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Opinion: How China Helped China Make Crypto Innovation

Is it time crypto returned to Hong Kong???

In his most recent article, Arthur Hayes @CryptoHayes breaks down how China has contributed to crypto innovation, how BTC can help China reduce USD exposure, & how Hong Kong may be making it's crypto comeback.

Read our notes below 👇

Crypto in China

•In early 2010s Japanese crypto exchange Mt. Gox had 80% of volume market share before imploding in early 2014.

•Volume flowed to @HuobiGlobal OkCoin & BTC China, or @Bitstamp & @bitfinex for USD-based trading. 1/

@binance began in Greater China, has most exchange volume today. 2/

Important Crypto Innovations

•Inverse Futures Contracts: created by ICBIT.

•Socialised Loss Derivatives Margining System: created by 796,

@HuobiGlobal OKCoin, & BTC China, all were based in Greater China. 3/

•Margin Trading: created by @bitfinex, was based in Greater China. 4/

•Stablecoins: USDT created by @bitfinex, was based in Greater China.

•Perpetual Swap: created by @BitMEX was based in Greater China.

•Options: created by @DeribitExchange 5/

Crypto in Hong Kong

@CryptoHayes believes that American exchanges have not contributed any new innovation to crypto markets.

•Hong Kong was the closest thing to a “free market”; served as a port between Chinese & western goods & capital. 6/

•Beijing benefits from Hong Kong controlled openness. 7/

•Beijing decided to be more strict on crypto.

•In 2017 ICOs were banned by Chinese government, & eventually all crypto trading.

•Hong Kong companies left for Dubai, Singapore, Bahamas. 8/

Return of Hong Kong?

•Hong Kong wants crypto back.

•Hong Kong gives crypto access to Chinese capital.

•Chinese investors & consumers are one & the same.

•Covid lockdowns stopped Chinese mainland tourism to Hong Kong, sales suffered. 9/

•Chinese government may view Singapore as a bigger threat to Chinese dominance than Hong Kong.

•Hong Kong is under the control of Beijing; recently Beijing recently began allowing more covid & crypto freedom. 10/

•Hong Kong is easing process for foreign worker visas; this enables foreigners to build crypto services connecting western & Chinese capital.

•It is suggested that Hong Kong will allow retail to directly trade crypto in near future. 11/

Why China Needs Crypto

@CryptoHayes firmly believes China will allow crypto innovation via Hong Kong.

•China earns billions each month from exports. 12/

•They have to recycle internationally-earned dollars by purchasing commodities/financial assets; they are the second largest holder of US Treasuries ~1T. 13/

•China is concerned that they hold too much US debt, have not bought 700b in extra US Treasuries that they would be expected to this year.

•China needs new assets, places to deploy their capital. 14/

•Beijing does not want to solve this problem by giving Chinese households greater % of GDP; Chinese consumption is only ~41% of GDP, which is very low. 15/

•Giving Chinese households greater % of GDP would hurt Chinese ‘elite’.

•BTC & crypto can help; China could use the capital they have outside of the country to buy BTC, since this capital is already outside of China’s capital controls. 16/

•BTC can’t be controlled by any nation, unlike US Treasuries.

•To stabilize CNY, the PBOC needs to buy CNY, sell USD slowly over time.

•This diminishes China USD long position, while allowing capital to exit, perhaps to buy BTC. 17/

Conclusion

•If Chinese government believes crypto has value, then Hong Kong having a vibrant crypto ecosystem is beneficial.

•Governments benefits from having innovation happen in their country instead of others. 18/

•New tech needs deep capital markets; this is why American tech companies are dominant.

@CryptoHayes wants to see Hong Kong succeed, as well as for the bull market to return. 19/

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What Are Crypto VCs Looking For Right Now?

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Comeback
This post is based on this twitter thread.

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