Hong Kong Could Spark Bitcoin And Crypto Bull Market
The establishment of Hong Kong as a crypto hub is a development that could have the potential to trigger a new Bitcoin bull market. As Bitcoinist reported, cryptocurrency exchanges in Hong Kong can obtain a Virtual Asset Service Providers (VASP) license to legally operate in the Chinese special economic zone.
Yesterday, the Hong Kong Securities and Futures Commission released a statement outlining its plan to allow not only institutional investors but also retail investors to trade cryptocurrencies such as Bitcoin and Ethereum.
“As long as you don’t violate the basic rule of not compromising China’s financial stability, Hong Kong is free to pursue its own goal under the slogan of ‘one country, two systems,’” said Nick Chan, a member of the National People’s Congress. and digital asset lawyer, told Bloomberg.
Why Hong Kong Could Trigger a Bitcoin and Crypto Rush?
For Bitcoin and crypto markets, the reopening of Hong Kong means the potential for massive new inflows of funds. Hong Kong is the fourth largest financial center in the world, after New York, London and Singapore, making it one of the largest capital centers in the world.
Furthermore, the special economic zone is considered the first option for rich mainland Chinese to withdraw their capital from the isolated country. Estimates put the figure for capital moving from mainland China into the special economic zone at around US$500 billion to gain access to the global financial system.
While Hong Kong does not allow for truly decentralized crypto applications and self-storage, the injection of new capital could be very good news for Bitcoin and crypto markets. After all, the days when China accounted for the bulk of cryptocurrency trading volume are not long gone.
Hong Kong’s plan to become a crypto hub also coincides with China’s reopening after Covid-19. As “tedtalksmacro” discussed in a Twitter thread, China’s central bank made the biggest liquidity injection in its history last Friday to help pull the country’s economy out of its historic slowdown:
Last Friday, $92 billion dollars (net) was injected to lower lending rates and make it easier to get money – which is not much different from what the Fed has done during the pandemic!
And this also has implications for Bitcoin and cryptocurrencies. As the macro analyst notes, the People’s Bank of China (PBoC) is the third largest central bank in the world, with assets of around US$6 trillion, playing a key role in global liquidity.
“While most analysts are focused on how Fed tightening will reprice risk assets this cycle, they are not considering the scale of easing in the east,” says the analyst.
Japan has the fourth largest central bank in the world. Together, the two countries provide liquidity to global markets, far outpacing the Fed’s tightening measures. With that, there is currently an increase in global liquidity, as shown by the analyst with reference to the chart below.
Cryptocurrency is not tied to any particular economy or entity, but rather a liquidity junkie – it craves the risk-hungry investor to get cash and bet on the fastest horse. That should be exactly what will happen this year in China.
Economists expect the PBoC to play its role in stimulating the Chinese economy and cutting interest rates in the coming months to support and encourage a sustained economic recovery. For Bitcoin, this could mean, according to the analyst:
Of course, not all the money injected by the PBoC will end up in risky assets. But I bet a decent part of it does! Just as we saw in the West in 2020, higher central bank liquidity = risky asset prices (like BTC) go up.
The opening of Hong Kong as a crypto hub combined with monetary policy in China could therefore be a catalyst for a new Bitcoin bull market. At the time of writing, BTC is trading at $25,004, trying to break the key resistance at $25,244.
Featured image by Ewan Kennedy / Unsplash, chart by TradingView.com