Perspective by: Joshua Chu, co-chair of the Hong Kong Web3 Association
Last week’s declaration of Hong Kong’s LEAP Digital Assets Policy Statement 2.0 was unveiled with considerable expectation and attention. The authorities of Hong Kong assured the creation of an all-encompassing regulatory framework that will harmonize licensing and “broaden the range of tokenized offerings.”
However, beneath the excitement and apparent actions lies a much more significant shift: Beijing’s (the globe’s second-largest possessor of crypto) announcement regarding its plan to liquidate seized digital currencies via Hong Kong’s licensed exchanges. Although these occurrences may appear unconnected, they are indeed elements of a meticulously planned initiative by China, aimed at positioning Hong Kong as the preeminent virtual asset center and China’s strategic market facilitator.
A strategy of amalgamation: Hong Kong is on the brink of emerging as the region’s virtual asset nexus. Moreover, it will also act as the cornerstone of China’s worldwide ambitions: a crypto safeguard, a market valuation instrument, and a forward command hub for PRC-crypto liquidity.
Regulatory groundwork
At first glance, Hong Kong’s LEAP policy seems to dominate the news. A thorough comprehension of the strategy, nonetheless, necessitates looking deeper. The real strength of these policy choices lies in the liquidity influx that China’s crypto-liquidation resolution will inevitably produce. This mechanism will concurrently offer Hong Kong unparalleled sway over the global virtual asset landscape.
The underpinnings of Hong Kong’s regulatory framework can be traced back to 2022 with the implementation of the Amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), which, after the Securities and Futures Commission accrued enough experience under the previous opt-in model, officially brought virtual asset trading platforms (VATPs) under their jurisdiction via the AMLO compulsory licensing framework. This pivotal action ensured alignment with Financial Action Task Force (FATF) criteria and became the foundational legislation for virtual assets.
The subsequent essential legislation was the Stablecoin Ordinance, slated to commence on Aug. 1, 2025, creating a specialized licensing regime for fiat-linked stablecoin issuers. The Hong Kong Monetary Authority (HKMA) supervises this framework, requiring one-to-one reserves, strong redemption processes, and stringent risk management.
In June 2025, the introduction of the LEAP Digital Assets Policy Statement 2.0 further refined Hong Kong’s framework. LEAP harmonizes licensing, broadens the range of tokenized offerings, and promotes use cases for cross-sector collaboration and talent cultivation. Going beyond FATF-directed regulatory adjustments, LEAP aspires to be the framework that will “elevate Hong Kong to new levels of global digital asset leadership” and illustrate Hong Kong’s preparedness to welcome the future of digital assets.
However, laws and regulations alone cannot govern markets. It is liquidity that will determine success.
Beijing’s choice to direct confiscated digital assets through Hong Kong’s licensed VATP will strategically infuse tangible liquidity into the ecosystem. This is no longer an FATF compliance checklist endeavor — it is a tactical lever. By enabling controlled liquidation, Hong Kong stands to transform into a market valuation mechanism capable of swiftly adjusting supply and demand, another vital determinant of virtual asset worth.
Liquidity as a strategic tool
Liquidity is the essential lifeblood of any market. Without liquidity, even the most advanced market will struggle. Just consider the London Stock Exchange.
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Under China’s overarching strategy, in contrast to the United States, which maintains a vast Strategic Bitcoin Reserve and operates under a strict “hold-only” policy, the liquidity funneled into Hong Kong’s exchanges will actively turn seized assets into market liquidity. This arrangement will provide Hong Kong — and by extension China — the capability to influence pricing, stabilize markets, and react to geopolitical pressures as deemed appropriate.
Just as control over rare earth metals afforded China a significant advantage in recent trade negotiations with the US, so too will dominance over crypto liquidity, effectively managing the valuation of the US’s newly created crypto reserves.
This represents a subtle yet significant shift in the power dynamic. The ability of a single nation to control liquidity flows translates to significant influence over market narratives and outcomes.
Consequences and responses
This grand strategy fundamentally reshapes the balance of power within the cryptosphere. Hong Kong will enjoy a distinct edge in attracting institutional investments and enhancing market liquidity, utilizing its unique role as the conduit for the PRC’s crypto liquidation efforts.
Simultaneously, by elevating “Hong Kong to new heights of global digital asset leadership,” China will wield a potent geopolitical tool, enabling it to dictate global cryptocurrency valuations through deliberate liquidity management.
Meanwhile, the US will confront a strategic conundrum: Should it persist with a passive crypto reserve with minimal or no market impact? Or should the US explore new strategies to counterbalance Hong Kong’s expanding dominance over crypto liquidity?
Comprehending the dynamics in this interplay is crucial for market stakeholders, legal practitioners, risk professionals, and legislators. After all, compliance structures must be revised to meet the heightened scrutiny and risks associated with liquidity-driven market changes. On the other hand, risk management strategies that prepare for volatility stemming from tactical liquidity movements and a keen awareness of how liquidity governance will mold market narratives and outcomes are essential.
The crux of the Web3 markets is thus liquidity and information. While Hong Kong’s LEAP policy gathers significant media focus, the real chess play lies in China’s crypto liquidation and infusion strategy. This injection will transform Hong Kong into a dynamic market valuation instrument, equipped to wield liquidity as a strategic tool that few jurisdictions can rival.
In contrast, the US is hindered by a stringent “hold-only” reserve policy, lacking the agility to influence market liquidity or effectively react to price fluctuations.
Singapore, while boasting a seasoned regulatory structure, grapples with limitations in market size, and Dubai, despite its ambition, faces issues with fragmented regulatory oversight and elevated operational expenses that impede swift scaling. Hong Kong “holds all the cards.” This time around, China is also controlling all the liquidity cards.
Thus, the city’s unique blend of a matured regulatory framework, direct access to the world’s second-largest crypto reserves, and the capability to strategically deploy such liquidity at their discretion positions it with an unmatched advantage in the Web3 ecosystem. Hong Kong can adjust global crypto prices in real-time, attract institutional investments, and cultivate innovation within a secure, investor-friendly atmosphere.
Liquidity is the ultimate leverage in this contest, and Hong Kong has the key. Grasping this layered strategy is vital for those who wish to navigate the swiftly changing digital asset landscape with clarity and insight. Those who do not will find themselves outmaneuvered.
Perspective by: Joshua Chu, co-chair of the Hong Kong Web3 Association.
This article is for general information purposes and is not intended to be taken as legal or investment counsel. The opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.
