On January 22, the People's Bank of China and five other departments jointly issued (Opinions on Promoting Institutional Opening to International High Standards in Conditional Free Trade Pilot Zones (Ports) in the Financial Sector) (hereinafter referred to as (opinions)). The document proposed 20 policy measures, including supporting the optimization of the 'Wealth Management Connect' pilot in the Guangdong-Hong Kong-Macao Greater Bay Area, improving arrangements for the cross-border flow of financial data, and allowing foreign financial institutions to provide new financial services, marking the official start of a new round of financial opening.
Under this policy framework, can the cryptocurrency asset industry find a point of convergence and use policy dividends to broaden development paths? This article will explore the potential and future of the blockchain and cryptocurrency asset industry in the Greater Bay Area from two aspects: building a new blueprint and analyzing industry challenges.
Cryptocurrency asset industry, potential paths under policy guidance
(Opinions) provide many potential opportunities for the blockchain and cryptocurrency asset industry, especially in areas such as qualified investment products, data flow support, and financial service innovation, where policy and industry can find a fit.
The document mentions 'supporting mainland residents of the Guangdong-Hong Kong-Macao Greater Bay Area to purchase qualified investment products sold by Hong Kong and Macao financial institutions through Hong Kong and Macao financial institutions, and expanding the range of participating institutions and qualified investment products.' Currently, qualified products mainly focus on traditional financial instruments such as Hong Kong stock funds and offshore bonds. However, with the proactive exploration of virtual asset regulation by the Hong Kong SAR government, such as the launch of virtual asset ETFs, it is worth looking forward to whether these products can be included in the cross-border Wealth Management Connect in the future.
Based on the policy terms, if Hong Kong's cryptocurrency asset products can provide investment channels for mainland investors through the Wealth Management Connect, it will not only enrich the asset allocation options for mainland residents but also become an important tool for promoting the internationalization of the renminbi. Once the scope of the cross-border Wealth Management Connect is further expanded, virtual asset ETFs or on-chain bonds may be piloted first, opening the door to the financial application of the blockchain industry.
How can foreign financial institutions assist domestic enterprises in financing?
The (opinions) explicitly require 'facilitating and standardizing the cross-border flow of data for financial institutions in pilot areas, exploring the formation of a unified compliance standard for cross-border financial data flow under the framework of the national security management system for cross-border data transmission.' This policy provides possibilities for the application of blockchain in cross-border finance.
The inherent transparency and security of blockchain technology can meet regulatory requirements for tracking the flow of funds while achieving transaction efficiency through smart contracts. This applies not only to small cross-border payments between individuals and enterprises but can also support larger-scale trade financing and settlement.
The (opinions) mentioned that 'foreign financial institutions are allowed to carry out new financial services similar to those of Chinese financial institutions, and relevant approvals are required to be completed within 120 days', and 'under the premise of real compliance, all transfers related to foreign investors' investments in pilot areas are allowed to be freely remitted in and out without delay. Such transfers include: capital contributions; profits, dividends, interest, capital gains, royalties, management fees, technical guidance fees, and other fees.'
This policy not only facilitates the opening of traditional financial services but also creates new possibilities for the integration of blockchain technology and traditional finance. Especially in the field of RWA (Real World Asset on-chain), cooperation between foreign financial institutions and blockchain companies is expected to become an important means for domestic enterprises to broaden their financing channels.
RWA is the digitalization and tokenization of real-world assets (such as real estate, equity, bonds, etc.) through blockchain technology, thus achieving more efficient circulation and financing. In the current context where domestic enterprises generally face difficulties in financing and high financing costs, RWA provides a new way to break through the limitations of traditional finance.
RWA provides domestic enterprises with opportunities to expand international market channels. Traditional corporate financing typically requires multiple layers of intermediaries, making the process complex and costly. However, through RWA and blockchain technology, enterprises can directly access international investors, eliminating complicated approvals and intermediary steps, significantly shortening the time to secure funding. This directness brings efficiency improvements to corporate financing while also reducing overall transaction costs. The high transparency of tokenized assets allows investors to assess risks in real-time based on on-chain information. This transparency greatly reduces information asymmetry, thereby lowering investors’ risk premium demands, ultimately enabling the financing party to obtain lower financing rates.
