In early August this year, when I went to Hong Kong, it was the peak of interest in stablecoins and RWA (Real World Assets) in Hong Kong. I described the situation at that time in a previous article:
“With the legislation on stablecoins in the U.S. and Hong Kong, and the resulting market trends in both the stock and cryptocurrency markets, stablecoins and RWA are hot topics of discussion in Hong Kong. Every dining table is abuzz with recent market trends and rumors. Traditional financial giants are beginning to actively engage in crypto opportunities, and a large number of traditional internet and AI entrepreneurs are flocking to Hong Kong in search of ways to integrate Web3. Many forward-thinking entrepreneurs from traditional industries are also starting to pay attention to crypto. Even discussions about stablecoins and RWA in hotel lobbies attract curious inquiries and exchanges from others. Such a vibrant scene seems to have not been experienced since 2018. Before coming to Hong Kong, I speculated that the current global center of crypto was in New York, but a Wall Street banker I know had just moved from New York to Hong Kong, and he told me that the crypto enthusiasm in Hong Kong far exceeds that of New York. So if we rank by enthusiasm, Hong Kong is definitely number one in the world right now.”
Less than two months have passed, and Hong Kong has sent out mixed signals. On one hand, the Hong Kong government recently reiterated in an important comprehensive report that it will continue to promote the development of stablecoins and tokenized assets, indicating that there has been no substantial change in Hong Kong's crypto industry policy. On the other hand, some media reports and rumors have confirmed that there has been a significant shift in the policy of mainland regulatory authorities regarding the participation of financial institutions from mainland China in RWA business in Hong Kong, raising doubts about the future of Hong Kong's crypto industry. It is said that the crypto enthusiasm in Hong Kong has sharply declined, making the above passage read with a sense of nostalgia, reminiscent of “the prosperous era of Kaiyuan, when even a small city housed thousands of families.” I am grateful that my trip to the U.S. delayed a previously planned analytical article; otherwise, reading it now would inevitably be somewhat awkward.
This is not the first time. Speculating on when a significant change in Hong Kong's crypto policy will come has been a long-standing topic of discussion in the Chinese crypto community. The sighs and laments over the hesitations and reversals in regulatory policy are akin to the closing song of every round of discussion, much like Li Guyi's "Unforgettable Tonight" at the CCTV Spring Festival Gala.
There is no doubt that the conflicting signals indicate that the situation is complex, and the policy reversals suggest that decision-makers are facing a complicated landscape. Therefore, at this moment, we need to assess how regulators will act and decide how we should respond.
For the first question, my judgment is as follows: regulators will allow Hong Kong to fully participate in the U.S.-led blockchain digital economy, limited to local resources, while strictly restricting the deep involvement of individuals and enterprises from the mainland.
Let’s state the facts and reason it out. The current situation is as follows: the application prospects of blockchain technology are clear, but its political and economic consequences remain uncertain.
With the U.S. revealing its cards, the application scenarios for blockchain have become clear. If someone questions you disdainfully, “What else is blockchain good for besides speculation?” you can throw this answer back at them: the largest and most efficient resource allocation network in history will be built on blockchain. Within twenty years, people will be able to buy and sell any asset with digital currency at any time and from any place. Capital, future cash flows, control rights, data rights, AI computing power, command of robots, energy, and all digitizable items will leap and flow globally in seconds. All regulatory rules, capital controls, and market barriers that have not been smart contract-enabled will become as ineffective as the closed-door and maritime policies of the 19th century, teetering on the brink of collapse. In short, blockchain is the WTO of the digital economy.
Such an efficient resource allocation network can push market efficiency to its limits. However, so-called market efficiency means “everyone gets what they deserve.” In an ideal world, this is good news for most people, but in the real world, deciding who gets whose resources for what purpose is far from a simple economic issue. Particularly, this grand voyage of the digital economy is not occurring in the historical phase of “The World is Flat” as described by Thomas Friedman, but rather in a historical phase that the American political commentary magazine The New Republic likens to the eve of World War I. Therefore, it is destined to be more than just a simple, inclusive financial technology advancement; it will inevitably be weighed repeatedly by everyone on the scales of victory and defeat.
