How Hong Kong is positioning itself as the new crypto hub

In a policy turnaround, Hong Kong recently announced plans to embrace crypto and allow retail investors to trade larger tokens such as Bitcoin. Now some blockchain experts are forecasting a China-based bull run.

- Chinese crypto stocks rally on news of Hong Kong’s proposed policy shift to let retail investors trade tokens.

- Crypto experts are anticipating a new bull run in the East.

- ProShares Bitcoin Strategy ETF up more than 40% this year.

Last week, Chinese crypto and blockchain-related stocks including OKG Technology Holdings [1499.HK], New Huo Technology Holdings [1611.HK] and Shenzhen Forms Syntron Information Co. [300468.SZ] spiked when Hong Kong revealed ambitions to become the next crypto hub, with plans to allow the retail sector to trade bigger crypto tokens such as Ether [ETH-USD] and Bitcoin [BTC-USD].

The move means that individual investors could trade coins on exchanges which are licensed by the Securities and Futures Commission (SFC).

As a result of the news, on Tuesday 21 February Chinese crypto- and blockchain-linked stocks rallied. Digital asset company OKG Technology Holdings closed up to 11.8% on the Stock Exchange of Hong Kong, while the crypto platform operator New Huo Technology Holdings rose 3.4%. In mainland China, the software company Shenzhen Forms Syntron Information Co. also jumped 4.1%.

The move follows the planned return of Tron [TRX], which had previously exited the country.

Hong Kong, which is a special administrative region of China, could be used as a testing ground for crypto assets ahead of any similar activity in Beijing.

Chinese coins soar

In addition to Hong Kong’s policy shift, last week Chinese crypto project prices surged thanks to a 632bn yuan (￥) liquidity injection into the market from the People’s Bank of China (PBOC), the central bank, designed to lift the economy post-Covid.

The cash injection on Friday 17 February came via ​​reverse repurchase contracts. Chen Kang, an analyst at Northeast Securities, told Bloomberg: “The move is a reflection of the PBOC’s unswerving stance to keep liquidity ample.”

The following week, on 22 February, Chinese coins including Conflux [CFX-USD], Neo [NEO-USD], and Flamingo [FLM–USD] soared more than 20%, while Filecoin [FIL-USD] and VeChain [VET-USD] also enjoyed gains.

After crypto’s turmoil last year, Julia Leung, CEO of the SFC, said resulting lower prices removed the “froth” from the system, helping investors and sellers to focus on protecting their assets.

Hong Kong intends to shield investors in the future by introducing more mandatory regulations.

New bull run predicted in the East

China began cracking down on crypto back in 2017, and banned trading and mining in 2021. While it went on to allow development of some blockchain technology such as NFTs, the ban on crypto stood firm. But the situation is changing swiftly.

A policy pivot was first mooted by Hong Kong last October, as part of the plan to revive its prospects as a finance hub. Now, “the next bull run is going to start in the East”, according to a tweet by Cameron Winklevoss, co-founder of crypto exchange Gemini, while Tron founder Justin Sun has made similar comments.

The consultation period for the policy shift ends 31 March, with crypto retail trading potentially licensed from 1 June. Any coins listed must be in at least two appropriate, investible indexes from independent providers.

If the policy gets the green light, it will contrast with the US’s own moves to crack down on crypto. In January, the US Securities and Exchange Commission issued fines and penalties against crypto lenders.

Crypto is still bouncing back from its crash in 2022, in which it fell behind the broader stock market. The value of Bitcoin fell by 64% through the year, and, notoriously, the FTX crypto exchange collapsed in November.

Funds in focus: ProShares Bitcoin Strategy ETF

According to Etf.com, the largest ETF based on cryptocurrencies is the actively-managed ProShares Bitcoin Strategy ETF [BITO], which launched in October 2021. The portfolio offers exposure to the CME Bitcoin Futures Non-Equity Index, but does not hold individual crypto-related companies. The ETF is up 40.3% in the year to date, but down 44.5% over the past 12 months.

In December, Hong Kong launched its first crypto ETFs: CSOP Asset Management’s Bitcoin Futures ETF [3066.HK] and Ether Futures ETF [3068.HK]. Before listing, the two funds respectively raised $58.9m and $19.7m. The former is up by 41.4% year-to-date, while the latter is up 37.3%.