China is no friend to crypto but it's also one of the world's biggest holders of BTC and now that talk of a strategic Bitcoin Reserve has spread to Hong Kong all eyes are back on Beijing does China want to use Hong Kong as a testing ground or is this just a case of lass Fair could a pro crypto pivot finally be on the cards for China and if so why and what would it mean for the market my name is Guy stay tuned to find out Beijing has worked hard for its anti- crypto status its
crackdowns over the years have chopped China's share of bitcoin's hash rate from 70% to just 20% and chased Hometown Heroes from binance to Tron wobie to okx Offshore the final nail in the coffin appeared to come in 2021 when Beijing declared crypto related business activities illegal banned domestic centralized exchanges and forbade overseas changes from providing services to people in China that round of restrictions was reported in the English language media as China's quote crypto ban and let's be honest it sounds a lot like a crypto ban however by 2023 there were still 900,000 binance users
in mainland China generating up to $90 billion in trading volume every month meanwhile China's slowing economic growth and wrecked real estate market have severely curbed traditional investment opportunities this has contributed to Growing retail demand for crypto Investments via OTC and P2P transactions an investigation by chainalysis found inflows of more than $75 billion into OTC desks in the nine months leading up to June 2024 interestingly more than half of these OTC transactions were worth more than $1 million although it's not clear if they represent big individual ual buyers or businesses clearly demand for crypto from the
investing public is persistent and growing in China but the government hasn't done much about it this tolerance of retail crypto activity discredits the idea that crypto is subject to a blanket ban in China but at the same time there's no indication that the government is planning to regulate crypto that would suggest a degree of acceptance at odds with current restrictions that are in place hold up a second there guy sorry to interrupt folks but I just wanted to very quickly tell you about the coin Bureau deals page now this is the place where we have
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constrained but individual crypto users are not so what gives what are beijing's priorities when it comes to crypto if we're talking about mining then China's Environmental Protection and energy regulations have played a large role in kicking large-scale mining operations out of the country this motive is supported by reports that miners have supposedly been tolerated if not welcomed in areas of the country where for example hydroelectric power is abundant anyway mining aside beijing's top priority when it comes to crypto is enforcing Capital controls the government is serious about preventing Capital flight which it considers a threat
to National Financial stability and as we all know Capital controls and crypto don't mix last year the IMF published research that described crypto as a quote market for Capital flight for the access to pseudo Anonymous foreign exchange transactions that it provides the study showed how in countries with strict Capital controls like Argentina Nigeria and Ukraine crypto prices trade at substantial and persistent premiums to Global Market prices and how these premiums Spike whenever new controls are introduced or existing ones strengthened no huge surprises is there now China isn't mentioned in the study but then it doesn't
have any local crypto exchanges where price premiums can be observed on that note we'd be very interested to see what premiums might exist on China's OTC gray Market anyway we don't have to rely on price data to find evidence of crypto being used for Capital flight in China last year a series of police raids on addresses in Beijing changdu and in the northeastern province of galin stemmed the flow of billions of US dollars in illicit foreign exchange transactions the raids also resulted in hundreds of arrests and the breaking up of 11 gangs operating across the
country it's good to see law enforcement have got their priorities in order going after criminal gangs and not pedestrian binance users in China then again though offshore exchanges might be the ideal Avenue for Capital flight precisely because they don't have any legal presence in China since China banished these exchanges from their territory and forbade them from offering services to Chinese citizens it's hard to imagine the exchanges having any relationship with Chinese authorities let alone any legal obligation to help them keep Capital within China's borders for all we know the tens of billions of dollars in
trading volume generated each month by Chinese users on binance could represent the Chinese Financial system leaking Capital like a Civ of course this is just speculation but the authorities are starting to tighten the screws to prevent exactly this kind kind of thing at the end of 2024 China's Forex regulator introduced new regulations to compel Banks to Monitor and Report risky Forex Trading activities and capital flows associated with crypto transactions banks are now required to track and Report the movement of funds that may be used for among other things illegal crossborder Financial activities involving crypto notably
this includes the conversion of Chinese yuan into crypto and subsequent exchanges for foreign currencies activities are to be tracked based on the identity of the individuals and institutions involved their sources of funds and the frequency of their transactions depending on how this is all enforced it could be the end of the party for China's burgeoning OTC market until now OTC desks have provided a conveniently unregulated onramp enabling Chinese citizens to swap cash for crypto discreetly once they have crypto access to Offshore exchanges PTP markets and banking services outside of China will have made for an
