Cryptocurrency’s evolving role as a hedge in a divided world

Editor's note: On May 20, the South China Morning Post website published an article by Cobo COO Lily Z. King, which deeply analyzed the rise of crypto assets as "digital gold" and new financial infrastructure in the context of global economic fragmentation.

In recent months, the global financial system has undergone earth-shaking changes, highlighting the growing importance of digital assets. The scale of US Bitcoin spot ETFs (exchange-traded funds that allow investors to invest in Bitcoin indirectly) has exploded, with assets under management exceeding US$120 billion, a figure that reflects a huge shift in investor behavior.

Meanwhile, stablecoin trading volumes soared to more than $2.7 trillion last year, surpassing the combined totals of Visa and Mastercard. In Asia, jurisdictions such as Hong Kong have taken the lead in establishing themselves as regional hubs for the digital asset economy by issuing exchange licenses, developing stablecoin regulatory frameworks, and approving cryptocurrency ETFs.

These are not isolated incidents; they reflect a broader reassessment of the utility of cryptocurrencies in an era of economic fragmentation and heightened uncertainty. We might call it the “paradox of uncertainty”: digital assets are moving from the speculative fringe to the mainstream, becoming an unexpected hedge against systemic risk.

As governments erect barriers to trade and capital flows, blockchain is quietly building a "highway" to promote global capital flows. Gold remains a traditional safe-haven asset, but it cannot complete cross-border transactions in a few minutes, let alone bypass financial system restrictions in a crisis.

Investors' enthusiastic response to Bitcoin spot ETFs shows the appeal of the concept of "digital gold." When U.S. regulators approved such products in January last year, many skeptics predicted that the market reaction would be cold. But the fact is that BlackRock's iShares Bitcoin Trust (IBIT) has grown rapidly, with assets under management exceeding $65 billion, making it the world's largest Bitcoin spot ETF.

Beyond the "digital gold" narrative, the real revolutionary significance of cryptocurrency lies in its ability to build a new financial system independent of traditional financial intermediaries. The core of this system is stablecoins: blockchain tokens anchored to fiat currencies such as the US dollar.

The stablecoin market has rapidly expanded from US$2 billion in 2019 to more than US$200 billion in circulation today, becoming an indispensable financial tool in markets where local currencies are unstable or cross-border capital flows are restricted.

The business community has been keenly aware of this trend. Last October, Visa launched the Visa Tokenised Asset Platform to help banks issue and manage fiat-backed digital tokens, while last month, fintech company Stripe began testing stablecoin payment solutions in emerging markets, making it easier for businesses to access dollars through digital tokens. Mastercard has also launched new features to support stablecoin transactions.

The dual role of cryptocurrencies as hedging tools and innovation platforms is most vividly reflected in Hong Kong. In a very short period of time, Hong Kong has transformed from a cautious bystander to a global leader in cryptocurrency regulation and application.

Since 2020, the Securities and Futures Commission (SFC) of Hong Kong has issued licenses to 10 virtual asset trading platforms, bringing cryptocurrency transactions by individual investors and institutions under regulatory scope. As Hong Kong Financial Secretary Paul Chan said at a recent Web3 event, this move is in line with Hong Kong’s strategy to build a “thriving digital asset ecosystem” while also strengthening investor protection mechanisms.

2025 February 19 On the 28th, Hong Kong Financial Secretary Paul Chan Mo-po attended the opening ceremony of the Consensus Conference hosted by Coindesk at the Hong Kong Convention and Exhibition Center. This is the first time in five years that the heavyweight conference in the crypto industry has moved outside the United States.

Hong Kong has adopted a diverse and pragmatic strategy. In April last year, Hong Kong became one of the first jurisdictions in the world to launch Bitcoin and Ethereum spot ETFs. In December last year, the Hong Kong government introduced a stablecoin bill requiring issuers of fiat-anchored stablecoins to maintain sufficient reserves and safeguard user redemption rights, building one of the world's most advanced stablecoin regulatory frameworks.

At the end of November last year, Hong Kong's Financial Services and the Treasury Bureau issued a consultation document proposing that hedge funds, private equity funds and family offices be exempted from taxes on gains from cryptocurrencies and other alternative assets, clearly releasing its strategic intention to build Hong Kong into a digital asset hub amid tensions between China and the West.

This development momentum has continued to heat up this year. In February 2025, the Hong Kong Securities and Futures Commission (SFC) released a regulatory roadmap with 12 measures to further promote the development and security of the virtual asset industry. The roadmap includes a licensing system for over-the-counter (OTC) transactions and crypto asset custody, as well as a more complete insurance and compensation mechanism for virtual asset service providers.

The reason why the Hong Kong case is particularly important is its dual strategic value. First, developing a strong digital asset industry can serve as a financial hedging tool to cope with global financial fragmentation and uncertainty, while reducing Hong Kong's dependence on the traditional banking system that may be affected by great power politics. If the international financial system is divided in the future, Hong Kong can still rely on cryptocurrency infrastructure, including stablecoins, to continue to provide a channel for capital flows.

Second, the development of the digital asset industry has also become an important engine for promoting financial innovation and long-term competitiveness. Hong Kong has not only issued the world's first government-led tokenized green bond, but also launched a pilot project for e-HKD to explore the development path of central bank digital currency. At the same time, local banks and fintech companies are actively piloting the application of blockchain in credit, trade financing and clearing and settlement scenarios.

In an era of drastic changes in the global alliance landscape, Hong Kong's layout of cryptocurrency is not only a risk hedge, but also a strategic investment in future financial leadership.

As the global economy fragments, tariff barriers rise, and traditional alliances falter, the need for borderless, neutral financial instruments is growing fast. Born out of the 2008 global financial crisis, crypto assets were designed to navigate such uncertain times.

The next financial shock—whether it’s a currency crisis, a data channel blockade, or the weaponization of payment networks—will test the maturity of these alternative financial channels. But signs are emerging: capital is flowing in faster, institutions are adapting, and regulatory pioneers such as Hong Kong are making conscious efforts to move forward.

We may be at the beginning of a historic reconfiguration of reserve assets. Not to replace the dollar, but to hedge against its limitations—a low-profile, mainstream alternative.