Hong Kong May Trigger Bitcoin and Crypto Bull Market

by James · February 21, 2023

The establishment of Hong Kong as a crypto hub is a development that could have the potential to trigger another Bitcoin bull market. As Bitcoinist reported, crypto exchanges in Hong Kong can obtain a Virtual Asset Service Provider (VASP) license to legally operate in the Chinese Special Economic Zone.

Yesterday, the Hong Kong Securities and Futures Commission issued a statement outlining their plan to allow not only institutional investors but also retail investors to trade cryptocurrencies such as Bitcoin and Ethereum.

“As long as you do not violate the fundamental rule of not endangering financial stability in China, Hong Kong is free to pursue its own goal under the slogan of ‘one country, two systems,'” Nick Chan, a member of the National. People’s Congress and Digital Assets Advocate, told Bloomberg.

Why Could Hong Kong Trigger a Bitcoin and Crypto Bull Run?

For the 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 hubs in the world.

Furthermore, the special economic zone is considered the first option for wealthy mainland Chinese to withdraw their capital from the isolated country. Estimates put mainland China moving capital into the special economic zone to the tune of around $500 billion to gain access to the global financial system.

Although Hong Kong will not enable truly decentralized crypto applications and self-storage, the infusion of new capital could be very good news for the Bitcoin and crypto markets. After all, the days when China accounted for a majority of crypto trading volume were not so long ago.

Hong Kong’s plan to become a crypto hub also coincides with China’s post-Covid-19 reopening. As “tedtalksmacro” discussed in a Twitter thread, China’s central bank made the largest liquidity injection in its history last Friday to help pull the country’s economy out of its historic slump:

Last Friday, $92 billion USD (net) was injected to drive down interest rates and make it easier to raise money – not unlike what the Fed did during the pandemic!

China increases supply of cash | Source: Twitter @tedtalksmacro

And this has implications for Bitcoin and crypto as well. As the macro analyst notes, the People’s Bank of China (PBoC) is the world’s third largest central bank, with assets of around $6 trillion, and plays a key role in global liquidity.

“While most analysts are focused on how Fed tightening will reprice risk assets this cycle, they fail to consider the extent of easing in the East,” the analyst claims.

Japan has the world’s fourth largest central bank. Together, the two countries provide liquidity to the global markets, far better than the Fed’s tightening measures. As a result, there is currently already an increase in global liquidity, as the analyst shows with reference to the chart below.

Crypto is not tied to any particular economy or entity, but rather is a liquidity junkie – it longs for the risk-hungry investor to cash in and bet on the fastest horse. That is set to be exactly what will happen this year in China.

Major central banks’ total assets | Source: Twitter @tedtalksmacro

Economists expect the PBoC to play its part 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 cash injected by the PBoC will end up in risky assets. But I’ll bet a decent portion of it will! Just as we saw from the West in 2020, liquidity from central banks increased = prices of risky assets (like BTC) go up.

The opening of Hong Kong as a crypto hub combined with monetary policy in China could thus be a catalyst for a new Bitcoin bull market. At the time of writing, BTC was trading at $25,004, trying to break through the key resistance at $25,244.