Hong Kong Is Poised To Open The Floodgates For Chinese Crypto Investment

Key Points:

• The financial pipes of Hong Kong are allowing wealthy Chinese investors to invest in cryptocurrency as a way to escape the weakening of the CNY.
• This process ultimately reduces the amount of Western fiat assets held by the Chinese state, while reigniting the crypto market for Chinese traders.

Hong Kong will serve as a conduit for Chinese capital to own crypto financial assets. The process starts with a wealthy Chinese investor buying a Bitcoin ETF listed on the Hong Kong Stock Exchange, and ends with physical Bitcoin held in a local custodian.

Arthur Hayes, the CEO of BitMEX, recently wrote a blog post discussing how Hong Kong can serve as a conduit for Chinese capital to own cryptocurrency financial assets. According to Hayes, the process starts with a wealthy Chinese investor exchanging CNY for HKD and purchasing a Bitcoin ETF listed on the Hong Kong Stock Exchange. The ETF manager then purchases physical Bitcoin from the global market, which is then held with a local Hong Kong licensed custodian.

Hayes believes that this process solves many problems for China. Wealthy Chinese have an outlet to invest in a hard asset, which they perceive as a way to escape the ongoing weakening of the CNY. Additionally, the endpoint of this outlet is an institution that must follow whatever rules Hong Kong regulators put in place, which means the Chinese government controls the physical Bitcoin. This is no different than how Bitcoin held in any US-listed ETF or trust is ultimately controlled by the US government.

Furthermore, this reduces the amount of Western fiat assets the Chinese state holds. When a wealthy Chinese investor sells CNY and buys HKD, the PBOC takes the other side and buys CNY and sells HKD, which is essentially USD due to its peg. The PBOC can do this trade because of the large amount of USD assets China has at its disposal.

For crypto enthusiasts, this is a great outcome. The return of the Chinese crypto trader through the financial pipes of Hong Kong will reignite the market while the broke-ass American mass affluent are effectively shut out. Each nation-state’s action drives the other nation-state to do more of the same.

Hayes concludes that the mere act of China weakening its currency and allowing loyal comrades to buy Bitcoin derivatives in response reduces the amount of Western fiat assets the country holds. The more reluctant China is to purchase US Treasuries with its export earnings or to hold USD assets in any form, the harder the US must work to ensure its citizens’ capital can’t leave Sharpe World since China’s usual buyer of long-term debt is on strike. It’s a positively reflexive relationship that should deliver glorious returns to Lord Satoshi’s faithful.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Thana

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