Why does Hong Kong's blockchain policy seem to be "repeated"?

When I went to Hong Kong in early August this year, it was the peak phase of the popularity of Hong Kong stablecoin and RWA. I described the situation at the time in a previous article as follows:

"With the stablecoin legislation in the United States and Hong Kong, as well as the driven stock and cryptocurrency market trends, everyone in Hong Kong is now discussing stablecoins and RWAs. Every dining table is talking about the recent market conditions and rumors. Traditional financial giants are starting to actively participate in crypto opportunities, and a large number of traditional internet and AI entrepreneurs are flocking to Hong Kong to seek ways to integrate Web3. Many forward-thinking entrepreneurs from traditional industries are also beginning to pay attention to crypto. Even discussions about stablecoins and RWAs in hotel lobbies attract curious inquiries and exchanges from others. This kind of enthusiasm seems to have not been experienced since 2018. Before coming to Hong Kong, I suspected that the global center of crypto was in New York, but a Wall Street banker I know just moved from New York to Hong Kong. He told me that the crypto heat in Hong Kong far exceeds that in New York. Therefore, if ranked by heat, Hong Kong is definitely number one in the world right now."

Less than two months have passed, and complex signals are coming from Hong Kong. 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 substantive change in Hong Kong's cryptocurrency industry policy. On the other hand, some media reports and rumors have cross-verified that the regulatory authorities in mainland China have made significant changes to the policy regarding mainland financial institutions participating in RWA business in Hong Kong, affecting the outlook of the cryptocurrency industry in Hong Kong. It is said that the crypto enthusiasm in Hong Kong has sharply declined, to the point that the above passage now reads with a sense of nostalgia for the past prosperity. I am glad that the delay in my trip to the U.S. postponed an originally planned analytical article, otherwise it would inevitably feel a bit awkward to read now.

This is not the first time. Speculating on when a "big" change in Hong Kong's crypto policy is coming has been a long-standing topic of discussion within the Chinese crypto community. As for the hesitation and lamentation regarding regulatory policies, it is reminiscent of Li Guyi's "Unforgettable Tonight" being the closing song for each round of discussions, just like at the CCTV Spring Festival Gala.

There is no need to doubt, the conflicting signals indicate that the situation itself is not simple, and the repeated policies suggest that the decision-makers are facing a complex situation. Therefore, at this moment, we must first assess what the regulators will do, and second, determine how we will act.

For the first question, my judgment is as follows: regulators will allow Hong Kong to fully participate in the US-led blockchain digital economy with local resources, but will strictly limit the deep involvement of individuals and enterprises from the mainland.

State the facts and reason. The current situation is as follows: the application prospects of blockchain technology have become clear, but its political and economic consequences are still uncertain.

With the U.S. making its move, the application scenarios of blockchain have become clear. If someone questions you disdainfully, "What else is blockchain good for besides speculating on coins?" you can throw this answer in their face: 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 assets using digital currency anytime and anywhere. Capital, future cash flows, control rights, data rights, AI computing power, command of robots, energy, and everything that can be digitized 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 obsolete and shaky as the isolation and maritime ban 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 what they deserve." In an ideal world, this is good news for most people, but in the real world, deciding who allocates resources to whom for what purpose is far from a simple economic issue. Particularly, this digital economy grand voyage is not taking place in the historical phase of the "Great Adjustment" when Thomas Friedman was writing "The World is Flat," but 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 on the scales of victory and defeat by everyone.

The outcome of victory or 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 coming 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 individual intelligence and physical strength, an economy'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 among all products. Therefore, my view differs from that of most people: the position of an economy in the future digital economic order is more important than the AI computing power it possesses.

However, it is very difficult to speculate on one's position in the blockchain order. Apart from the rule makers, the market never offers guarantees to anyone. Joining this network can lead to becoming a winner or a loser.

This uncertainty can be particularly perplexing for decision-makers in an economy. I try to program this perplexity into a set of "if-then" logic nested statements:

If I could lead the blockchain economy as a rule maker, then

Join and lead.

Otherwise, if I can get an acceptable result then

Join and participate.

Otherwise, if I can still be a winner without joining, or at least not become a loser, then

Not joining, closing the borders and prohibiting the seas, glorious isolation.

Otherwise, if I could start anew as a rule maker,

Not joining and starting anew.

Otherwise——that means not joining will definitely lose, and starting over will not have any opportunity, then

Join, long-term negotiation.

In line with this logic, it is not difficult to understand the radical blockchain policies of the Trump administration. The United States merely answered Yes in the first judgment branch, and its main strategy is not just to participate, but to lead and establish rules.

And most other economies around the world may still be calculating gains and losses, or perhaps they are still observing. Maybe this situation may not happen? Maybe the next U.S. government can turn things around? Maybe we should wait a few more years to see?

This idea is very dangerous because the United States is running at full speed.

After the U.S. passed the stablecoin bill in July, the baton has now been handed over 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 originally most optimistic expectations, planning to quickly push for the on-chain integration of all listed company stocks and bonds in the U.S., 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 purchase equity and debt of American companies using stablecoins and be protected by the U.S. regulatory system. Once the U.S. takes the lead as the only 'regular army' in this network, it will be like a bear breaking into a beehive, pushing its mouth through every digital barrier to suck up the world's digital honey. Blockchain will continuously pump money, data, computing power, and authority into the U.S. government and enterprises day and night, and the U.S., having tasted the sweetness, will not look back.

There isn't much 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 United States for dominance in the on-chain digital economy. Although the best timing for this has been missed, it does not mean that it cannot surpass others later. China has successful experiences in this regard. The current issue is that people's understanding of this emerging new economic network is still very limited, and it is not possible to come up with a set of effective strategies like when joining the WTO.

Hong Kong plays such a role as an experimental field. It needs to participate in the game, explore paths, cultivate talents, and at the same time prevent the expansion of the experiment, introducing risks and uncertainties to the mainland too early.

This logic is quite in line with the current attitude of the Hong Kong regulatory authorities. If my guess is correct, then this regulatory approach will remain stable for a period of time in the future.

For Chinese blockchain practitioners based overseas, this means that there is room for participation, but there are limits to operations. Participating in the US-led blockchain economy from Hong Kong is not an issue, especially for purely blockchain-based DeFi businesses, which will inevitably become a battleground. However, at the same time, funds and assets from the mainland need to be repeatedly checked to ensure compliance, especially regarding the recent surge in mainland asset RWA conversion, which falls under high-risk operations and requires extra caution.

For individuals, this is a time window for the entire industry to change chips, rules, and players. We must not hesitate due to some unclear local regulatory policies, as it may lead to missed opportunities. I believe that although Hong Kong's policies are all over the place, there is enough leeway. Particularly, by entering through DeFi and fully utilizing the leniency of the U.S. regulatory framework towards DeFi, there is certainly great potential.