Proposal suggests that Hong Kong could leverage the current "One Country, Two Systems" model to experiment with using Bitcoin as a national reserve asset.
Hong Kong proposes to include Bitcoin in national reserves
On December 30, some Hong Kong lawmakers have announced a proposal to integrate Bitcoin into Hong Kong's national financial reserves to boost the cryptocurrency industry, attract investment capital, talent, and increase revenue from digital asset transactions.
Hong Kong lawmakers have proposed incorporating Bitcoin into Hong Kong's fiscal reserves and considering using the Exchange Fund to continue purchasing and holding it for a long time to stimulate the development of the cryptocurrency industry in Hong Kong, attract funds and…
— Wu Blockchain (@WuBlockchain) December 30, 2024
According to Wu Jiezhong, Chairman of the Hong Kong Legislative Council's Web3 Committee, the integration of Bitcoin into national reserves is not a new idea. He pointed out that some small countries like El Salvador have already taken the lead in using Bitcoin as legal tender and even incorporating the king coin into their national reserve.
Additionally, in the United States, several states such as Ohio, Texas, and Pennsylvania have also proposed using Bitcoin as a reserve asset. He emphasized:
"If the United States continues to push the use of Bitcoin as a reserve asset, it will create global pressure. Other countries will be forced to reconsider their reserve strategies to avoid falling behind."
Mr. Wu stressed that Hong Kong should fully leverage the advantages of the "One Country, Two Systems" model to take the lead in using Bitcoin as a reserve asset. With a flexible financial management mechanism and distinct policies from mainland China, Hong Kong could become an ideal location to experiment with Bitcoin-related initiatives.
This not only helps Hong Kong maintain its position as a leading cryptocurrency center in Asia, but also opens the door for China to optimize the more than 194,000 BTC it currently holds. According to former Binance CEO Changpeng Zhao, with the increasing global awareness of the importance of Bitcoin, China will certainly build a strategic Bitcoin reserve to protect its long-term economic interests.
Statistics of the top countries holding Bitcoin. Source: Bitbo (December 30, 2024)
Therefore, Hong Kong could play an intermediary role, leveraging Bitcoin as a financial tool to develop products such as crypto ETFs in Hong Kong. This could optimize the value of the massive Bitcoin holdings that China currently possesses, increasing mutual benefits for both sides.
However, Mr. Wu Jiezhong did not forget to point out the limitations of Bitcoin as a reserve asset. Currently, the market capitalization of Bitcoin is around $2 trillion, a rather modest figure compared to the $20 trillion of gold. This makes Bitcoin difficult to replace traditional reserve assets in the short term.
Furthermore, the high volatility of Bitcoin is also a concerning factor. Bitcoin's value can fluctuate significantly within a few days, posing great risks to reserve funds if effective countermeasures are not in place. But with a limited supply of 21 million BTC, he believes Bitcoin has the potential to become an effective anti-inflation tool, gradually replacing part of the role of gold and silver in the global financial system. He concluded:
"We need to look beyond the current limitations to see the long-term value of Bitcoin. The transaction and storage costs of Bitcoin are significantly lower than precious metals, making it an attractive option in the long run."
It is highly likely that this proposal will receive the support of the Hong Kong government, as over the past year, Hong Kong has implemented a series of policies to boost the cryptocurrency industry, such as proposing tax cuts and issuing licenses to many trading platforms, as well as announcing a stablecoin management pilot program, planning to license stablecoin issuers, and intending to increase tax incentives for private funds.
Compiled by Coin68
