China’s crypto liquidation strategy: a bid for global digital asset dominance

China’s plan to liquidate confiscated crypto through Hong Kong exchanges is not merely a policy decision but a strategic move to control global digital asset markets and gain an advantage over the United States.

The recent announcement of Hong Kong’s LEAP Digital Assets Policy Statement 2.0 generated considerable excitement, promising a comprehensive regulatory framework that would unify licensing and expand tokenized products. However, beneath the surface lies a more significant development: Beijing’s intention to liquidate confiscated virtual currencies through Hong Kong’s licensed exchanges. These events, seemingly distinct, are actually components of a carefully orchestrated strategy by China to position Hong Kong as the dominant virtual asset hub and China’s strategic market operator.

A Strategy of convergence

Hong Kong is poised to become the region’s virtual asset hub, serving as the linchpin of China’s global ambitions: a crypto hedge, a market price vehicle, and a forward command post for PRC-crypto-liquidity.

Regulatory foundations

Hong Kong’s regulatory framework, dating back to the 2022 Amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), has brought virtual asset trading platforms (VATPs) under the Securities and Futures Commission’s remit. This move aligns with Financial Action Task Force (FATF) standards and serves as a cornerstone for virtual asset regulation.

The upcoming Stablecoin Ordinance, commencing on 1st of August 2025, will establish a dedicated licensing regime for fiat-referenced stablecoin issuers, overseen by the Hong Kong Monetary Authority (HKMA), mandating one-to-one reserves, robust redemption mechanisms, and rigorous risk controls. The LEAP Digital Assets Policy Statement 2.0 further develops Hong Kong’s framework, unifying licensing, expanding tokenized products, and advancing cross-sector collaboration and talent development.

Liquidity as a weapon

China’s decision to channel confiscated digital assets through Hong Kong’s licensed VATPs strategically injects tangible liquidity into the ecosystem. This move transforms Hong Kong into a market price vehicle capable of modulating supply and demand, a key driver of virtual asset value. Unlike the United States, which holds a vast Strategic Bitcoin Reserve under a rigid “hold-only” policy, Hong Kong’s liquidity injection will actively convert seized assets into market liquidity, granting China the ability to influence price, stabilize markets, and respond to geopolitical pressures.

Implications and countermeasures

This grand strategy alters the balance of power within the cryptosphere. Hong Kong will gain a decisive advantage in absorbing institutional capital and deepening market liquidity, leveraging its position as the conduit for China’s crypto liquidation moves. This will provide China with a powerful geopolitical tool, enabling it to control global cryptocurrency valuations through calculated market liquidity management. The US faces the strategic dilemma of whether to continue with a passive crypto stockpile or develop new mechanisms to counterbalance Hong Kong’s growing control over crypto liquidity.

The Key: liquidity and information:

While Hong Kong’s LEAP policy attracts media attention, the true strategic move lies in China’s crypto liquidation and injection policy. This injection will transform Hong Kong into a dynamic market price vehicle, wielding liquidity as a weapon that few jurisdictions can match.

Hong Kong’s unique combination of a mature regulatory framework, direct access to the world’s second-largest crypto holdings, and the ability to strategically deploy liquidity grants it an unparalleled position in the Web3 ecosystem. The city can modulate global crypto prices in real-time, attract institutional capital, and foster innovation within a stable, investor-friendly environment.

Liquidity is the ultimate leverage in this contest, and Hong Kong holds the switch. Understanding this layered strategy is essential for those navigating the rapidly evolving digital asset landscape.