Opinion by: Joshua Chu, co-chair of the Hong Kong Web3 Affiliation
Final week’s announcement of Hong Kong’s LEAP Digital Belongings Coverage Assertion 2.0 was made with a lot anticipation and fanfare. The federal government of Hong Kong promised a complete regulatory framework that can unify licensing and “broaden the suite of tokenised merchandise.”
But beneath the hype and visual maneuvers lies a much more consequential transfer: Beijing’s (the world’s second largest holder of crypto) announcement of its intention to liquidate confiscated digital currencies by Hong Kong’s licensed exchanges. These occasions, whereas seemingly separate, are literally elements of a rigorously orchestrated technique by China, designed to place Hong Kong because the dominant digital asset hub and China’s strategic market operator.
A method of convergence: Hong Kong is poised to change into the area’s digital asset hub. Nonetheless, it would additionally function the linchpin of China’s international ambitions: a crypto hedge, a market worth car and a ahead command put up for PRC-crypto-liquidity.
Regulatory foundations
On the floor, Hong Kong’s LEAP coverage seems to be all of the headlines. A correct understanding of technique, nonetheless, calls for trying past the floor. The true energy of those coverage selections lies within the liquidity injection that China’s crypto-liquidation choice will invariably create. This instrument will concurrently grant Hong Kong unprecedented affect over international digital asset markets.
The muse of Hong Kong’s regulatory framework might be traced again to 2022 with the passage of the Modification of the Anti-Cash Laundering and Counter-Terrorist Financing Ordinance (AMLO), which, after the Securities and Futures Fee had the chance to realize enough expertise beneath the earlier opt-in regime, formally introduced digital asset buying and selling platforms (VATPs) beneath their remit through the AMLO necessary licensing regime. This vital transfer secured alignment with Monetary Motion Process Drive (FATF) standards and have become the primary cornerstone laws for digital belongings.
The following vital laws that happened was the Stablecoin Ordinance, set to start on Aug. 1, 2025, establishing a devoted licensing regime for fiat-referenced stablecoin issuers. The Hong Kong Financial Authority (HKMA) oversees this regime, mandating one-to-one reserves, strong redemption mechanisms and rigorous threat controls.
In June 2025, introducing the LEAP Digital Belongings Coverage Assertion 2.0 additional developed Hong Kong’s framework. LEAP unifies licensing, expands the suite of tokenized merchandise and advances use circumstances of cross-sector collaboration and expertise growth. Going past FATF-directed regulatory tinkering, LEAP aspires to be the structure that can “scale Hong Kong to new heights of worldwide digital asset management” and sign Hong Kong’s readiness to embrace the way forward for digital belongings.
Legal guidelines and laws alone can not, nonetheless, command markets. It’s liquidity that can determine the day.
China’s choice to channel confiscated digital belongings by Hong Kong’s licensed VATP will strategically inject actual, tangible liquidity into the ecosystem. That is not an FATF compliance guidelines train — it’s a strategic lever. By enabling managed liquidation, Hong Kong stands to change into a market worth car able to quickly modulating provide and demand, one other key driving issue of digital asset worth.
Liquidity as a weapon
Liquidity is the lifeblood of any market. With out liquidity, even essentially the most subtle market will falter. Simply take a look at the London Inventory Change.
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Beneath China’s grand technique, not like the US, which holds an unlimited Strategic Bitcoin Reserve and is positioned beneath a inflexible “hold-only” coverage, liquidity injected into Hong Kong’s exchanges will actively convert seized belongings into market liquidity. This setup will grant Hong Kong — and by extension China — the power to affect worth, stabilize markets and reply to geopolitical pressures because it sees match.
Simply as management of the uncommon earth metals gave China all of the playing cards within the newest rounds of commerce negotiation with the US, so too will management over crypto liquidity, successfully controlling the worth of the US’s newly minted crypto reserve.
It is a refined, but profound, shift within the steadiness of energy. The flexibility of a single nation to manage liquidity flows is to manage market narratives and outcomes.
Implications and countermeasures
This grand technique basically alters the steadiness of energy throughout the cryptosphere. Hong Kong could have a decisive benefit in absorbing institutional capital and deepening market liquidity, leveraging its distinctive place because the conduit for the PRC’s crypto liquidation strikes.
On the identical time, by scaling “Hong Kong to new heights of worldwide digital asset management,” China could have a robust geopolitical software in its palms, capable of management international cryptocurrency valuations by calculated market liquidity administration.
In the meantime, the US will face a strategic dilemma: Ought to it proceed with a passive crypto stockpile with restricted or no market affect? Or ought to the US contemplate new mechanisms to counterbalance Hong Kong’s rising management over crypto liquidity?
Understanding the dynamic on this interaction is necessary for market contributors, attorneys, threat practitioners and lawmakers. In any case, compliance frameworks have to be adjusted to handle elevated scrutiny and dangers related to liquidity-driven market actions. In distinction, threat administration methods anticipating volatility stemming from strategic liquidity flows and a eager understanding of how liquidity management will form the market narratives and outcomes are key.
The important thing to the Web3 markets is subsequently liquidity and knowledge. Whereas Hong Kong’s LEAP coverage garners all of the media consideration, the true chess transfer lies in China’s crypto liquidation and injection coverage. This injection will flip Hong Kong right into a dynamic market worth car, able to wielding liquidity as a weapon that few jurisdictions can match.
Distinction this with the US, which is constrained by a inflexible “hold-only” reserve coverage, and it lacks the flexibleness to affect market liquidity or reply successfully to cost volatility.
Singapore, which, regardless of a mature regulatory framework, faces limitations in market scale, and Dubai, although bold, struggles with fragmented regulatory remits and excessive operational prices that hinder speedy scaling. Hong Kong “holds all of the playing cards.” Solely this time, China can be making all of the liquidity playing cards.
As such, town’s distinctive mixture of mature regulatory framework, direct entry to the world’s second-largest crypto holdings and the power to deploy such liquidity strategically at their discretion grants it an unparalleled excessive floor within the Web3 ecosystem. Hong Kong can modulate international crypto costs in actual time, appeal to institutional capital and foster innovation inside a steady, investor-friendly surroundings.
Liquidity is the last word leverage on this contest, and Hong Kong holds the change. Understanding this layered technique is crucial for many who search to navigate the quickly evolving digital asset panorama with readability and foresight. Those that fail will discover themselves outmaneuvered.
Opinion by: Joshua Chu, co-chair of the Hong Kong Web3 Affiliation.
This text is for basic info functions and isn’t meant to be and shouldn’t be taken as authorized or funding recommendation. The views, ideas, and opinions expressed listed here are the writer’s alone and don’t essentially replicate or symbolize the views and opinions of Cointelegraph.