Through cooperation with foreign financial institutions, domestic enterprises can not only attract international investors interested in emerging markets but also leverage the flow of on-chain assets to enter the global market. This kind of international financing model not only provides enterprises with more diversified sources of funding but also enhances their influence in the international market, further expanding their business growth space.
With the introduction of RWA, cooperation between foreign financial institutions and blockchain companies is expected to create new financing paths for domestic enterprises. This model can effectively make up for the shortcomings of traditional financing methods and inject new vitality into the financial opening of the Greater Bay Area, becoming an important bridge connecting domestic and international capital markets.
Numerous challenges: The art of balancing regulation and innovation
Although the policy provides opportunities for potential development directions of the cryptocurrency asset industry, the game between regulation and innovation remains a current reality that cannot be ignored. This game involves constraints of the existing legal framework and tests how the industry can achieve technological breakthroughs and commercialization under compliance.
01 The dynamic game between policy relaxation and compliance pressure
Mainland China's regulation of cryptocurrency assets has always maintained a high-pressure stance. Since the comprehensive ban on ICOs (initial coin offerings) in 2017, domestic services of virtual currency trading platforms have also been strictly limited. Although the (opinions) propose the expansion of cross-border Wealth Management Connect and support for purchasing certain types of overseas financial services, the currently clearly allowed range of investment tools remains limited to traditional financial products. Whether cryptocurrency assets can be included in the policy pilot scope is a dynamic regulatory game.
In Hong Kong, the virtual asset service provider (VASP) system launched in 2023 provides a legalized path for compliant cryptocurrency trading platforms. This has made Hong Kong one of the important centers for international cryptocurrency development. However, whether the mainland will indirectly pave the way for cryptocurrency products to enter the mainland market through the pilot results in Hong Kong and Macao remains an unresolved question.
02 The integration challenges of technology and business models
Blockchain technology is known for its transparency and efficiency, but its implementation in traditional financial systems faces multiple obstacles. Cross-border payments are one of the popular application areas for blockchain technology, but existing cross-border payment networks such as SWIFT and CHIPS have established complex and efficient global clearing systems. How blockchain payments can achieve seamless integration within existing networks remains an unsolved commercialization challenge.
On the other hand, asset tokenization, as another important application scenario of blockchain technology, can theoretically achieve significant advantages in splitting and circulating almost all traditional financial assets, from real estate to stocks and bonds. However, it still faces certain obstacles in practical operations. For instance, whether tokenized assets can attain legal recognition equivalent to traditional assets still requires further policy support. At the same time, how cross-border capital flows can be conducted within a compliance framework, especially in light of complex international regulatory requirements, is also a major challenge currently. Additionally, the process of asset on-chain requires the assurance of data authenticity and integrity. Particularly when multiple jurisdictions are involved, how to achieve efficient cross-border regulatory coordination remains a problem that needs continued exploration.
03 Market education and investor trust
The cryptocurrency asset industry has long been controversial due to significant price volatility and lack of transparency. Even if policies open up to allow certain cryptocurrency asset products to enter the Wealth Management Connect pilot, ordinary investors' understanding and acceptance of these products will still determine the maturity of the market.
For example, the virtual asset ETF, as a relatively traditional cryptocurrency investment tool, has already been launched in several global markets. However, even in mature regulatory markets, the liquidity and volatility issues of ETF products still raise concerns among investors. In addition, the complexity of cryptocurrency assets and the high technical threshold make it difficult for many ordinary investors to effectively assess risks. In this situation, how financial institutions can enhance investor confidence through information disclosure and user education will be an important issue for future development.
Summary and Outlook: The Cryptocurrency Asset Industry in the Wave of Openness
The financial opening of the Greater Bay Area provides broad opportunities for the cryptocurrency asset industry while also bringing new challenges. How to find innovative breakthroughs under high regulatory pressure is the core issue facing the current industry. From the perspective of the policy framework, if the cryptocurrency asset industry can develop around compliance and transparency, it will have the opportunity to become a part of the financial system of the Greater Bay Area.
In the future, the industry needs to accelerate the implementation of technology and explore the potential for cooperation with traditional financial institutions. At the same time, industry participants should pay more attention to investor education and information disclosure to eliminate market cognitive barriers regarding cryptocurrency assets. Through these efforts, the cryptocurrency asset industry is expected to find a stable growth path in the Greater Bay Area, exploring more possibilities for China's financial opening.
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Author: Lawyer Liu Honglin
