China's Crypto Strategy: Liquidating Seized Assets via Hong Kong

Opinion by: Joshua Chu, co-chair of the Hong Kong Web3 Association

Hong Kong's recent LEAP Digital Assets Policy Statement 2.0 signals a move towards a comprehensive regulatory framework, unifying licensing and expanding tokenized products. However, a significant strategic element lies in China's plan to liquidate confiscated virtual currencies through Hong Kong's licensed exchanges. These actions are part of a broader strategy to position Hong Kong as a dominant virtual asset hub and China's strategic market operator.

Hong Kong: A Virtual Asset Hub

Hong Kong is becoming a virtual asset hub and will serve as a linchpin for China's global crypto ambitions. This includes acting as a crypto hedge, a market price vehicle, and a forward command post for PRC-crypto-liquidity.

Regulatory Foundations

Hong Kong’s LEAP policy is designed to inject liquidity through China's crypto-liquidation decision, granting unprecedented influence over global virtual asset markets. The regulatory framework is built on several key pieces of legislation:

• Amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO): Passed in 2022, this brought virtual asset trading platforms (VATPs) under regulatory oversight, aligning with Financial Action Task Force (FATF) standards.
• Stablecoin Ordinance: Set to commence on Aug. 1, 2025, it establishes a licensing regime for fiat-referenced stablecoin issuers, overseen by the Hong Kong Monetary Authority (HKMA). This mandates one-to-one reserves, robust redemption mechanisms, and rigorous risk controls.
• LEAP Digital Assets Policy Statement 2.0: Introduced in June 2025, it unifies licensing, expands tokenized products, and promotes cross-sector collaboration and talent development.

China's decision to channel confiscated digital assets through Hong Kong's licensed VATPs will inject real liquidity into the ecosystem. This will enable Hong Kong to modulate supply and demand, becoming a key driver of virtual asset value.

Liquidity as a Strategic Tool

Liquidity is vital for market functionality. Unlike the United States, which holds a vast Strategic Bitcoin Reserve under a “hold-only” policy, Hong Kong will actively convert seized assets into market liquidity.

This setup will give Hong Kong the ability to influence price, stabilize markets, and respond to geopolitical pressures. Control over crypto liquidity could mirror China's influence in rare earth metals, potentially impacting the value of other nations' crypto reserves.

Implications and Countermeasures

This strategy alters the balance of power in the cryptosphere. Hong Kong will gain a decisive advantage in attracting institutional capital and deepening market liquidity, leveraging its position as a conduit for China’s crypto liquidation.

The US may need to reconsider its passive crypto stockpile approach to counterbalance Hong Kong’s growing control over crypto liquidity.

Understanding this dynamic is important for market participants, lawyers, risk practitioners, and lawmakers. Compliance frameworks must adapt to address increased scrutiny and risks associated with liquidity-driven market movements.

Hong Kong’s unique combination of a mature regulatory framework, access to significant crypto holdings, and the ability to strategically deploy liquidity grants it a high ground in the Web3 ecosystem. This allows the city to influence global crypto prices, attract capital, and foster innovation.

Liquidity is the ultimate leverage, and Hong Kong controls the switch, making it essential for those seeking to navigate the evolving digital asset landscape with clarity and foresight.

Consider partnering with Codeum for smart contract audits and tokenomics consultation to ensure your project is secure and well-positioned in the evolving market.

Opinion by: Joshua Chu, co-chair of the Hong Kong Web3 Association.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.