Is China about to catalyze the crypto bull market through Hong Kong?

Former BitMEX CEO Arthur Hayes posted a comprehensive Medium article titled “Comeback.”

It delved into the complicated relationship between China and Hong Kong and how he is hopeful that the latter can restore its crypto hub status. If so, what could this mean for the broader crypto market?

China’s Anti-Crypto Stance

China’s encryption has a long history, with Beijing often announcing anti-crypto measures that set off locals.

Some speculate that Tether’s rise in popularity can be attributed to the halt of crypto-to-yuan — and vice versa — exchanges. Hayes alluded to this in the Medium post, writing:

“Crypto exchanges needed a way to fund in USD without touching the banking system. And similarly, the Chinese needed a way to send dollars around the world without involving banks.”

However, things took a decisive tone in May 2021 when the authorities reiterated earlier trading bans and banned financial institutions from handling digital assets.

In June 2021, crypto mining was banned, leading to a mass exodus of miners over the coming months to more accommodating jurisdictions.

The final death blow came in September 2021 when The People’s Bank of China (PBoC) made crypto transactions illegal and banned exchanges from serving Chinese citizens.

The PBoC message spoke about the need to curb illegal and criminal activities resulting from trading in digital assets in order to maintain national security and social stability.

“Virtual currency trading hype activities have been on the rise, disrupting economic and financial order, spawning illegal and criminal activities such as gambling, illegal fundraising, fraud, pyramid schemes and money laundering, and seriously endangering people’s property security.“

Hayes said with the mainland’s crackdown on crypto, Hong Kong became a “less friendly place” for digital assets. As the crypto hub’s position diminished bit by bit, Beijing’s zero-covid policy accelerated the matter.

Hong Kong wants to regain its crypto hub status

Nevertheless, according to Hayes, “Hong Kong wants crypto back.” And, as he said in the Medium post, “Hong Kong is the proxy through which China interacts with the world.”

“Hong Kong (a deep-water port at the mouth of the Pearl River Delta) has always been China’s window to the world. Whether it was shipping, capital or drugs supplied by the biggest drug dealer in human history (the British Crown), Hong Kong has historically been where China and the West met.”

On October 17, Elizabeth Wong, head of fintech at the Securities and Futures Commission, said the regulator is considering allowing retail traders to invest directly in crypto.

Under existing rules, only professional traders can invest in cryptocurrencies – defined as individuals with a portfolio of at least HK$8 million (US$1.02 million).

If passed, retail participation in Hong Kong would draw a clear distinction between mainland policies on the matter. Thus demonstrating the “one country, two systems” policy that Hong Kong’s lawmakers often espouse.

Despite Hong Kong’s multi-party democratic political system, Beijing’s reform of legislative elections makes it difficult for anti-China candidates to take office at the highest level. With that, it is fair to say that what happens in Hong Kong must be approved by China first.

Considering the proxy relationship with Hong Kong, Hayes wonders if this is a sign that China is trying to regain the crypto dominance it shed last year.

If so, the implications for the broader crypto market could be far-reaching in terms of catalyzing bullishness. Hayes said:

“When Choyna [sic] love crypto, the bull market is coming back. It will be a slow process, but the red shoots are sprouting.”