Hong Kong, one of the most significant and leading financial centers in the world, has played a large role in the development of cryptocurrencies. For instance, the Chinese territory has birthed some of the most established and successful crypto companies to date including the crypto derivatives exchange FTX, along with the digital asset platform Crypto.com. Yet, as trillions of dollars are traded regularly through crypto exchanges founded in Hong Kong, the “Vertical City” also contains an abundance of physical over-the-counter crypto shops as well. Henri Arslanian, PwC crypto lead and former chairman of the Fintech Association of Hong Kong, told Cointelegraph that the number of traditional OTC crypto brokers in Hong Kong certainly stands out. “These are literally brick and mortar stores for the retail public,” he said. An anonymous source further told Cointelegraph that while traveling around Hong Kong, he couldn’t help but notice a huge rise in OTC crypto exchanges, some of which even provide access to cryptocurrency ATMs. OTC retail stores make up Hong Kong’s crypto culture Compared with regions like the United States or Europe where buying and selling cryptocurrency on regulated exchanges is fairly easy, Hong Kong’s physical crypto storefronts are a unique trademark that provides individuals with another way to access crypto. Kelvin Yeung, CEO and founder of Hong Kong Digital Asset Exchange, or HKD, shed light on the matter. Yeung told Cointelegraph that the HKD crypto exchange was founded in 2019, the physical shop was established in January this year and that they employ over 30 staff members to provide customer service. Yeung further remarked that HKD’s shop acts similarly to a traditional bank, giving customers the opportunity to gain a hands-on approach to buying crypto, along with access to in-person consulting services. As such, he believes that retail shops will most likely be a global trend moving forward as crypto becomes mainstream: “As more investors and institutional investors get into the industry and digital currency becomes mainstream, there will be a tendency to open physical stores in combination with online platforms.” Yeung added that he believes greater customer trust is built between HKD and its user base due to its physical presence. “Our users are primarily between the ages of 40 and 70. An older customer base is important for creating mainstream adoption since many of these people still hold fiat currency and only trust traditional financial systems,” he remarked. Interestingly, it’s not just the older generation purchasing crypto at these physical locations. Priscilla Ng, founder of Coiner HK — another Hong Kong OTC retail exchange — told Cointelegraph that CoinerHK was launched at the beginning of 2020 to focus on the female market: “We wanted to create a market for women because we want to promote the idea that women could be financially independent and practice self investment.” As such, Ng shared that CoinerHK’s customers are mainly women typically between 20 and 50 years of age and about 70% of them are trading in cash for crypto. Ng also noted that CoinerHK has two physical store locations in the golden area of Hong Kong. Echoing Yeung, Ng added that having physical OTC exchanges can provide customers with greater opportunities: “We treat them as friends when trading and also give our customers faith in us since we own physical locations.” Ng further remarked that CoinerHK’s Wanchai location also serves as an art gallery that features nonfungible tokens (NFTs). Regulations could push out physical OTC exchanges While physical OTC crypto exchanges like HKD and CoinerHK appear to be providing greater access to crypto throughout Hong Kong, a number of regulatory risks are associated with these kinds of establishments. For instance, Arslanian explained that in addition to regular customers, mainland Chinese tourists have been target clients for these establishments. He noted that many of these shops are located in touristic areas to attract users, but are particularly appealing to Chinese tourists due to the crypto ban in China : “One could assume that if mainland Chinese tourists visit Hong Kong, nothing will stop them from buying crypto at these OTC shops.” With this in mind, Arslanian believes that there could be an increase in retail OTC centers in Hong Kong due to the influx of Chinese tourists interested in buying crypto. On the other hand, Arslanian mentioned that Hong Kong’s upcoming regulatory framework for crypto exchanges could cause these shops to shut down entirely. As Cointelegraph previously reported, the Financial Services and the Treasury Bureau of Hong Kong have been considering restricting crypto access to portfolios with at least $1 million in assets. If passed, the new guidelines would restrict crypto access to roughly 93% of the city’s population. Although this is a major challenge for physical OTC shops, Arslanian remarked that OTC stores may simply move their operations underground. However, he noted that this would then pose an increased risk to customers: “In case something goes wrong, the public is less likely to report them to the authorities.” In regard to uncertain regulations, Yeung commented that the major challenge currently facing HKD is understanding if Hong Kong will soon only allow institutional investors to invest in crypto: “This will have a large influence on our business.” Arslanian added that regulated crypto exchanges not being able to service retail customers is something the crypto community greatly opposes since this could very well result in users turning to unregulated platforms. Unfortunately, Arslanian further pointed out that it would be extremely challenging for physical OTC shops to receive the correct licenses, even if they attempt to be fully regulated. As of now, Yeung mentioned that HKD only requires a valid ID and address verification to buy and sell crypto on the exchange. It’s interesting to see that currently, the only regulated crypto exchange in Hong Kong is OSL, which is also a unit of the Fidelity-backed BC group . OSL managing director and head of exchange Andrew Walton explained to Cointelegraph that OSL was purposefully built with regulations in mind, and even practiced self-regulation before some of the current laws were enacted. In addition, Walton shared that OSL was grandfathered in under Singapore’s Payment Services Act , or PSA, and has additionally applied for a digital payment token , or DPT, license through the Monetary Authority of Singapore. Impressive regulatory approvals recently allowed OSL to expand its business to Latin America. “In Latin America, the OSL Exchange product will be initially available to institutional and professional investors in the region, in Mexico, Colombia and Argentina. OSL’s LatAm offering will also seek appropriate licensing as regulatory developments across the region take place,” Walton added. Retail investors are needed from a business perspective While OSL’s efforts are indeed notable, Arslanian pointed out that a lot of revenue is typically generated from retail clients buying and selling crypto on exchanges and the retail flow, in turn, attracts institutional clients. As such, he noted that Hong Kong’s willingness to force crypto exchanges to cater only to institutional investors is a hard ask from a business perspective. Although this may be, Walton remarked that OSL has seen a significant increase in interest from the institutional segment over the past year. Given the continuing regulatory uncertainty for cryptocurrency, Arslanian mentioned that Hong Kong may very well be best suited for institutional investors, while Singapore could be more logical for retail customers.