Yu Jianing My Perspective on Hong Kong’s Cryptocurrency Regulation and Bull-Bear Cycles

Author | Yujian, former president of Huobi University and founder of Uweb (University of Web3)

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Since Q1 2023, the market has experienced a brief recovery and ushered in a small bull market, but the market sentiment is not optimistic and positive.

Therefore, Metaverse Finance conducted a personal interview with me on current hot topics. I would like to share with you here, hoping to be helpful to you in terms of the SEC, the timing of the next bull market, the new policies in Hong Kong, and the future of Web3.

1. Is the SEC’s lawsuit against Coinbase and Binance the final bearish signal?

These two lawsuits do not constitute a bearish signal for the industry’s fundamentals. Regulatory policies only temporarily affect market sentiment, and chaos will stimulate regulation. There is never a last time. The market will consolidate and move forward after the correction.

In terms of digital asset regulation, the United States has always been a global benchmark. After Hong Kong embraced Web3 policies, it seems to have also affected the regulatory rhythm within the United States. It is difficult to see a short-term prospect for the reconciliation of regulatory bodies with the upcoming US election year.

Regarding the SEC’s enforcement actions, I personally pay more attention to the confrontation between Coinbase and SEC Law is Law. A market with long-term development is not afraid of regulation but afraid of regulatory inaction.

In the context of the global macroeconomic situation being less optimistic, if the United States, as the largest source of funds, is cut off or to some extent cut off, it will become a problem for future new capital entry and industry access methods. Binance’s recent exit from the Netherlands is also a focal point worth paying attention to. It may become a law enforcement template for other countries, and buying coins may become a problem in the future.

SEC and Binance have reached consensus on some matters. The starting point of US regulation is to constrain and limit potential risks with a century-old regulatory framework for traditional finance. Similar to Hong Kong, both are based on the perspective of protecting investors.

2. When will the next bull market start?

I don’t think the bull market will come immediately, but we are already in the later stage of the bear market. There are great opportunities in the industry. Without reshuffling, adjustment, or decline, where do opportunities come from?

I personally have the concept of the “digital asset clock,” which divides the cycle into four stages: market warming (recovery period), capital influx (overheating period), market collapse (stagnant growth period), and innovative wave (decline period), and it is clear which stage we are currently in.

To protect our chips, as long as we survive, a profound adjustment is beneficial. With industry giants dominating, how can ordinary people participate? Whether it’s elephants fighting or industry adjustments, we are the small grass that needs to avoid being crushed.

Bulls are short-lived while bears are long-lasting. This is the current characteristic of the crypto market, but each bull run, our judgment will surpass the previous peak.

The narrative of Bitcoin halving in 2024 and 2025 will, as expected, continue to be the engine of the bull market.

3. Hong Kong Pilot and “West Descending, East Rising” Theory

The SEC’s lawsuits against Coinbase and Binance are the climax of the “West Descending, East Rising” phase. The game between regional regulatory bodies has a seesaw effect. However, in the context of globalization and digitization, the forces of competition and complementarity between different regions have driven changes in the market and policies, highlighting the strategic significance of the Hong Kong pilot.

With the decline of FTX, in November last year, Hong Kong issued favorable policies embracing Web3.0, entering the phase of “West Descending, East Rising”. US companies engaged in digital asset institutionalization have indeed considered or started withdrawing from the US due to increased regulatory costs. Some time ago, a Hong Kong legislator even extended an olive branch to the CEO of Coinbase.

In the process of “West Descending, East Rising”, there are differences between Singapore and Hong Kong. Singapore is more open and has attracted a large number of early traffic and Chinese-speaking teams. PSA and DPT are relatively mature. External factors, such as the Occupy Central movement, have also benefited Singapore’s economic resources.

Hong Kong backs on the mainland and connects with the Chinese market. Although the mainland continues to support it, it still faces challenges such as regulatory environment uncertainty and alignment with international standards.

4. Hong Kong’s Greatest Advantage – Creating a Soil for Billion-Level Applications

Hong Kong’s ecosystem is built around transparent regulations, efficient funding, and professional talents.

The exploration of Hong Kong, China may be the beginning of a new chapter in legal and regulatory environments.

Both Hong Kong and the mainland are important regions for technology and innovation and have the conditions to develop Web3 and metaverse technologies. In terms of policy support, technological talents, and market demand, both Hong Kong and the mainland have the potential to become incubators and promoters of ideal companies. At the same time, strengthening cross-border cooperation and open ecosystem construction will also provide more opportunities and support for the development of Web3 companies.

Hong Kong’s opportunity lies in the gathering of resources, being able to improve the commercial conversion efficiency of resources within the scope of regulatory permission. This is Hong Kong’s greatest advantage and may also be its best opportunity.

The transaction scenarios promoted by the Hong Kong government are large-scale application scenarios. Trading and circulation are the fundamentals of digital assets, and the value of liquid assets supports the market. The number of users and transaction volume are dimensions for evaluating application success. After successfully verifying assets, more types of assets will be expanded, giving them extra points.

Hong Kong has already prepared well in terms of infrastructure construction, including the most important legal framework, market access and market thematic qualification recognition, as well as the principle of “equal risk, equal regulation” in regulation. Currently, it is also advancing communication with traditional financial infrastructure such as traditional banks in this regard. The maturity of the secondary market will also enhance the level of professionalization of talents.

Our new company also chose to register in Hong Kong Cyberport. There is no doubt that we value the numerous policies in Hong Kong that are favorable to WEB3. The formation of these policies is due to several reasons: the role of finance is no longer simple, more and more geopolitical factors are involved, and conflicts between major countries have made the international financial system that used to be more trustworthy increasingly untrustworthy and unreliable.

The so-called construction of an international financial center in Hong Kong is not a logic of cost reduction and efficiency improvement. The new international financial center emphasizes stability, sustainability, and security. Recent significant events, such as the Hong Kong Stock Exchange launching dual-currency trading for RMB and HKD, indicate that the financial attributes of the RMB are becoming stronger. In addition to trade/payment, offshore RMB will also strengthen its investment attributes.

Hong Kong’s development of virtual assets and WEB3 is a proactive response to future uncertainties. In the complex and ever-changing international situation, what does Hong Kong need to rely on to ensure its status in a new financial system? It cannot solely rely on the US dollar and offshore RMB. In the rapid iteration of the financial system, there is a need for Plan B and Plan C. I believe that Hong Kong’s Plan C is virtual assets.

Although virtual assets may not have fully integrated into the mainstream at present, they have a global consensus and are widely accepted by countries around the world. By developing virtual assets and incorporating them into the mainstream through continuous regulation and compliance, they can be combined with the traditional business of these financial institutions and enable Hong Kong to play a more important role in the new global financial system in the future.

The virtual asset-related businesses in Hong Kong are not only being carried out by some start-up companies, but also by some very established ones. For example, companies such as the Digital Dollar of China Mobile Hong Kong, Bank of China/Industrial and Commercial Bank of China/China Construction Bank in Hong Kong are all involved. China Mobile Hong Kong/China Mobile International/COSCO Group, Hong Kong University of Science and Technology, and others are also involved in the establishment of the WEB3 Association.

In general, this wave in Hong Kong is not only beneficial to Hong Kong but also to the country. It can ensure that our country still has a good external circulation system in the complex and ever-changing situation in the future, and can continue to find its own foothold in the global financial system.

I welcome criticism and corrections on the above viewpoints.

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