The Paradox of Uncertainty: The Evolving Hedging Role of Crypto Assets 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 provides a depth analysis of the rise of cryptocurrency assets as "digital gold" and new financial infrastructure against the backdrop of the current fragmentation of the global economy.

In recent months, the global financial system has undergone tremendous changes, highlighting the increasingly important position of digital assets. The scale of the U.S. Bitcoin spot ETF (an exchange-traded fund that allows investors to indirectly invest in Bitcoin) has seen explosive growth, with assets under management surpassing $120 billion, reflecting a significant shift in investor behavior.

At the same time, the trading volume of stablecoins soared to over $27 trillion last year, surpassing the total transaction volume of Visa and Mastercard. In Asia, some jurisdictions such as Hong Kong have taken the lead by issuing exchange licenses, establishing a regulatory framework for stablecoins, and approving cryptocurrency ETFs, striving to position themselves as a regional hub for the digital asset economy.

These are not isolated incidents; they reflect a broader reassessment of the practical value of cryptocurrencies in an era of economic fragmentation and increasing uncertainty. We might call it the "Paradox of Uncertainty": digital assets are moving from the periphery of speculation to the mainstream, unexpectedly becoming a hedging tool against systemic risks.

As governments around the world set up barriers to trade and capital flow, blockchain is quietly building a "highway" to promote global capital movement. Gold remains a traditional safe-haven asset, but it cannot complete cross-border transactions in a matter of minutes, nor can it circumvent the restrictions of the financial system in times of crisis.

The enthusiastic response from investors to Bitcoin spot ETFs indicates the appeal of the concept of "digital gold." When U.S. regulators approved such products last January, many skeptics predicted a lukewarm market reaction. However, the reality is that BlackRock's iShares Bitcoin Trust (IBIT) has rapidly grown, with assets under management exceeding $65 billion, making it the largest Bitcoin spot ETF in the world.

Beyond the narrative of "digital gold", the true revolutionary significance of cryptocurrency lies in its ability to construct a new financial system independent of traditional financial intermediaries. At the core of this system are stablecoins: blockchain tokens pegged to fiat currencies such as the US dollar.

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

The business sector has keenly sensed this trend. In October last year, Visa launched the "Visa Tokenised Asset Platform" to help banks issue and manage fiat-backed digital tokens; last month, the fintech company Stripe began testing stablecoin payment solutions in emerging markets, making it easier for businesses to access dollars through digital tokens. Mastercard also introduced new features supporting stablecoin transactions.

The dual role of cryptocurrency as a hedging tool and an innovative platform is most vividly reflected in Hong Kong. In a very short time, Hong Kong has transformed from a cautious observer to a leader in the global cryptocurrency regulation and application arena.

Since 2020, Hong Kong's Securities and Futures Commission (SFC) has licensed 10 virtual asset trading platforms to regulate cryptocurrency trading by individual investors and institutions. As Hong Kong's Financial Secretary Paul Chan Mo-po said at a recent Web3 event, the move is in line with Hong Kong's strategy to build a "thriving digital asset ecosystem" while strengthening investor protection.

On February 19, 2025, the Financial Secretary of Hong Kong, Paul Chan, attended the opening ceremony of the Consensus conference organized by Coindesk at the Hong Kong Convention and Exhibition Centre. This is the first time in five years that this heavyweight conference in the encryption industry has been held outside the United States.

Hong Kong adopts 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-backed stablecoins to maintain sufficient reserves and ensure user redemption rights, establishing one of the most advanced regulatory frameworks for stablecoins globally.

At the end of November last year, the Hong Kong Financial Services and the Treasury Bureau released a consultation paper proposing to exempt hedge funds, private equity funds, and family offices from taxation on the profits from encryption and other alternative assets, clearly indicating the strategic intention to make Hong Kong a digital asset hub amid tensions in Sino-Western relations.

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 containing 12 measures aimed at further promoting the development and security of the virtual asset industry. The roadmap includes a licensing system for over-the-counter (OTC) trading and encryption asset custody, as well as a more comprehensive insurance and compensation mechanism for virtual asset service providers.

The Hong Kong case is particularly important due to its dual strategic value. First, developing a strong digital asset industry can serve as a financial hedge against global financial fragmentation and uncertainty, while reducing Hong Kong's reliance on the traditional banking system, which may be influenced by great power politics. If there is a split in the international financial system in the future, Hong Kong can still rely on cryptocurrency infrastructure, including stablecoins, to continue providing a channel for capital flow.

Secondly, 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 has also launched a pilot project for e-HKD to explore the development path of central bank digital currencies. Meanwhile, local banks and financial technology companies are actively piloting the application of blockchain in scenarios such as credit, trade financing, and clearing and settlement.

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

As the global economy becomes increasingly fragmented, with rising tariff barriers and traditional alliances shaking, the market's demand for borderless and neutral financial instruments is also rapidly growing. Born out of the context of the 2008 global financial crisis, encryption assets are designed to respond to such an uncertain era.

The next financial shock—whether it be a currency crisis, data channel blockade, or weaponization of payment networks—will test the maturity of these alternative financial channels. However, various signs are emerging: capital is accelerating its inflow, institutions are adapting, and regulatory pioneers like Hong Kong are consciously advancing their layouts.

We may be standing at the starting point of a historic reconstruction of reserve assets. Not to replace the dollar, but to hedge against its limitations - a quietly advancing, gradually mainstream alternative.