Opinion: Joshua Chu, co-chair of Hong Kong Web3 Association
Last week’s announcement of Hong Kong’s Leap Digital Assets Policy Statement 2.0 was made with many predictions and fanfare. The Hong Kong government has committed to a comprehensive regulatory framework that unifies licensing and “expands to tokenized products.”
But beneath the hype and visible manipulation there is a much more important movement. It announces its intention to liquidate cryptocurrency confiscated through a licensed exchange in Beijing (the world’s second largest owner) Hong Kong. These events, although seemingly distinct, are actually elements of a carefully organized strategy by China, designed to position Hong Kong as the dominant virtual asset hub and China’s strategic market operator.
Convergence Strategy: Hong Kong is ready to become the virtual asset hub for the region. Still, it also serves as the linchpin of China’s global ambition: a forward command post for encrypted hedges, market price vehicles, and PRC crypto fluid.
Regulatory Foundation
On the surface, Hong Kong’s leap policy seems to be all the headlines. But a proper understanding of strategies requires a cross-surface look. The true power of these policy decisions lies in the liquidity injection where Chinese encryption decisions occur constantly. The device simultaneously gives Hong Kong an unprecedented influence over the global virtual asset market.
The foundations of Hong Kong’s regulatory framework can be traced back to 2022 with the passage of amendments to the Money Laundering and Counterterrorism Financing Ordinance (AMLO). This important move ensured coordination with the Financial Action Task Force (FATF) standards and became the first cornerstone law for virtual assets.
The next important legislation was scheduled to begin on August 1, 2025, and was to establish a dedicated licensing system for Fiat referenced stubcoin issuers. Hong Kong’s Monetary Authority (HKMA) oversees this regime, requiring one-to-one reserves, a robust redemption mechanism and strict risk management.
In June 2025, we further developed the Hong Kong framework for introducing Leap Digital Assets Policy Statement 2.0. LEAP will unify licensing, expand its suite of tokenized products, and advance cross-sector collaboration and talent development use cases. Beyond the tinkering of FATF-oriented regulations, Leap aims to be an architecture that “expands Hong Kong to new heights of global digital asset leadership,” signaling that Hong Kong is ready to embrace the future of digital assets.
However, command markets cannot be done based on laws and regulations alone. It is liquidity that determines the day.
China’s decision to introduce digital assets confiscated through Hong Kong’s approved VATP strategically injects actual tangible liquidity into the ecosystem. This is no longer a FATF compliance checklist exercise, it’s a strategic lever. By enabling controlled liquidation, Hong Kong will become a market-price vehicle that can quickly adjust supply and demand, another important driver of virtual asset value.
Fluidity as a weapon
Liquidity is the lifeblood of any market. Without liquidity, even the most sophisticated markets will fade. Look at the London Stock Exchange.
Related: Which countries secretly own the most bitcoin – Beyond the US and China
Unlike the US, which holds a massive strategic Bitcoin reserve under China’s grand strategy and is placed under a strict “hold-only” policy, liquidity injected into Hong Kong’s exchanges actively converts seized assets into market liquidity. This setup gives Hong Kong and even China the ability to influence prices, stabilize the market and respond to geopolitical pressures that appear appropriate.
Controlling crypto liquidity and effectively control the value of the US newly-established cryptographic protected areas, as China has given all cards to all cards in the latest trade negotiations with the US.
This is a subtle yet profound change in the balance of forces. The ability of a single country to control liquidity flows is to control the market narrative and outcomes.
Meaning and countermeasures
This grand strategy fundamentally changes the balance of power within the cryptosphere. Hong Kong has the critical advantages of absorbing institutional capital and deepening market liquidity, taking advantage of its unique position as a conduit for PRC’s crypto liquidation movement.
At the same time, by “expanding Hong Kong to new heights of global digital asset leadership,” China has powerful geopolitical tools in its hands and can control global cryptocurrency valuations through calculated market liquidity management.
Meanwhile, the US will face a strategic dilemma. Should it continue with limited market impact, or unlimited market impact, or endless passive crypto stockpile? Or should the US consider new mechanisms for Hong Kong to expand control over crypto liquidity?
Understanding the dynamics of this interaction is important for market participants, lawyers, risk practitioners and lawmakers. Ultimately, compliance frameworks need to be adjusted to address the increased scrutiny and risk associated with liquidity-driven market movements. In contrast, a keen understanding of risk management strategies that predict volatility caused by strategic liquidity flows and how liquidity management shapes market narratives and outcomes is important.
Therefore, the key to the Web3 market is liquidity and information. Hong Kong’s jumping policy has attracted all media attention, but the true chess move lies in China’s crypto liquidation and injection policy. This injection will transform Hong Kong into a dynamic market price vehicle and allow it to equip liquidity as a weapon with little matching jurisdictions.
In contrast to the US, this is constrained by strict “hold-only” reserve policies and inflexible to affect market liquidity or effectively respond to price volatility.
Despite its mature regulatory framework, Singapore faces market scale restrictions, and Dubai, although ambitious, is fighting the high operating costs that hinder the fragmented regulatory public and private sectors to speedy scaling. Hong Kong “holds all the cards.” Only this time, China is creating all the liquidity cards.
Therefore, the unique combination of the city’s own regulatory framework, direct access to the world’s second largest crypto stockholder, and the ability to strategically deploy such liquidity at its discretion, grants unparalleled highlands in the Web3 ecosystem. Hong Kong can adjust global crypto prices in real time, attract institutional capital and promote innovation within a stable, investor-friendly environment.
The liquidity of this contest is the ultimate leverage, with Hong Kong holding the switch. Understanding this layered strategy is essential for anyone seeking to navigate the rapidly evolving digital assets landscape with clear and foresight. Those who fail will find themselves beating themselves.
Opinion: Joshua Chu, co-chair of Hong Kong Web3 Association.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
