China’s Crypto Game Plan: Hong Kong as a Global Liquidity Powerhouse

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China isn’t just liquidating seized crypto for cash — it’s playing a high-stakes strategic game to reshape global crypto markets. And it’s using Hong Kong as its launchpad.

Last week, Hong Kong unveiled its LEAP Digital Assets Policy 2.0, a flashy update to its crypto rules. On the surface, it looked like a move to attract more innovation and investment. But beneath the surface, Beijing revealed a deeper strategy: it plans to sell off its confiscated crypto assets through Hong Kong’s licensed exchanges. This isn’t random. It’s about control — over prices, over liquidity, and over the global digital economy.

Why This Matters

China is one of the largest holders of crypto in the world, and instead of just holding these assets (like the U.S. does with Bitcoin), it’s turning them into market-moving liquidity. By funneling this liquidity through Hong Kong, China can control supply and demand — which means it can influence prices and shape global crypto trends.

This move turns Hong Kong into much more than a regional player. It becomes:

A crypto hedge for China A market pricing engine A forward-operating base for China’s broader Web3 ambitions

Hong Kong’s Legal and Regulatory Set-Up

Hong Kong’s regulatory journey started back in 2022, when it updated its Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). This brought all virtual asset trading platforms under official oversight — a big win for legitimacy and global trust.

Following that, Hong Kong introduced:

The Stablecoin Ordinance (effective Aug. 1, 2025), requiring strict 1:1 reserves and redemption guarantees for fiat-backed stablecoins. The new LEAP 2.0 framework (June 2025), which unifies licensing, expands tokenized products, and promotes industry collaboration and talent development.

Together, these laws make Hong Kong one of the most well-regulated and investor-friendly crypto hubs in the world.

But regulation alone isn’t the endgame.

Liquidity Is the Real Weapon

China’s decision to liquidate crypto through Hong Kong creates a massive injection of liquidity into the market. And in crypto, liquidity is power — it controls price stability, trading efficiency, and investor confidence.

By contrast, the U.S. keeps its government-held Bitcoin in cold storage. It’s a “hold-only” strategy, which means it can’t respond quickly to market shifts or use crypto reserves strategically.

China’s approach, on the other hand, lets it:

Stabilize or shake markets Adjust prices on command React to geopolitical or economic pressures with speed and flexibility

It’s similar to how China has used its dominance in rare earth metals as leverage in global trade — now it’s using crypto liquidity as a similar economic weapon.

Who Can Compete?

The U.S. is limited by its passive crypto-holding strategy. Singapore has strong rules but lacks the market scale. Dubai is ambitious but has regulatory fragmentation and high costs.

That leaves Hong Kong holding the cards — and China making the deck.

What’s at Stake?

This strategy gives China — through Hong Kong — the ability to:

Shape global crypto pricing Attract institutional capital Build a dominant Web3 ecosystem And use liquidity to outmaneuver global competitors

For regulators, investors, and lawyers, this signals a new era of liquidity-driven market strategy. If you’re not tracking how liquidity is being used geopolitically, you’re already falling behind.