The Future of Finance in Hong Kong: The Key Role of Crypto Assets

The Hong Kong Blockchain Conference has brought a long-awaited prosperity to Lan Kwai Fong, as if returning to the bustling scene of a few years ago.

The Decline of Traditional Finance

In recent years, Hong Kong's traditional financial industry has faced severe challenges. According to publicly available data, the IPO scale of the Hong Kong Stock Exchange is expected to be only about HKD 100 billion this year. In contrast, the ICO scale of Hong Kong's crypto projects may surpass the IPO scale this year, a trend that is worth noting.

The changes in Hong Kong's financial environment have multiple reasons. External factors include the withdrawal of capital from Europe and the United States as well as possible sanctions pressure, and there are also some internal issues. However, the nature of the Crypto Assets industry makes it less affected by these factors:

• The team works in a distributed manner, with low requirements for the office environment.
• Mainly conduct income and expenditure through Crypto Assets payment, reducing dependence on traditional financial facilities.
• Most decentralized projects operate within a compliance framework, and the risks are relatively controllable.

Government Fiscal Pressure

The Hong Kong government is facing serious fiscal challenges. In recent years, the government has been depleting its accumulated fiscal reserves. Unlike the governments of China and the United States, the Hong Kong government cannot resolve its deficit problem by printing money and must rely on earning US dollars to maintain the peg of the Hong Kong dollar to the US dollar.

Currently, the Hong Kong government has about 600 billion in reserves, but this figure has already decreased by half from its peak. At the current rate of consumption, this reserve may only last for 2 to 3 years.

The Predicaments of Other Industries

Other economic pillars in Hong Kong are also facing difficulties:

• The retail industry is seriously shrinking, and local residents tend to shop in places like Shenzhen.
• The attractiveness of the tourism industry is declining, and high-end clients are more inclined to choose destinations in Europe, America, or Southeast Asia.
• Foreign trade mainly relies on transshipment trade from the mainland, facing challenges.
• The real estate market is sluggish.

Crypto Assets: New Opportunities in Hong Kong?

In this case, the Crypto Assets industry has become one of the few development opportunities in Hong Kong. However, it is still uncertain whether the encryption industry can make up for the losses of other industries in the short term.

Most Crypto Assets projects are only registered and financed in Hong Kong, while their actual business is still aimed at major exchanges globally. The Hong Kong government currently mainly supports the industry's development by issuing licenses to a few exchanges, but the global recognition of these licenses by investors still needs to improve.

At the same time, the rise of decentralized exchanges (DEX) poses a challenge to centralized exchanges. In this context, the strategy of relying solely on local licenses to support centralized exchanges may need to be reevaluated.

For the Hong Kong government, the top priority may be to maintain the stability of the linked exchange rate system while creating a more favorable environment for the market, allowing the Crypto Assets industry to develop naturally. Only in this way can Hong Kong find its place in the new financial landscape.