China’s crypto liquidation plans reveal its grand strategy

Opinion by: Joshua Chu, co-chair of the Hong Kong Web3 Association 

Last week’s announcement of Hong Kong’s LEAP Digital Assets Policy Statement 2.0 was made with overmuch anticipation and fanfare. The authorities of Hong Kong promised a broad regulatory model that volition unify licensing and “expand the suite of tokenised products.” 

Yet beneath the hype and disposable maneuvers lies a acold much consequential move: Beijing’s (the world’s 2nd largest holder of crypto) announcement of its volition to liquidate confiscated virtual currencies done Hong Kong’s licensed exchanges. These events, portion seemingly separate, are really components of a cautiously orchestrated strategy by China, designed to presumption Hong Kong arsenic the ascendant virtual plus hub and China’s strategical marketplace operator.

A strategy of convergence: Hong Kong is poised to go the region’s virtual plus hub. Still, it volition besides service arsenic the linchpin of China’s planetary ambitions: a crypto hedge, a marketplace terms conveyance and a guardant bid station for PRC-crypto-liquidity.

Regulatory foundations

On the surface, Hong Kong’s LEAP argumentation appears to beryllium each the headlines. A due knowing of strategy, however, demands looking beyond the surface. The existent powerfulness of these argumentation decisions lies successful the liquidity injection that China’s crypto-liquidation determination volition invariably create. This instrumentality volition simultaneously assistance Hong Kong unprecedented power implicit planetary virtual plus markets.

The instauration of Hong Kong’s regulatory model tin beryllium traced backmost to 2022 with the transition of the Amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), which, aft the Securities and Futures Commission had the accidental to summation capable acquisition nether the erstwhile opt-in regime, formally brought virtual plus trading platforms (VATPs) nether their remit via the AMLO mandatory licensing regime. This captious determination secured alignment with Financial Action Task Force (FATF) standards and became the archetypal cornerstone authorities for virtual assets.

The adjacent captious authorities that came astir was the Stablecoin Ordinance, acceptable to commence connected Aug. 1, 2025, establishing a dedicated licensing authorities for fiat-referenced stablecoin issuers. The Hong Kong Monetary Authority (HKMA) oversees this regime, mandating one-to-one reserves, robust redemption mechanisms and rigorous hazard controls.

In June 2025, introducing the LEAP Digital Assets Policy Statement 2.0 further developed Hong Kong’s framework. LEAP unifies licensing, expands the suite of tokenized products and advances usage cases of cross-sector collaboration and endowment development. Going beyond FATF-directed regulatory tinkering, LEAP aspires to beryllium the architecture that volition “scale Hong Kong to caller heights of planetary integer plus leadership” and awesome Hong Kong’s readiness to clasp the aboriginal of integer assets.

Laws and regulations unsocial cannot, however, bid markets. It is liquidity that volition determine the day.

China’s determination to transmission confiscated integer assets done Hong Kong’s licensed VATP volition strategically inject real, tangible liquidity into the ecosystem. This is nary longer an FATF compliance checklist workout — it is simply a strategical lever. Through enabling controlled liquidation, Hong Kong stands to go a marketplace terms conveyance susceptible of rapidly modulating proviso and demand, different cardinal driving origin of virtual plus value.

Liquidity arsenic a weapon

Liquidity is the lifeblood of immoderate market. Without liquidity, adjacent the astir blase marketplace volition falter. Just look astatine the London Stock Exchange. 

Related: Which countries secretly ain the astir Bitcoin — beyond the US and China

Under China’s expansive strategy, dissimilar the United States, which holds a immense Strategic Bitcoin Reserve and is placed nether a rigid “hold-only” policy, liquidity injected into Hong Kong’s exchanges volition actively person seized assets into marketplace liquidity. This setup volition assistance Hong Kong — and by hold China — the quality to power price, stabilize markets and respond to geopolitical pressures arsenic it sees fit.

Just arsenic power of the uncommon world metals gave China each the cards successful the latest rounds of commercialized dialog with the US, truthful excessively volition power implicit crypto liquidity, efficaciously controlling the worth of the US’s recently minted crypto reserve. 

This is simply a subtle, yet profound, displacement successful the equilibrium of power. The quality of a azygous federation to power liquidity flows is to power marketplace narratives and outcomes.

Implications and countermeasures

This expansive strategy fundamentally alters the equilibrium of powerfulness wrong the cryptosphere. Hong Kong volition person a decisive vantage successful absorbing organization superior and deepening marketplace liquidity, leveraging its unsocial presumption arsenic the conduit for the PRC’s crypto liquidation moves. 

At the aforesaid time, by scaling “Hong Kong to caller heights of planetary integer plus leadership,” China volition person a almighty geopolitical instrumentality successful its hands, capable to power planetary cryptocurrency valuations done calculated marketplace liquidity management. 

Meanwhile, the US volition look a strategical dilemma: Should it proceed with a passive crypto stockpile with constricted oregon nary marketplace influence? Or should the US see caller mechanisms to counterbalance Hong Kong’s increasing power implicit crypto liquidity?

Contrast this with the US, which is constrained by a rigid “hold-only” reserve policy, and it lacks the flexibility to power marketplace liquidity oregon respond efficaciously to terms volatility. 

Singapore, which, contempt a mature regulatory framework, faces limitations successful marketplace scale, and Dubai, though ambitious, struggles with fragmented regulatory remits and precocious operational costs that hinder accelerated scaling. Hong Kong “holds each the cards.” Only this time, China is besides making each the liquidity cards. 

As such, the city’s unsocial operation of mature regulatory framework, nonstop entree to the world’s second-largest crypto holdings and the quality to deploy specified liquidity strategically astatine their discretion grants it an unparalleled precocious crushed successful the Web3 ecosystem. Hong Kong tin modulate planetary crypto prices successful existent time, pull organization superior and foster innovation wrong a stable, investor-friendly environment.

Liquidity is the eventual leverage successful this contest, and Hong Kong holds the switch. Understanding this layered strategy is indispensable for those who question to navigate the rapidly evolving integer plus scenery with clarity and foresight. Those who neglect volition find themselves outmaneuvered.

Opinion by: Joshua Chu, co-chair of the Hong Kong Web3 Association.

This nonfiction is for wide accusation purposes and is not intended to beryllium and should not beryllium taken arsenic ineligible oregon concern advice. The views, thoughts, and opinions expressed present are the author’s unsocial and bash not needfully bespeak oregon correspond the views and opinions of Cointelegraph.