The outcome of victory and defeat cannot be overstated. Unless this resource allocation network cannot be established, the rise and fall of an individual, a company, or a country over the next few decades will largely depend on its position within the network. Just as a person's power and wealth primarily depend on their position in the social network rather than their intelligence or physical strength, an economic entity's rights and wealth in the digital economy will also primarily depend on its position in the blockchain economic network rather than its own productivity. As a technology, blockchain aims to create a new digital economic order. Order is also a product, and it is the most important product of all. Therefore, my view differs from that of most people: an economic entity's position in the future digital economic order is more important than the AI computing power it possesses.
However, speculating on one's position within the blockchain order is very difficult. Apart from the rule-makers, the market never offers commitments to anyone. Joining this network may lead to becoming a winner or a loser.
This uncertainty may cause additional dilemmas for decision-makers in an economic entity. I attempt to program this dilemma into a set of “if-then” logical nesting:
If I can lead the blockchain economy as a rule-maker, then
Join and lead.
Otherwise, if I can achieve an acceptable outcome, then
Join and participate.
Otherwise, if I can be a winner without joining, or at least not become a loser, then
Do not join, close the doors, and remain gloriously isolated.
Otherwise, if I can start anew as a rule-maker, then
Do not join and start anew.
Otherwise—this means that not joining will definitely lead to loss, and starting anew has no opportunity, then
Join and engage in long-term maneuvering.
In light of this logic, we can easily understand the Trump administration's radical blockchain policy. The U.S. simply answered “Yes” at the first judgment branch; its main strategy is not just to participate but to lead and set the rules.
Meanwhile, most other economies around the world may still be calculating gains and losses or may still be observing. Perhaps this situation may not happen? Perhaps the next U.S. government can turn the tables? Perhaps it’s better to wait a few more years?
Such thoughts are very dangerous because the U.S. is running at full speed.
Following the passage of the stablecoin bill in July, the baton has now been passed to the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The pace of these two departments is even faster than the most optimistic expectations, planning to quickly push for the on-chain integration of all publicly listed company stocks and bonds in the U.S., and to introduce a significantly relaxed regulatory framework for digital asset trading by the end of the year. This means that by next year, hundreds of millions of “digital economy nomads” around the world will be able to purchase equity and debt of U.S. companies using stablecoins, protected by the U.S. regulatory system. Once the U.S. becomes the only “regular army” in this network, it will be like a bear breaking into a beehive, pushing its snout through every digital barrier to suck up the world’s digital honey. Blockchain will continuously pump money, data, computing resources, and power into the U.S. government and enterprises, and the U.S. will not look back once it tastes the sweetness.
There is little time left for hesitation.
Among all the “other” economies, China is the most unique. In terms of strength, China is the only economy that has the opportunity to compete with the U.S. for dominance in the on-chain digital economy. Although the best timing for this has already passed, it does not mean that it cannot catch up. China has successful experiences in this regard. The current issue is that people have very limited understanding of this emerging economic network, making it impossible to come up with an effective strategy like when joining the WTO.
Hong Kong plays the role of an experimental field in this context. It needs to participate in the game, explore paths, cultivate talent, while also preventing the expansion of experiments and prematurely introducing risks and uncertainties into the mainland.
This logic aligns with the current attitude of Hong Kong's regulatory authorities. If my guess is correct, this regulatory mindset will remain stable for some time to come.
For Chinese blockchain practitioners overseas, this means that there is room for participation, but operations have boundaries. Participating in the U.S.-led blockchain economy from Hong Kong is not an issue, especially in purely on-chain DeFi businesses, which will undoubtedly become a battleground. However, at the same time, funds and assets from the mainland need to be repeatedly checked to ensure compliance, especially the recent hot topic of RWA for mainland assets, which is considered a high-risk operation and requires extra caution.
For individuals, this is a time window for the entire industry to change chips, rules, and players. One must not hesitate due to some unclear local regulatory policies, as it may lead to missed opportunities. I believe that despite the repeated changes in Hong Kong's policies, the space left is sufficient. Particularly, starting from DeFi and fully utilizing the U.S. regulatory framework's leniency towards DeFi could lead to significant opportunities.
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