Inside China’s Crypto Liquidation Strategy

Key Takeaways

• China’s crypto liquidation is a deliberate strategy, not a routine policy.
• Liquidation through Hong Kong’s VATPs turns the city into a global crypto price modulator.
• Regulatory frameworks in Hong Kong (AMLO, Stablecoin Ordinance, LEAP 2.0) support and legitimize this move.
• Unlike the U.S., China leverages crypto assets actively using liquidity as a geopolitical tool.
• Hong Kong now holds the unique advantage of regulated liquidity deployment, attracting institutional capital and influencing global markets.

Hong Kong’s LEAP Policy & What Lies Beneath

Hong Kong’s recently unveiled LEAP Digital Assets Policy Statement 2.0 was met with excitement.

Positioned as a comprehensive regulatory upgrade, LEAP aims to unify licensing, broaden tokenized product offerings, and push cross-sector collaboration.

An Excerpt From Hong Kong’s LEAP Policy

Source: info.gov.hk

China’s crypto liquidation, orchestrated through Hong Kong’s licensed virtual asset trading platforms (VATPs), is the real power play.

It aligns Beijing’s long-term vision to dominate global digital finance by transforming Hong Kong into the epicenter of regulated digital liquidity.

A Strategy Of Convergence

China isn’t just emptying its crypto coffers. It’s weaponizing its digital holdings to solidify Hong Kong’s status as:

• A crypto hedge against global volatility
• A price modulation center influencing market sentiment
• A forward command post for managing crypto liquidity flows

By channeling liquidation through a tightly regulated hub, China ensures liquidity enters the market in a controlled and strategic fashion—one that can shape price movements and market perceptions.

Regulatory Foundations That Support The Strategy

The AMLO Licensing Framework

In 2022, Hong Kong amended the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) to require licensing for all VATPs.

This move aligned the city with Financial Action Task Force (FATF) standards and was the first major step toward legitimacy and global trust.

Source: X (@Joshua68805118)

Stablecoin Oversight & the HKMA

By August 2025, the Stablecoin Ordinance will require fiat-referenced stablecoin issuers to be fully licensed under the Hong Kong Monetary Authority (HKMA).

With strict 1:1 reserve ratios, redemption protocols, and risk frameworks, Hong Kong is reinforcing investor confidence.

The LEAP Digital Assets Policy Statement 2.0

The latest LEAP policy doesn’t just tighten regulations; it reimagines Hong Kong as a global leader in tokenized finance.

With a focus on talent, institutional capital, and cross-border use cases, it sets the stage for strategic deployment of liquidity.

The Most Powerful Tool In Digital Finance

It’s not regulation alone that moves markets, liquidity is the true king.

By using Hong Kong as the liquidation gateway, China can inject real liquidity into the crypto ecosystem. This turns the city into a price-setting mechanism, capable of adjusting crypto values and absorbing institutional demand on command.

Compare that to other markets:

• United States: Holds a strategic Bitcoin reserve under a rigid “hold-only” doctrine.
• Singapore: Boasts a mature regulatory structure but lacks Hong Kong’s liquidity muscle.
• Dubai: Ambitious but fragmented in regulatory coherence.

In this game of financial chess, China holds the liquidity, and Hong Kong makes the moves.

Liquidity As A Geopolitical Lever

Controlling liquidity means controlling market narrative and direction. Just as rare earth minerals have been used by China as geopolitical leverage, so too is crypto liquidity now entering the same strategic domain.

• Market stabilization during geopolitical uncertainty? Possible.
• Institutional capital magnetism? Check.
• Influencing U.S. crypto valuations? Absolutely.

This strategy offers China the ability to counter the U.S.’s passive crypto stockpile, turning what might seem like regulatory housekeeping into a geopolitical asset play.

Implications For Global Markets

For financial professionals, compliance officers, and institutional investors, this isn’t just theory, it’s a market-shaping reality.

• Risk frameworks must account for liquidity-driven volatility.
• Portfolio managers need real-time intel on how crypto flows are being redirected.
• Regulators must rethink passive reserve strategies and consider active liquidity mechanisms to maintain influence.

In short, those ignoring China’s crypto liquidation strategy risk falling behind in a rapidly evolving global digital economy.

FAQ

What is China’s crypto liquidation strategy?

China plans to sell off confiscated digital assets through regulated Hong Kong exchanges, injecting liquidity into the market strategically to gain price control and geopolitical leverage.

Why is Hong Kong critical to this plan?

Hong Kong has built a mature regulatory framework that aligns with international standards, making it the perfect conduit for strategic, high-volume digital asset trading.

How does this affect global crypto markets?

By managing when and how liquidity enters the market, China can influence prices, attract institutional investors, and potentially undercut the U.S.’s ability to stabilize or control crypto valuations.

What should U.S. policymakers do in response?

Rethinking the current “hold-only” approach to crypto reserves and implementing dynamic market engagement strategies could be essential to staying competitive.