Increasingly, China is softening its once-hawkish stance on crypto.

Bloomberg ran a piece yesterday on Hong Kong’s efforts to woo crypto businesses back to help reestablish the city’s ‘financial center of Asia’ bona fides.

Notably, this push has been supported by “under-the-radar” backing from Beijing. In China’s highly centralized governance model, this suggests support for crypto extends to the highest levels of the Chinese Communist Party.

Per Bloomberg:

Representatives from China’s Liaison Office and other officials have been frequent guests at the city’s crypto gatherings over the past months, swapping business cards and WeChat details, said people familiar with the matter, who asked not to be named discussing private information. The encounters have been friendly, with officials checking on developments, asking for reports and in some cases making follow-up calls, the people said. The Liaison Office, the top mainland body based in Hong Kong, didn’t respond to a request for comment.

So, why should we care what Hong Kong – a population of ~7 million people – thinks about crypto?

Well, there’s functionally no difference between Hong Kong and China. After the national security law was introduced and the Umbrella Movement protests died down, it became clear that Hong Kong was very much a territory within China’s sphere of influence. Politically, Hong Kong leaders do what Beijing tells them to do, which suggests that any substantive policy – especially one that diverges from the mainland – must get pre-approved by those in Beijing.

Beijing also has a history of using Hong Kong’s laissez-faire governance as a testing ground for new policies before implementing them in mainland China. Covid is instructive here.

By Q4 2022, Hong Kong was fully reopened for business and, well, rugby.

Meanwhile, back on the mainland, Beijing was still pursuing its strict zero-Covid policy, leading to a striking diversion in policy that confounded foreign governments and those analyzing foreign affairs, specifically in China.

The upshot is that Hong Kong’s policies sometimes serve as a leading indicator of sorts for those of mainland China – Covid was one example, and crypto may soon be another.

Notes:

Arthur Hayes had a great call on this Hong Kong <> China crypto dynamic back in October 2022 — his blog post on the subject is worth reading.

Also, several notable crypto luminaries like GCR and Cameron Winklevoss have recently stated they believe Asia will lead the next bull run.