China has hitherto taken a harsh view of crypto. Will it now use Hong Kong as a proxy for transacting crypto in order to reduce its dollar position?
A history of antagonism towards crypto
China has what is now a comparatively long history of antagonism towards bitcoin and cryptocurrencies, even though that history is a relatively short 13 years.
Many times the regime in China has made edicts banning its citizens from transacting in cryptocurrencies, and many times the transacting has continued in spite of this.
Nevertheless, in September of last year China made one more all out ban on all crypto transactions after its blanket ban on bitcoin mining in May of the same year.
Making way for a digital yuan
The main reason for this was that China was rolling out its central bank digital currency (CBDC) for trialling and it certainly did not want competition from the likes of bitcoin.
A CBDC would need to be all powerful, and China would have to make sure its citizens accept it completely. Having an exit door through holding bitcoin is not something that the authorities would look kindly upon.
However, China must be wondering about cryptocurrencies and whether the technology may actually be the disrupting force that many analysts are predicting.
Having Hong Kong as a territory just off of the mainland has many advantages for China and it has remained a major financial hub since the handover from the UK.
Is China making a crypto comeback
Arthur Hayes, former CEO of BitMEX, has published his latest blogpost in which he states his belief that China is readying itself for a return to the crypto market, and will use Hong Kong as a proxy.
Hayes makes the point that Hong Kong leaders do what China tells them to do, and that they wouldn’t diverge from mainland policy unless it was approved by the “appropriate party organ”.
He draws attention to the recent news that the Hong Kong Securities and Futures Commission (SFC) is looking to allow retail investors to once again be able to trade cryptocurrencies, which had previously been limited to those with accredited investor status.
Using Hong Kong as a safe space
Hayes makes a powerful but fairly complex case for China wishing to recycle its excess dollars and to reduce its USD balance without destabilising its internal financial system, all by using Hong Kong as a proxy for the transacting of cryptocurrencies.
Hayes states:
“if there is a governmental belief that crypto and the technological revolution it heralds have value, then having a vibrant crypto ecosystem in an adjacent territory is a sound policy. Beijing never has to allow the aspects of crypto that might be socially destabilising to its political model across the border. Hong Kong can be used as a safe space for Beijing to experiment with the crypto capital markets.”
The former CEO of BitMEX says that he has a great affinity for Hong Kong, given that he spent his entire post-university adult life there and he wants the city to do well. He makes the following prediction:
“China has not left crypto — it has just been dormant. The current global geopolitical situation will force China to do something with its dollars. I believe that the reorientation of Hong Kong as a pro-crypto location is a prong in Beijing’s strategy to reduce its position in a way that won’t destabilise its internal financial system.”
A pillar of the new bull market
He postulates that should this potential strategy of China unfold, then it could be a “strong supporting pillar of the next bull market”.
Hayes ends his blog with the following:
“If these flows actually materialise in the way I imagine, they will be a strong supporting pillar of the next bull market. Imagine a bull market supported by every major central bank engaging in yield curve control and Chinese retail buying Bitcoin in Hong Kong. OOOOOHHH BABY!”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
