of Bitcoin can fluctuate wildly, and its environmental impact is controversial. This guide does not constitute financial advice. Neither the writer nor HKFP are liable for the investment choices of readers.|
General points to consider
Bitcoin provides us with the tools of an open financial system accessible to anyone with a smartphone or computer. When used right, Bitcoin will protect you from theft, arbitrary seizures, devaluation and high fees. However, there are plenty of risks that are unique to Bitcoin which, unlike in the traditional financial system, can be easily avoided given the right precautions.
Always keep your Bitcoin in your own custody when possible. Do not store Bitcoin on exchanges or custodial wallets and withdraw them as quickly as possible when exchanging them. Bitcoin has been around for 12 years and will likely be around for much longer, but most of the platforms dealing with them will not.
|What is ‘dollar cost averaging’?|
Dollar cost averaging (DCA) is a tactic used by investors in the stock market or bitcoin to slowly stack up on a volatile instrument. The price of Bitcoin may go up or down rapidly within a single year, making it difficult to appropriately time when to buy. Through DCA, you buy a small amount of bitcoin every month or week regardless of its price. Over the years this has historically proven to be generate reasonable returns even during times of wild swings.
Never send Bitcoin to individuals that you do not know or trust. Always verify the identity of the individuals and companies to which you are sending Bitcoin and be aware that Bitcoin transactions cannot be reversed, and that accounts cannot be frozen.
Before buying Bitcoin, make sure you have set up a Bitcoin wallet. Such a wallet should not require you to log in with a username or email address, and should not require personally identifying information. Asking for personal information might be indicative of a custodial wallet, or worse, a fraudulent attempt to gather such information.
Set up your wallet ahead of time in a quiet environment. Don’t let others look over your shoulder as you set up this wallet, and make sure you have backed up its seed phrase (typically 12 to 24 random words) in a secure place, such as a password manager or piece of paper. Don’t store such seed phrases in the cloud or on a notes app, as you do not know what applications might have access to this information.
Decide on the right venue to buy Bitcoin
Carefully read through the available options and weigh the costs, ease and risks. Only engage in trades that you are comfortable with, and always put your safety and the safety of your funds and data first. Ask your friends if anybody has real-life experiences with Bitcoin. Maybe someone you trust has access to Bitcoin and can sell you some, or they can guide you through the process of buying for yourself.
In its primitive form, a peer-to-peer platform is just a messaging board or chat group of people who want to trade with each other. These platforms are highly popular in places where the financial system is either not developed, or does not provide access to Bitcoin, such as Hong Kong.
To make peer-to-peer trades safe, you will need to trade directly with your trusted circle of friends – or when trading with friends of friends, appoint mutual trusted friends as escrow. Such trades between friends are often the most desirable, as seller and buyer don’t charge each other a fee. Selling your Bitcoin to your friends is legal in Hong Kong and there are no restrictions unless you are dealing with people you do not know or you turn it into a business.
|What is escrow?|
In Bitcoin, escrow is a form of trade where a third party takes custody over the funds and arbitrates conflict between buyer and seller. Typically, the seller of bitcoin will send their BTC to the escrow party before the buyer sends the dollars or goods. When the seller confirms receipt of the dollars, the bitcoin are released to the buyer. If there is disagreement, for example in case the buyer has sent the funds but the buyer did not receive them, the escrow party will collect information and make a judgement on whether to return or forward the bitcoin. In Bitcoin, you can make use of multi-signature addresses to prevent against the risk of the escrow party becoming unavailable or taking the funds for themselves.
Commercial peer-to-peer platforms like Paxful try to build a safe environment for you to sell or buy Bitcoin from strangers. It’s important in these trades to make use of the built-in escrow mechanism. You will be able to browse other users’ offers or add your own. The peer-to-peer platform typically charges a fee and collects minimal user information.
Open source peer-to-peer platforms like Bisq are more difficult to use, but they allow you to avoid submitting personal information, or putting your Bitcoin in the custody of a centralized service.
When browsing for offers on such platforms, find one that prices Bitcoin in your local currency and offers local payment methods. When meeting a trader to exchange cash, find a well lit location with security, such as the lobby of a large hotel or bank.
Bitcoin ATMs can be found all around Hong Kong. They are by far the most convenient option to buy Bitcoin, as they do not require personal information and accept cash. On the downside, ATMs charge relatively high fees, around 5-8 per cent on top of the market exchange rate.
Before approaching the ATM, make sure that your wallet is set up, synced with the network and ready to receive. You will need to hold the QR code of your Bitcoin address into the ATM’s camera, and then deposit banknotes. Some ATMs have minimum and maximum purchase limits, or only accept banknotes of certain denominations.
Exchanges give you a maximum amount of control over your Bitcoin purchases, as they provide a liquid order book and allow you to set conditions for your purchases. They are attractive to those buying small amounts regularly (also see: DCA), as well as those engaging in speculation or purchasing large amounts of Bitcoin.
There are many different kind of exchanges offering different products, such as futures, options, derivatives or hundreds of smaller cryptocurrencies. To buy Bitcoin, you are looking for a reputable spot exchange, which are rare in Hong Kong. Those outside Hong Kong will be able to provide you with a foreign bank account to wire money to, most commonly in the United States. Make sure that the name on this bank account matches the name listed in the exchange’s terms and conditions, and that the exchange is indeed reputable.
One local Hong Kong exchange is Tidebit. You can deposit and withdraw cash from your account at various cashpoints around the city, then buy Bitcoin on the platform and withdraw them to your own wallet.
If you need to buy larger amounts of Bitcoin, you may look to overseas exchanges. There are frequent reports that Hong Kong banks block incoming and outgoing transfers to such exchanges. At the very least you may expect a call from your bank about the purpose of your transaction, as well as the source of the funds.
Brokerages, also referred to as OTC (Over the counter), are places where you can buy Bitcoin for cash or a wire transfer for a fixed rate, similar to the forex shops found all around the city. The spread is typically larger than that of an exchange, but smaller than that of an ATM.
|What is spread?|
Spread is the difference between the price at which you can buy and sell Bitcoin. It can be seen as a measurement of the cost of a transaction. Even when a platform promises you ‘zero fees,’ there will still be a spread. ATMs tend to have the highest spread, followed by OTC brokerages, peer-to-peer platforms and exchanges.
A brokerage will typically ask you to supply personal information. Some will trade cash, others accept wire transfers, FPS or even PayMe.
Some wallets such as BRD and Edge will also let you buy Bitcoin with a credit card. While this works well in our experience, it is associated with prohibitively large (hidden) fees and excessive personal information. The process may or may not work with a Hong Kong credit card.
Earn or accept Bitcoin
One of the cheapest and most convenient ways of accumulating Bitcoin is to accept it for payments. No matter if you run a shop, online business or want to sell used electronics, you can offer Bitcoin as a payment method and some people may take you up on it!
Do your research, ask for help
As the Bitcoin industry and its regulatory environment changes, so do your options for buying Bitcoin. A guide such as this can quickly become out of date, and personal experiences of different purchase options may differ.
The Bitcoin Association of Hong Kong has its own guide on buying Bitcoin in Hong Kong, and they offer a Bitcoin Helpdesk via Telegram and Email. Bitcoin enthusiasts offer their advice as volunteers. In all such settings, it is important to stay vigilant. Do not blindly accept offers from strangers on the internet, especially when they ask for personal information, offer you deals which seem too good to be true or quickly attempt to move a conversation off-platform into direct messages or external apps.