China, through Hong Kong, might retake control of the cryptocurrency market

    Simar Marwaha
    Simar Marwaha

    Updated on January 25, 2023 07:25 PM

    Published on October 27, 2022 06:02 PM

    According to Arthur Hayes, the former CEO of BitMEX, the next cryptocurrency bull run will start when China re-enters the market, and Hong Kong will be a crucial player in this process

    China, through Hong Kong, might retake control of the cryptocurrency market

    The former CEO of crypto derivatives firm BitMEX, Arthur Hayes explained in his blog post titled "Comeback” on October 26, that China's economy has declined since the 16th century, when it ranked as the largest in the world, Hong Kong has always served as China's gateway to the rest of the world.

    Hong Kong's status as a duty-free port where Chinese and Western goods and capital could be exchanged led to a surge in the city's wealth and worldwide significance. The attitude in Hong Kong is that of "can do." The locals' vigor and hustling are intoxicating, according to Arthur Hayes.

    China's crackdown and Hong Kong's decline in crypto

    China has all the elements needed to lead the world in crypto trading activity and related developments, but at some time, Beijing decided that crypto wasn't in the cards.

    The PBOC issued a ban until eventually no Chinese citizens were permitted to trade cryptocurrencies in any way. BTC China was acquired by a Hong Kong-listed business and rebranded as BTCC. China's crackdown and Hong Kong's decline in cryptocurrency began.

    Hong Kong wants its crypto back

    At first, Hong Kong's prominence as the key center for cryptocurrency started to steadily decline, but now, it seems like something strange is going on.

    One could be thinking, "So what?"

    You might assume that Hong Kong's population of nearly 7 million people is too little to be significant. But you must keep in mind that China communicates with the rest of the world through Hong Kong.

    Is this a sign that China will once again rule the crypto market? 

    Will Hong Kong serve as a channel for Chinese capital entering the world's cryptocurrency markets?

    The rich Chinese population drives Hong Kong's economy

    Crypto investors are interested in Hong Kong's capacity to meet the needs of Chinese capital as cryptocurrency investors. The Hong Kong economy is driven by the average wealthy Chinese people, whether through retail purchases or capital inflows.

    Source: Article "Comeback by Arthur Hayes"

    • The data stated above shows that, in comparison to the overall sales between 2018 and 2019.

    • The total amount of jewelry, watches, and clocks sold between 2020 and 2021 decreased by 54%.

    • The lesson here is that mainland tourists are the ones who purchase posh things. 

    • Sales decreased because Chinese tourists were deterred by COVID lockdowns.

    Hong Kong carefully followed China's implementation of the zero-COVID approach. But now that Hong Kong is reportedly reconsidering its position on cryptocurrencies, it seems Beijing may let its testbed colony follow the West a little further.

    “ Hong Kong is taking the necessary steps to reclaim its position as the world's center for cryptocurrency trading”

    The next cryptocurrency bull run, according to Arthur Hayes will begin when China enters the market again and Hong Kong will be a key player in this process.

    Hayes explained why he believes the Hong Kong government's announcement about presenting a bill to regulate cryptocurrency is an indication China is trying to ease its way back into the market in his blog post titled "Comeback” on October 26. This might be a result of Hong Kong serving as "China's proxy in its interactions with the rest of the world."

    "The bull market will return if China embraces cryptocurrencies. Although it will take time, red shoots are beginning to appear."

    "These flows will be a key supporting pillar of the next bull market if they actually materialize in the way I envision," the author said."

    According to Hayes, Beijing's plan to weaken its position without affecting its domestic financial system includes Hong Kong's "reorientation as a pro-crypto locale."

    According to a Forex Suggest report released in July 2022, Hong Kong is the nation that is almost ready for the broad adoption of cryptocurrencies. It took into account a number of variables, including startup culture, crypto ATM installations, and crypto-friendly regulations.

    Hayes says "China has not left crypto — it has just been dormant."

    Unsuccessful or “lightly implemented" crypto prohibition: China

    In September 2022, China did start up its Bitcoin mining once more, and Chainalysis stated in its 2022 Global Crypto Adoption Index that China had re-entered the top ten this year after coming in 13th place the previous year.

    The Global Crypto Adoption Index's authors said they considered the development "particularly noteworthy," but their data shows that "the prohibition has either been unsuccessful or lightly implemented."

    Despite the restriction, it is still legal to possess Bitcoin in China

    "It's true that China disapproves of cryptocurrency trading by people. However, this is never stated in any official documents”.

    China has not yet banned the possession of cryptocurrencies, according to David Lesperance, founder of Lesperance & Associates law firm.

    "China has not yet outlawed the ownership of cryptocurrencies. [...] It does not render the commercial trade of this kind of property legitimate because China's government has formally outlawed cryptocurrency exchanges."