easy path to getting money across borders but this may be coming to an end in 2025 as the government recruits Banks as informants on the lookout for people spending too much money on crypto all in the name of National Financial Security well we'll have to see how this is enforced in practice but it doesn't sound good and come to think of it it's a little ironic that the public having too much access to crypto is a threat to China's national Financial Security recently a growing number of people have been saying that the government needs to
hold crypto as a matter of National Financial Security since Donald Trump's election Victory the media has been a buzz with Talk of the Strategic Bitcoin Reserve or SBR and for good reason will he or won't he nobody can really say it's a live situation that could go either way in the US and this has emboldened Pro crypto lawmakers around the world to raise the topic with their own governments and legislatures you can now find headlines combining strategic Bitcoin Reserve with all sorts of countries Brazil Japan Russia Switzerland Poland Germany you name it it's fantastic clickbait
so of course China has popped up in this conversation too so which polit Bureau Degen do we have to thank for this let's see it's none other than checks notes Anthony scaramucci yeah so scaramucci was speaking on stage at the 2024 Bitcoin Mina conference in Abu Dhabi when he predicted that China would start accumulating BTC as a reserve asset in 2025 super bullish right the only problem is that he seems to have pulled this idea out of thin air well the argument goes something like this now that the US is contemplating an SBR talk of
BTC as a national Reserve asset has spread like wildfire this has inspired some to think a few steps ahead and envision a future wherein accumulating BTC becomes a strategic geopolitical imperative if this happens then China can't just take the US hoarding BTC lying down they can't just let themselves be out hodded they'd have to compete Ergo Anthony scaramucci says Beijing is going to be buying Bitcoin in 2025 we're not sure if he really believes this but hey it got us talking about it right Beijing has shown no indication that it wants to accumulate more BTC
and it's not clear which elements of the CCP would be interested in this idea at all if the US creates an SBR and sin us relations deteriorate further China might not want to go out of its way to pump Washington's bags and make Trump look good by buying BTC for its own reserves on the contrary it might open a strategic Bitcoin short by say Market selling the estimated 190,00 000 BTC it holds at inopportune moments for the US Treasury this would strategically nuke the chart and perhaps send the US SBR underwater causing at the very
least a nuisance for the Trump Administration hey it's possible it's not at all likely but then neither is a PRC Bitcoin reserve and yet just when we thought we'd put the idea of a Chinese SBR to bed another story has given oxygen to those speculating about a pro Bitcoin turn in Beijing in late December the chairman of the Hong Kong legislative council's web 3 and virtual assets development subcommittee told a state-owned pro Beijing newspaper that he has been lobbying the Hong Kong government to Pilot the adoption of BTC as a strategic Reserve asset chairman Johnny
also known as Wu joang said in an interview with wway po that Hong Kong should exercise its freedoms under China's one country two systems framework to add BTC to Hong Kong's exchange fund and to explore ways for the government to take advantage of its current BTC Holdings un framed the adoption of BTC as a matter of National Financial Security in the face of the US potentially disrupting asset markets under a second Trump Administration National Financial Security of course is a reference to the security of both mainland China and Hong Kong as such un seems to
be implying that China needs a BTC Reserve to protect its finances according to the wway PO interview un has been directly asking the Hong Kong government not only to use its foreign exchange fund to buy and huddle crypto but also to evaluate other Count's designation of Bitcoin as a strategic Reserve asset and how this will impact the security of the Mainland and Hong Kong lo and behold Hong Kong's treasury Bureau duly responded it said that although crypto assets are not the target assets for exchange fund investment the Hong Kong monetary Authority's external investment managers have
not ruled out making investments in crypto assets as part of their operations the reply added that any such investment would be very small but hey you have to start somewhere right the treasury Bureau had less to say on 's questions about Financial Security and Hong Kong serving as a policy testing ground it only said that the government would formulate regulatory systems to promote the crypto Market in Hong Kong deal with its risks and Ensure Financial Security based on the principle of same business same risks same rules it's not quite the answer that Johnny O would
have been hoping for still his influence as chairman of Hong Kong's web 3 and crypto subcommittee is nothing to sneeze at and he's also not alone in framing the BTC Reserve question as a matter that mainland China should also be paying close attention to when way po has also published a variety of pro spr arguments from BTC Bulls both in Hong Kong and on the mainland highlights include Wang junwen president of the Hong Kong blockchain industry Association suggesting that China use BTC as a supplementary Reserve backing the digital Ren mby to promote its internationalization Wang
