Author: Meng Yan
When I went to Hong Kong in early August this year, it was the peak of interest in stablecoins and RWA in Hong Kong. I described the situation at that time in a previous article:
As the legislation on stablecoins in the United States and Hong Kong, along with the driven stock market and cryptocurrency market trends, is being discussed by everyone in Hong Kong, stablecoins and RWA are hot topics at every dining table, with recent market conditions and rumors being the main focus. Traditional financial giants are beginning to actively engage in crypto opportunities, and a large number of entrepreneurs from traditional internet and AI sectors 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, and even discussions about stablecoins and RWA in hotel lobbies attract curious inquiries and exchanges from others. Such a lively atmosphere seems to have not been experienced since 2018. Before coming to Hong Kong, I speculated that the current global center of crypto is in New York, but a Wall Street banker I know just moved from New York to Hong Kong, and he told me that the crypto heat in Hong Kong far exceeds that of New York. So if we rank by heat, Hong Kong is definitely number one in the world right now.
Less than two months have passed, and complicated signals have already emerged from Hong Kong. On one hand, not long ago, the Hong Kong government continued to express in a significant comprehensive report that it would advance the development of stablecoins and tokenized assets, indicating that there have been no substantial changes to Hong Kong's crypto industry policy. On the other hand, certain media reports and rumors corroborate that mainland regulatory authorities have made significant policy shifts regarding the participation of Chinese financial institutions in RWA business in Hong Kong, affecting Hong Kong and creating doubts about the future of the Hong Kong crypto industry. It is said that the crypto heat in Hong Kong has dropped sharply, to the extent that the previous text now reads with a sense of nostalgia, reminiscent of the prosperous era of the Kaiyuan period when small towns still had thousands of households. I am relieved that the delay in my original plan for an analytical article due to the U.S. schedule has spared me from some awkwardness in reading it now.
This is not the first time. Speculating on when a major crypto policy will arrive in Hong Kong has been a long-standing discussion topic in the Chinese crypto community. And the sighs and laments over regulatory policy hesitation, akin to Li Guyi's (Unforgettable Tonight) at the CCTV Spring Festival Gala, are the closing songs of every round of discussion.
Do not doubt, conflicting signals indicate that the situation itself is complicated, and policy reversals suggest that decision-makers face a complex scenario. Therefore, at this moment, we must first judge how regulation will proceed and then decide how to act.
For the first question, my judgment is as follows: Regulation will allow Hong Kong to fully participate in the U.S.-led blockchain digital economy, limited to local resources, but will strictly restrict deep involvement from mainland individuals and enterprises.
Present the facts and reason. The current situation is this: The application prospects of blockchain technology are clear, but its political and economic consequences remain uncertain.
With the U.S. taking the lead, the application scenarios for blockchain have become clear. If anyone still disdainfully questions you, 'What else is blockchain good for besides speculation?', then you can throw this answer back in their face: The largest and most efficient resource allocation network in history will be built on the blockchain. Within twenty years, people will be able to buy and sell any asset using digital currency at any time and any place. Capital, future cash flows, control rights, data rights, AI computing power, command rights 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 codified into smart contracts will become as outdated and shaky as the closed-door and maritime policies of the 19th century. In short, blockchain is the WTO of the digital economy.
Such an efficient resource allocation network can push market efficiency to the extreme. However, so-called market efficiency means 'everyone gets their due'. In an ideal world, this is good news for most people, but in the real world, deciding who gets what resources to do what is far from a simple economic issue. Particularly, this digital economy voyage is not occurring in the historical phase of 'great harmony' that Thomas Friedman wrote about in (The World is Flat), 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 not merely be a simple, inclusive financial technology advancement, but it will inevitably be weighed on the scale of victory and defeat by everyone.
The outcome of victory or defeat cannot be overstated. Unless this resource allocation network cannot be built, the rise and fall of an individual, a company, or a country over the next few decades will largely depend on its position in the network. Just as a person's power and wealth mainly depend on their position in the social network, rather than their intelligence and physical strength, an economy's rights and wealth in the digital economy will mainly depend on its position in the blockchain economic network, rather than its own productivity. As a technology, blockchain aims to create a new order for the digital economy. Order is also a product, and it is the most important product of all. Therefore, my view differs from most people: the position of an economy in the future digital economic order is more important than the AI computing power it possesses.
However, speculating on one's position in the blockchain order is very difficult. Apart from the rule-makers, the market never provides promises to anyone. Joining this network could lead to becoming a winner or a loser.
This uncertainty may make decision-makers in an economy feel particularly entangled. I attempt to program this entanglement into a series of 'if-then' logical nests:
If I can be a rule-maker and lead the blockchain economy, then
Join and lead.
Otherwise, if I can achieve an acceptable outcome, then
Join and participate.
Otherwise, if I can become a winner without joining, or at least not become a loser, then
Do not join, close the door and ban the sea, and achieve glorious isolation.
Otherwise, if I can become a rule-maker and start fresh, then
Do not join and start fresh.
Otherwise—this means that not joining will definitely lead to loss, and starting afresh will have no opportunity.
Join and engage long-term.
In light of this logic, we can easily understand the radical blockchain policies of the Trump administration. The U.S. simply answered 'Yes' at the first decision branch, and its main strategy is not just to participate but to lead and establish rules.
Meanwhile, most other economies around the world may still be calculating gains and losses or watching. Perhaps this matter may not happen? Perhaps the next U.S. government can overturn the situation? Perhaps it is better to wait a few more years?
This idea is very dangerous, as the U.S. is running at full speed.
After the United States passed the stablecoin bill in July, the baton is now in the hands of 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 originally most optimistic expectations, planning to rapidly push all publicly listed company stocks and bonds onto the blockchain, and to launch a significantly relaxed regulatory framework for digital asset trading before 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 use stablecoins to purchase equity and debt of American enterprises, and enjoy the protection of the U.S. regulatory system. Once the U.S. becomes the only 'regular army' in this network, it will, like a bear breaking into a beehive, push its mouth through every digital barrier to suck up the world's digital honey. The blockchain will continuously pump money, data, computing power, and power into the U.S. government and businesses day and night, and the U.S. will not look back once it tastes the sweetness.
There is not much time left for hesitation.
Among all the 'other' economies, China is the most unique. In terms of strength, China is the only economy with a chance 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 rise later. China has successful experiences in this regard. The current issue is that people's understanding of this emerging economic network is still very limited, and they cannot present a set of effective strategies like when joining the WTO.
Hong Kong plays the role of an experimental field. It must participate in the game, explore paths, cultivate talent, and at the same time prevent the expansion of experiments, introducing risks and uncertainties into the mainland too early.
This logic aligns relatively well with the current attitude of the Hong Kong regulatory authorities. If my guess is correct, then this regulatory thinking will remain stable for a period of time.
For overseas Chinese blockchain practitioners, this means there is space to participate, but operations have limits. Participating in the U.S.-led blockchain economy from Hong Kong poses no problem, especially in pure on-chain DeFi businesses, which will become a battleground. However, at the same time, funds and assets from the mainland must be repeatedly checked for compliance, especially the recent hot trend of RWA (Real World Assets) from the mainland, which is considered a high-risk operation and requires extra caution.
For individuals, it is now a time window for the entire industry to change chips, rules, and players. One must not hesitate due to some ambiguity in local regulatory policies and miss the opportunity. I believe that although Hong Kong's policies have many reversals, the space left is sufficient. Especially by entering through DeFi and fully utilizing the U.S. regulatory framework's tolerance window for DeFi, one could achieve significant success.