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 much anticipation and fanfare. The government of Hong Kong promised a comprehensive regulatory framework that will unify licensing and “expand the suite of tokenised products.”
Yet beneath the hype and visible maneuvers lies a far more consequential move: Beijing’s (the world’s second largest holder of crypto) announcement of its intention to liquidate confiscated virtual currencies through Hong Kong’s licensed exchanges. These events, while seemingly separate, are actually components of a carefully orchestrated strategy by China, designed to position Hong Kong as the dominant virtual asset hub and China’s strategic market operator.
A strategy of convergence: Hong Kong is poised to become the region’s virtual asset hub. Still, it will also serve as the linchpin of China’s global ambitions: a crypto hedge, a market price vehicle and a forward command post for PRC-crypto-liquidity.
Regulatory foundations
On the surface, Hong Kong’s LEAP policy appears to be all the headlines. A proper understanding of strategy, however, demands looking beyond the surface. The true power of these policy decisions lies in the liquidity injection that China’s crypto-liquidation decision will invariably create. This instrument will simultaneously grant Hong Kong unprecedented influence over global virtual asset markets.
The foundation of Hong Kong’s regulatory framework can be traced back to 2022 with the passage of the Amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), which, after the Securities and Futures Commission had the opportunity to gain sufficient experience under the previous opt-in regime, formally brought virtual asset trading platforms (VATPs) under their remit via the AMLO mandatory licensing regime. This critical move secured alignment with Financial Action Task Force (FATF) standards and became the first cornerstone legislation for virtual assets.
The next critical legislation that came about was the Stablecoin Ordinance, set to commence on Aug. 1, 2025, establishing a dedicated licensing regime for fiat-referenced stablecoin issuers. The Hong Kong Monetary Authority (HKMA) oversees this regime, mandating one-to-one reserves, robust redemption mechanisms and rigorous risk 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 use cases of cross-sector collaboration and talent development. Going beyond FATF-directed regulatory tinkering, LEAP aspires to be the architecture that will “scale Hong Kong to new heights of global digital asset leadership” and signal Hong Kong’s readiness to embrace the future of digital assets.
Laws and regulations alone cannot, however, command markets. It is liquidity that will decide the day.
China’s decision to channel confiscated digital assets through Hong Kong’s licensed VATP will strategically inject real, tangible liquidity into the ecosystem. This is no longer an FATF compliance checklist exercise — it is a strategic lever. Through enabling controlled liquidation, Hong Kong stands to become a market price vehicle capable of rapidly modulating supply and demand, another key driving factor of virtual asset value.
Liquidity as a weapon
Liquidity is the lifeblood of any market. Without liquidity, even the most sophisticated market will falter. Just look at the London Stock Exchange.
Related: Which countries secretly own the most Bitcoin — beyond the US and China
Under China’s grand strategy, unlike the United States, which holds a vast Strategic Bitcoin Reserve and is placed under a rigid “hold-only” policy, liquidity injected into Hong Kong’s exchanges will actively convert seized assets into market liquidity. This setup will grant Hong Kong — and by extension China — the ability to influence price, stabilize markets and respond to geopolitical pressures as it sees fit.
Just as control of the rare earth metals gave China all the cards in the latest rounds of trade negotiation with the US, so too will control over crypto liquidity, effectively controlling the value of the US’s newly minted crypto reserve.
This is a subtle, yet profound, shift in the balance of power. The ability of a single nation to control liquidity flows is to control market narratives and outcomes.
Implications and countermeasures
This grand strategy fundamentally alters the balance of power within the cryptosphere. Hong Kong will have a decisive advantage in absorbing institutional capital and deepening market liquidity, leveraging its unique position as the conduit for the PRC’s crypto liquidation moves.
At the same time, by scaling “Hong Kong to new heights of global digital asset leadership,” China will have a powerful geopolitical tool in its hands, able to control global cryptocurrency valuations through calculated market liquidity management.
Meanwhile, the US will face a strategic dilemma: Should it continue with a passive crypto stockpile with limited or no market influence? Or should the US consider new mechanisms to counterbalance Hong Kong’s growing control over crypto liquidity?
Understanding the dynamic in this interplay is important for market participants, lawyers, risk practitioners and lawmakers. After all, compliance frameworks must be adjusted to address increased scrutiny and risks associated with liquidity-driven market movements. In contrast, risk management strategies anticipating volatility stemming from strategic liquidity flows and a keen understanding of how liquidity control will shape the market narratives and outcomes are key.
The key to the Web3 markets is therefore liquidity and information. While Hong Kong’s LEAP policy garners all the media attention, the true chess move lies in China’s crypto liquidation and injection policy. This injection will turn Hong Kong into a dynamic market price vehicle, capable of wielding liquidity as a weapon that few jurisdictions can match.
Contrast this with the US, which is constrained by a rigid “hold-only” reserve policy, and it lacks the flexibility to influence market liquidity or respond effectively to price volatility.
Singapore, which, despite a mature regulatory framework, faces limitations in market scale, and Dubai, though ambitious, struggles with fragmented regulatory remits and high operational costs that hinder rapid scaling. Hong Kong “holds all the cards.” Only this time, China is also making all the liquidity cards.
As such, the city’s unique combination of mature regulatory framework, direct access to the world’s second-largest crypto holdings and the ability to deploy such liquidity strategically at their discretion grants it an unparalleled high ground in the Web3 ecosystem. Hong Kong can modulate global crypto prices in real time, attract institutional capital and foster innovation within a stable, investor-friendly environment.
Liquidity is the ultimate leverage in this contest, and Hong Kong holds the switch. Understanding this layered strategy is essential for those who seek to navigate the rapidly evolving digital asset landscape with clarity and foresight. Those who fail will find themselves outmaneuvered.
Opinion by: Joshua Chu, co-chair of the Hong Kong Web3 Association.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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