also urged Beijing to write legal Frameworks for compliant crypto transactions which he says should be encouraged to boost government revenue Kai xishan president of the Asian blockchain Society was was quoted as saying that BTC should be incorporated in China's foreign exchange reserves to help disperse risks and enhance the stability of the financial system then there's binance co-founder CZ who says National BTC reserves are an inevitability but the argument that stuck out to us the most came from Wang xong a senior Mainland blockchain expert quote the role of gold Reserve currency will be replaced by Bitcoin
and China needs to follow up on the Bitcoin National reserve the cost of following is not high but the risk of missing out is huge by the sound of it he's not even talking about Hong Kong anymore and this leads us back to the real point of interest in this story what does Beijing think of all this it's a question that cuts across beijing's perspective on crypto but also Hong Kong's autonomy and its ability to influence policy in Beijing quite a lot going on there Hong Kong has been trying to Rebrand as a global crypto
Hub since 2022 and Beijing has supported this from the very beginning this has been evidenced by a steady stream of reports suggesting active cooperation between state-owned Enterprises on the mainland and Hong Kong's crypto industry Bloomberg reported that officials including representatives of the liaison office the top Mainland body based in Hong Kong have been regular attendees of local crypto industry events subsequently it was revealed that state-owned bank banks on the mainland were courting crypto firms in Hong Kong The Straits times reported that on at least one occasion sales representatives from one Chinese Bank even visited the
office of a crypto company to pitch its services now this is pretty remarkable considering how the banking sector has systematically shut out the crypto industry in so many other countries whether of its own accord or because of government coercion and last year Hong Kong's Securities and Futures commission appeared to Grant expedited approvals to applications for spot crypto ETFs from subsidiaries of Mainland financial institutions after Hong Kong's ETFs launched there was much confusion over whether or not mainlanders would be able to access them via the Shanghai Hong Kong stock connect which enables Mainland trading of Hong
Kong stocks the Hong Kong Stock Exchange denied this last May triggering relatively large outflows from the ETFs however when way po recently reported that mainlanders could invest in the ETFs via alipay China's leading payment platform an advert on alipe funds read quote Global investment cryptocurrency is soaring start investing at tenan get started now and offered users to quote cross National borders and capture new Global investment opportunities it almost sounds like an inducement to Capital flight but then again ETFs are an indirect investment meaning that buyers do not directly hold crypto as such mainlanders having exposure
to ETFs poses much less of a threat than say mainlanders being able to transact frictionlessly across borders using crypto so perhaps it's no big deal for Beijing if mainlanders can invest in Hong Kong ETFs the etf's poultry inflows and outflows suggest that there's not a great deal of interest from either Hong kongers or mainlanders we can surmise that Beijing is very happy for Hong Kong to do its own thing for crypto with the support of Mainland institutions and possibly even some degree of Mainland investment this is all the more interesting because while all of this
is unfolded a new national security law has been diminishing Hong Kong's autonomy from China but does any of this mean that China is plotting a pro crypto pivot that it will relax Mainland restrictions or even create its own SBR well at the time of making this video the answer is no this could certainly change in the future though especially if the US SBR ever sees the light of day but as it stands there's no indication that mainland China is going to open up to crypto in any meaningful way if anything the screws are only getting
tighter we will keep watching like a hawk to see if the situation changes though because can you imagine China's population being given unfettered access to crypto markets this would likely mean a huge amount of money flooding into crypto then again a huge amount of money flooding into crypto is akin to a huge amount of money escaping China's capital controls so we're not going to hold our breath on the other hand though it is worth thinking about public access to crypto and government adoption of crypto separately you need only look to Russia to see another huge
country using one hand to restrict public access to crypto while using the other to mine BTC and use it for international trade Russia's use of crypto in this way is very much a matter of National Financial Security so depending on how the US China relationship develops under a second Trump Administration it's not too far-fetched to imagine China doing something similar after all many of Russia's crypto trade counterparties have been in China and remember China is estimated to already have around 190,000 BTC if BTC is adopted as a reserve asset by the United States Beijing might
be inclined to take advantage of its own Holdings in some way and this could be done without ever easing restrictions on public crypto use all right we've circled back to speculation territory but now we'd like you to join us here so what do you think the chances are that China will take a pro crypto turn will they ever allow crypto exchanges back on Shore and could a BTC Reserve really be on the cards let us know what you think in the comments down below and on the subject of Russia and crypto here's a video about
exactly that for you to watch next please do like subscribe and share this with others you think might enjoy it and I'll see you again soon [Music]
