Hong Kong: Hope for the Crypto Market?
3 min readIn recent months, the crypto market has had to get used to bad news. Great events have always been negative, not positive. With a potential crypto opening in Hong Kong, there is finally a new opportunity that promises funds to flow into the market instead of outflows. Specifically, it is about the licensing of crypto exchanges in Hong Kong, which is therefore completely legal allowed to operate. The so-called Virtual Asset Service Providers (VASP) licensing regime could ensure that the Chinese special economic zone becomes an important global crypto hub.
Initially, starting on June 1st, however, only institutional investors should be able to enjoy crypto trading. Nevertheless, opening up to small investors is also on the agenda, so that these are likely to move up with a little delay. However, the choice of cryptocurrencies will be limited. So you only want to offer highly liquid coins for trading. Despite these initial limitations, it is crucial that investors and companies are allowed to operate within a clearly regulated framework.
Why is Hong Kong so relevant for Bitcoin
Hong Kong is the fourth largest financial center in the world, after New York, London and Singapore. This means it is one of the largest capital hubs in the world. Furthermore, Hong Kong is the first address for Chinese who are trying to withdraw their capital from mainland China, which is isolated from the international financial market. Many rich Chinese find access to the global financial system via the former British colony and park their money there. Estimates estimate around $500 billion to come from “mainland Chinese”.
So what is made possible in Hong Kong has a major impact on the second largest economy in the world and the international financial market. In fairness, Hong Kong has cracked as a financial center with increased interference from the Communist Party. Hong Kong investors’ fears have increased sharply over the past two to three years. This applies not only to the Chinese, but above all to foreign investors who use Hong Kong as a gateway to China. Despite this uncertainty, Hong Kong could emerge as the crypto haven for investors battered by autocratic China.
Chinese sandbox
Precisely because Hong Kong has a completely different system than China, which works more according to western and market-liberal principles, China could try a crypto rapprochement policy via Hong Kong. As a kind of sandbox, China could gain experience there in regulating cryptocurrencies. A timely reopening of China for cryptocurrencies is therefore not yet to be expected, but legal crypto trading in Hong Kong can be booked as a stage victory.
In perspective, hope could look like this: After a successful observation phase, small investors in Hong Kong could also gain access to the crypto market. If this happened, also after a certain time, the probability of a crypto opening in China would increase.
Bitcoin comeback in China?
As already classified, one should not get hopeful about truly decentralized crypto applications and self-custody in China. However, this does not mean that the Chinese cannot gain access to the crypto market again in the future.
However, this access would only be conceivable in state-controlled infrastructures – see wallet as with the e-yuan. Despite everything, this would be very good news for cryptocurrency prices. After all, bitcoin trading and mining have their roots in China.
