Hong Kong to try to include Bitcoin in fiscal reserves?

Author: Lang Guangzhao

Hong Kong Legislative Council member and chairman of the Web3 Virtual Asset Development Subcommittee Wu Jiezhuang recently accepted an interview with the Hong Kong Wen Wei Po and suggested that Hong Kong should make good use of the advantages of "one country, two systems" and "take the lead in trial" to include Bitcoin in the assets of the foreign exchange fund.

 01 The United States actively promotes strategic reserves of Bitcoin

Bitcoin has seen a big bull market in recent months, with the price exceeding $100,000 at one point. The biggest driving force is the support of the US President Trump for cryptocurrencies. He claimed that after taking office as president, he would include Bitcoin in the national strategic reserve.

Wu Jiezhuang said, "Some states in the United States have also legislated that 10% of state reserves are Bitcoin, making asset allocation more diversified."

In December 2024, U.S. Rep. Giovanni Capreglioni of Texas introduced a bill calling for the state to establish a Bitcoin reserve. The bill reads: "The strategic Bitcoin reserve is consistent with Texas' commitment to promoting digital asset innovation and providing enhanced financial security for Texans." The draft stipulates that Texas must hold Bitcoin for at least five years, and it must be kept in cold storage (some kind of device that is not connected to the Internet), and requires that these assets cannot be used for transactions outside of Texas.

The Pennsylvania House of Representatives introduced a bill in November 2024 calling for the establishment of a strategic Bitcoin reserve. Under the proposal, Pennsylvania's treasurer will be able to buy Bitcoin with "up to 10%" of the state's general fund, the "rainy day fund" (fiscal stabilization fund) and the state investment fund. Assuming that 10% of the state's general fund is used, it means that the Pennsylvania Treasury can buy nearly $1 billion worth of Bitcoin.

Ohio Congressman Derek Merlin introduced a bill on December 17, 2024 to establish a strategic Bitcoin reserve in the state. The bill also gives the Ohio Secretary of the Treasury the discretion to purchase the asset.

Wu Jiezhuang believes that if Trump vigorously promotes the inclusion of Bitcoin in the government's strategic reserve assets, it will surely have a significant impact on the global market, especially reserve assets, and governments cannot turn a blind eye.

Hong Kong Wen Wei Po reported: When asked about the impact on the financial security of the mainland and Hong Kong if the United States designated Bitcoin as a strategic reserve asset, Wu Jiezhuang believed that the greatest chance would be to shake the value of traditional assets. Bitcoin with a supply cap would become a magic weapon against currency abuse and inflation. Some countries believe that Bitcoin can better preserve its value. "If a major economy takes the initiative to include Bitcoin in its strategic reserves, the value of Bitcoin will be more stable, which will cause more and more other countries to follow suit and reduce their holdings of traditional assets, causing the prices of traditional assets to fall, which will shrink the fiscal reserves of governments holding traditional assets."

 02 It is recommended that Hong Kong include cryptocurrencies in its fiscal reserves

However, Wu Jiezhuang also pointed out that Bitcoin is not low-risk. First, the price will rise and fall sharply, and second, we only know how many wallets there are in the market, but we don't know the identity of the holders who control these assets. After balancing risks and returns, he believes that the government and enterprises should only allocate a small amount of Bitcoin as fiscal assets.

 03 Hong Kong's Foundation

Since Hong Kong issued a policy declaration on the development of virtual assets at the end of October 2022, virtual asset-related supervision, regulations, technologies and products have become increasingly abundant.

Currently, the number of licensed virtual asset platforms in Hong Kong has increased to 7, and the Hong Kong Stock Exchange has a total of 12 ETFs linked to Bitcoin and Ethereum trading. The first three companies (and company combinations) are participating in the stablecoin "sandbox", and many tokenized bonds have been successfully issued in Hong Kong.

In terms of the speed of licensing, Hong Kong is relatively slower than Singapore, which is also committed to developing the virtual asset market. In 2024, Singapore issued 13 cryptocurrency licenses.

In the "China Financial Stability Report 2024" released by the central bank on December 26, 2024, the regulation of cryptocurrencies in Hong Kong is described as follows:

Hong Kong, China actively explores the management of crypto asset licenses. Hong Kong, China divides virtual assets into two categories for supervision, namely, securitized financial assets and non-securitized financial assets, and implements a special "dual license" system for operators of virtual asset trading platforms, that is, "security tokens" are subject to the supervision and licensing system of the Securities and Futures Ordinance, and "non-security tokens" are subject to the supervision and licensing system of the Anti-Money Laundering Ordinance. Institutions engaged in virtual asset business must apply for registration licenses from relevant regulatory authorities before they can operate. At the same time, large financial institutions such as HSBC and Standard Chartered Bank are required to include crypto asset exchanges in the scope of daily customer supervision.

References:

Hong Kong Wenhui News: [Bitcoin Frenzy] Proposes that foreign exchange funds include Bitcoin to deal with the United States disrupting traditional markets 

Sina Finance: Several U.S. states are considering establishing strategic Bitcoin reserves